Pulse processor expects growers to plant a record 10 million acres of peas and lentils this spring, pushing prices down
Canada is rapidly running out of exportable supplies of pulses, but processors expect growers to restock the pipeline in a big way, which means lower but still attractive prices ahead.
Murad Al-Katib, president of AGT Food and Ingredients, warned investment analysts during a recent conference call to expect slumping sales during the second quarter and early part of the third quarter because of supply constraints.
However, he said that doesn’t mean slumping profits for the company. The same thing happened last year and the company still managed to post the second highest quarterly earnings in company history.
“When Canadian supply is constrained, margins in Canada go up and margins in our processing operation in Turkey go up,” he said.
Elyce Simpson Fraser, director of marketing with Simpson Seeds, said Canada’s lentil supply has dwindled because the vast majority of the crop was shipped out by the end of December.
“You wouldn’t have much more than maybe 100,000 tonnes in the pipeline, and that is just going to continue to come down over the next few months,” she said.
Carryout will be next to nothing by the end of the crop year July 31.
Al-Katib expects that a record-smashing 10 million acres of peas and lentils will be planted this year, up 32 percent from last year’s 7.6 million acres.
He said there will be a “very strong” August through November shipping period to meet the pent up demand from the company’s second and early third quarters.
Simpson Fraser is forecasting slightly more than five million acres of lentils. The breakdown will be 3.5 million acres of reds, up to 1.3 million acres of large greens and up to 300,000 acres of small greens.
Seed supply won’t be a problem because there was plenty of good quality crop harvested last year.
“Everything we had just got snapped up,” she said.
Most growers signed new crop contracts for about 30 percent of their planned acres because prices in the early winter months were attractive.
“It was too good to turn down, so a lot of guys jumped in and signed up some acres,” she said.
Al-Katib said new crop prices will fall because of the anticipated huge increase in pulse acres.
Lentil prices were 40 to 50 percent higher than average during the early winter but have since fallen to about 30 percent higher than normal, he added.
“We’ll bring that down even closer as we get to new crop,” he said.
Al-Katib said the general feeling was that prices had to come down in Canada because of the new crop being harvested in India and Turkey.
“A reset is necessary, and we’re seeing it reflected in new crop prices already,” he said.
Simpson Fraser believes the most likely red lentil price outlook for the 2016-17 crop year is in the 25 to 30 cent per pound range, down from current range of high 40 cents to low 50 cents.
“Certainly you’re looking at red prices backing off a bit,” she said.
Her large green forecast is 35 to 40 cents per lb., which is about half of today’s values.
“Coming into a new crop, that’s a really good price,” she said.
Small greens will likely be in the 25 to 30 cent per lb. range, down from the current price of about 60 cents per pound.
“You’re looking at quite a drop,” said Simpson Fraser.
Al-Katib said growers will still make money if they harvest average yields.
As well, he said there is an upside to falling prices.
“One of the positive things we think will happen with declining prices is that demand will again be stimulated,” he said. “We want fluid demand, and we’re expecting the new crop prices to come down a bit and ensure that fluid demand returns to our system.”
Simpson Fraser thinks a new source of demand could materialize in 2016-17 because of the publicity surrounding the International Year of Pulses.
“It’s going to be interesting to see if food companies pick up on that dynamic,” she said.