Predicting pulse acres in 2019 for Sask. complicated
Markets believe land in pulses in Canada and the United States ( U. S.) will be down this year, led by a massive reduction in chickpea area.
This should see residual supplies of all classes of pulses shrink over the coming marketing year, though this season could end with enough chickpeas to last almost two years.
What we are seeing is the proof of the old adage: The best cure for high prices is high prices and the best cure for low prices is low prices.
That is a simple explanation of what is called the cobweb theory. In simple terms, farmers decide what to grow based on what has happened in recent months, without knowing what effect it will have on future supply, demand, or prices. Moving too hard in one direction or the other can result in massive swings in prices.
A farmer I know was also in the seed business and he frequently went the opposite direction of his customers because he planted the seed he did not sell. He was an unintentional contrarian and often got better average returns then his neighbours.
It is hard to be a contrarian. All of the emotion and chatter on coffee row favours some crops over others.
Sometimes that is supported by well- priced new crop production contracts, which are often supported by forward sales by processors and exporters.
More often than people want to admit, once prices start adjusting to the new reality, buyers may want to renegotiate or cancel contracts so they can buy when things get cheaper. Or they might stop filling in needs until prices stabilize. Add in trade wars, import quotas, changes in import duties, phytosanitary issues, changes in how much net importing or net exporting countries produce -- and all the best predictions can suddenly appear wrong.
All these influences sometimes make growers feel powerless. Even so, farmers have control over two things - how much they plant and when they sell. They also have a lot of insight into acreage trends.
They know how they and their neighbours feel about current and future price prospects for individual crops. From farm shows, they get an idea of what people in other parts of the province are thinking.
More importantly, any farmer who keeps track of net returns per acre for each of their crops, or uses available data to come up with projections of the gross income potential of crops, can get a fairly good idea of whether seeded area will rise or fall. One public source of useful data is Agriculture and Agri- Food Canada’s regular outlooks for grains, oilseeds, pulses, and other specialty crops.
By getting the final reports for the previous few years, it is possible to calculate the gross income potential of the different crops per marketing year by multiplying the average price by the average yield. The next step is to figure out the percentage relationship. Simply divide the gross income potential for lentils, or peas, or chickpeas by the number for durum, wheat, barley, and canola.
The next step is to calculate the average relationship for the previous three marketing years. Simply add up the percentages for the previous three marketing years and divide by three.
Do the same calculation for the current marketing year and see if the percentage gross income potential of each type of pulse is above or below its previous three- year average.
More often than you might expect, seeded area for lentils, or peas, or chickpeas rises when that percentage is higher than the previous three- year average. If it is lower, area tends to be little changed to lower.
It is not perfect. Farmers as a group increase or reduce land in pulses for several reasons. Crop rotation is the most obvious, but enthusiasm about a crop’s income potential can carry over from one marketing year to the next. Being able to sell when you need cash plays a role.
High prices mean little if you cannot sell what you grow. Even when prices seem low, land can increase because demand is strong. At the same time, new crop bid levels affect planting choices.
A lot of these things came into play last year. Even though prospective returns from green lentils were below their previous three- year average relative to grains and oilseeds, seeded area increased because prices were still relatively good and demand was strong.
As expected, red lentils dropped because of low prices and poor demand. Chickpea area soared in response to record high prices when seeding decisions were being made. The drop in pea area was moderated by relatively good demand and optimism that China would make up for India’s absence.
In the end, production of all pulses dropped from 7.14 million ( M) tonnes to 6.33 M, with lentils and peas both down around 500,000 tonnes and chickpeas more than doubling from 118,600 to 311,300 tonnes.
You can see the different factors at play when trying to predict where seeded area could end up in 2019.
Field pea exports are down and potential gross returns are not as competitive as they had been relative to grains and oilseeds, but growers don’t seem to have a problem selling what they want.
Available data suggests farmers sold almost half their pea crop by the end of December, compared to around 40% during the same period last season. This should encourage more farmers to stick with peas, with the result this year’s seeded area is not expected to change much.
In the case of lentils, initial demand for red lentils is better than last season, but growers are not selling as many green lentils as they expected. Ending stocks of red lentils will be down from last season, while residual supplies of green lentils will be up sharply. There is a chance red lentil area could decline again this year, while growers sharply reduce green lentil seedings.
As for Kabuli chickpeas, prices set record lows after seeding. That shock is expected to result in a massive drop in area in Canada, the United States, and other countries. A contrarian might think that will force prices higher, but when you look at the how easy it is to sell chickpeas, you should expect ending stocks to soar. Some people think enough will be carried over to keep a lid on prices until 2020.
The big question is always what will happen to prices. The cobweb theory is useful. What those old adages and that theory are really saying is that farmers tend to overreact over time. Production rises or falls until it is out balanced with demand and prices are pushed in one direction or the other.
Looking at the supply and demand forecasts for the coming marketing year, you can get a sense that prices could be higher on average for peas, as long as demand is as good as expected. Red lentils might also be higher on average, while greens could flounder for another marketing year. Chickpea bids could improve as the coming marketing year advances, but a lot depends on how much India or Mexico produce this year and in 2020.
This is not a big change from what seems likely for the remainder of this marketing year. Grower bids for peas and red lentils appear to be on a modest upward trend because demand is good relative to available supplies. By contrast, supply and demand fundamentals for green lentils and chickpeas make it hard to see prices trending upwards, despite periodic spikes in demand and bid levels.
The bottom line is growers may want to take advantage of spikes in prices to move some product in an effort to reduce year- end inventories.
Brian Clancey is the Editor and Publisher of www. statpub. com market news website and President of STAT Publishing Ltd. He can be reached at edi[email protected] statpub. com