Pre­dict­ing pulse acres in 2019 for Sask. com­pli­cated

Prairie Post (East Edition) - - Farm News - BY BRIAN CLANCEY Cour­tesy Sask Pulses

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

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