Generally Bearish Sentiment Accompanies Pea Harvest

VANCOUVER -- Aug 28/98 -- Generally bearish sentiment sweeping across international commodity markets is making it hard for current low prices for field peas and lentils to have their usual effect on demand.

This is especially true of field peas, where Canadian production is expected to top two million MT for the first time in the countrys history. Up 300,000 MT from last summer, these gains are pushing output in the most important producing and consuming regions past the 8 million MT mark for the first time.

Historically, field peas have been one of the best advertisements for the old saying -- the best cure for low prices is low prices.

As production advances into new psychological territory, prices adjust to levels which make it easy for exporters to uncover new demand for the product, resulting in surprisingly solid upward price trends after the harvest lows were established. Interestingly, high field pea prices during harvest are often followed by downward trending values the balance of the season.

Without doubt, Canadian field peas are experiencing harvest doldrums. Each week sees a new historic low for Canadian product. Bear markets conditions in 1991 set the previous low for machine dressed product packed in bags FOB western Canadian shipping point of CDN $8.75 cwt, well above todays $7.70 trading level.

International traders report these prices are attracting the interest of the international buyers, with many looking at substituting feed peas for meat and bone meal and other livestock feed ingredients. Unfortunately, those products are also diving into new price territory, preventing the substitutions from being made in order to drive up early season export sales volumes.

Such marketing problems focus attention on Canadas failure to adequately develop North American livestock feeding interest in feed peas. Academic studies proved what Europes and Australias stockfeed industries knew -- peas work. But not as much effort by government and industry groups has gone into developing the domestic industry as the export industry.

Quicker headlines are generated usurping the prior successes of exporters than spending money in an honest effort to develop new uses and markets for a commodity. The net result of this historic choice by government and industry associations to follow exporters than lead the industry into North American domestic markets, is poor knowledge of the benefits of feed peas at a time when supply seems overwhelming.

Canadas direction stand in stark contrast to those made by the U.S. industry, which puts a high priority on domestic market development. This is especially true of the dry edible bean industry, which is promoting a mandatory check off to finance a multi-million dollar annual advertising campaign targetting domestic consumers.

With Canadas harvest occuring earlier and faster than usual, markets are forced to face the reality of this years crop production levels sooner than anticipated. Concern over where to go with merchandise being delivered by growers is keeping pressure on trading levels for field peas and lentils.

Field peas continue to set new historic price lows on a nearly weekly basis as exporters fill earlier sales from anxious processors and interested importers take advantage of the latest round of bargains. The situation was described by traders in several countries as one where any reasonable, lower bid would be accepted by a Canadian seller.

Looking at events in other parts of the world, it is hard not to believe the latest round of price discounting on Canadian merchandise will not result in substantial sales to new customers. A special alert about Asia from the United Nations Food and Agriculture Organization is a powerful reminder about how surpluses in one part of the world can be matched by terrible shortages elsewhere.

Severe flooding in China, Bangladesh, Indonesia and Korea is expected to result in a significant decline in the production of rice and other grains in that part of the world as vast tracts of land are flooded, killing crops and livestock. It is not unreasonable to expect stronger demand for field peas and other pulses to replace lost food, especially at a time when prices are at there recent historic lows.

The FAO notes that from late June onwards, persistent rains, attributed to the La Niqa phenomenon, and consequent flooding have taken a heavy toll on human life and property in several parts of Asia. Severe damage has also been inflicted on the infrastructure (roads, bridges, rail links), seriously disrupting the movement of commodities.

China and Bangladesh have been hardest hit, but there has also been loss of life in the Republic of Korea, India and Nepal. In the region as a whole more than 250 million people have been affected by the floods, many left without shelter and possessions.

Large areas of cropped land have been submerged in China, Bangladesh and the Republic of Korea. Although it is too early to estimate the impact of the floods on regional crop production, there are fears of a decline in world paddy output, 90% of which comes from Asia.

This could fuel further increases in world rice prices, already unseasonably high. Indonesia, once self-sufficient in rice, is now the worlds largest importer, and faces the severe prospect of reduced production due to earlier drought, high world prices and an unprecedented financial crisis.

The overall food supply situation in the region is satisfactory so far, but large sections of the population are likely to face increased food supply difficulties in the coming months. The situation needs to be monitored closely.

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