Market Ponder This Years Area

PANAMA - Jan 25/22 - SNS -- The reality of last year's drought has been fully accepted by markets, resulting in unusually strong prices for many pulses. As a result, attention is switching to what will happen this year to seeded area and growing conditions.

Competition for acres will be strong in all areas where pulses are grown, with oilseeds such as canola attracting significant attention from farmers. So far this marketing year, the potential gross income performance of canola has out matched all grains, pulses and specialty crops.

If you look at prospective gross income as a percentage of its previous three year average, so far this season prospective average gross returns for pulses are generally above that average versus wheat, barley and durum, but well under versus canola.

In most years there is relatively strong relationship between those numbers and whether seeded area will rise or fall. If prospective gross returns are above their previous three year average, area tends to increase. When it is below, area tends to decrease.

Versus wheat, this has been true 78% of the time for all classes of lentils since 2001, 61% the time for peas, and 83% of the time for chickpeas. Versus durum, 67% of the time for lentils, 72% for peas and chickpeas; and versus canola it held true 72% of the time for lentils, 56% for peas, and 83% of the time for chickpeas.

Stiff competition from canola for land use this spring will likely result in little overall change in total pulse area. At the moment it could end up around 8.419 million acres, down from 8.746 million last year and below the recent five year average of 8.836 million.

If yields are at their recent five year average, total pulse production in Canada would advance from 4.337 to 6.327 million metric tons, just below the recent five year average of 5.356 million.

North American Output Likely Jumping

Looking at the United States and Canada as one zone, area in the two countries could advance from 12.245 to 12.285 million acres, but combined output might jump from 6.313 to 9.492 million metric tons. The impact this has on available supplies will be moderated by tight ending stocks in the region. It may advance from 7.976 to 10.0 million metric tons, well below the previous five year average of 11.335 million.

Overall disappearance is expected to return to more normal levels across the 2022-23 marketing year, suggesting the combined carry over may only increase from 511,000 to 601,000 metric tons of all types of pulses.

Increases in residual supplies are expected for lentils, peas and colored beans; while residuals for white beans and chickpeas could decline over the coming marketing campaign. Overall, prices paid to growers are expected to be lower on average than what has been seen in the 2021-22 marketing year.

This is not surprising. Prices offered growers for most pulses are sitting in decile nine territory. What this means is they have been higher less than 10% of the time since 1988. That does not mean new record highs cannot be set. However, it indicates the risk of waiting for better prices is increasing over time.

The big issues facing growers is that most North American pulses are not competitively priced outside the region. Two factors had a powerful influence on prices paid to growers between harvest and November.

One was the need of processors and exporters to find enough product to cover sales commitments. The other was a bulge in North American domestic demand as the food industry strove to cover shortages of U.S. origin product and refill retail pipelines. Both needs are largely covered, resulting in an overall decline in trading activity. The problem is asking prices for many North American pulses are too high to be able to compete with product from other origins.

Weather Remains A Deep Worry

Weather is always a factor affecting both seeded area and the yield potential of fields. The fact several key areas in western Canada remain somewhat dry will be factor in the minds of many growers. Last year's drought underscored the risks.

None of the long term forecasts are looking for drought in western Canada. Some long term forecasts call for cold and wet conditions through May in western Canada and parts of the northern United States, followed by unusually warm weather. If accurate, the fact cold conditions may extend into Montana and North Dakota could have an impact on seeding progress for lentils, chickpeas and peas both there and in western Canada.

May is a critical month for seeding in western Canada. Historic weekly seeding progress data from Saskatchewan shows that on average 10% of intended area for lentils is in the ground by the end of April, compared to 6% for peas and 2% for chickpeas. Progress typically passes 50% for peas and lentils by the middle of May and exceeds 93% by the end of May.

 Average Percent of Crop Planted by Month in Saskatchewan
              (per cent in the ground)
                   April     Mid May    End May     June
Mustard             8.0       39.0       87.0       99.0
Sunflower          11.0       52.0       96.0      100.0
Lentils            10.0       55.0       95.0      100.0
Field Peas          6.0       52.0       93.0      100.0
Chickpeas           2.0       27.0       84.0      100.0
Canaryseed          2.0       24.0       81.0       99.0
Flaxseed            2.0       25.0       84.0      100.0
Canola              2.0       30.0       88.0      100.0
Spring Wheat        7.0       42.0       93.0      100.0
Durum Wheat         2.0       22.0       69.0       99.0
Oats                3.0       23.0       81.0      100.0
Barley              0.0       21.0       85.0      100.0
BASED on Saskatchewan Agriculture data

Wet weather delayed seeding in 2020, creating a lot of anxiety over the risk of frost before harvest: In the end, yields were above average and crop quality around average. Significantly, the delays did not have much impact on area, with land in all pulses jumping from 8.9 million acres in 2019 to 9.243 million in 2020.

The last time western Canada faced a lengthy drought period was between 2001 and 2003. Seeded area in those years dropped from 4.92 million acres in 2000 to 3.682 million in 2001 and 2.681 million in 2002 because dry conditions left farmers unwilling to risk seeding pulses.

The bottom line is as attractive as new crop markets are at the moment, if growers do not believe they have a chance at average yields, they may switch to crops with lower average costs per acre and/or higher income potential.

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