This article appeared in the Fall 2016 issue of Pulse Crop News.

Chuck Penner, LeftField Commodity Research

One question we’re often asked is why pulse prices in western Canada and overseas markets don’t move together. Normally, this question comes up when Canadian bids are trailing other countries, not the other way around. Because Canada is the dominant exporter of peas and lentils, it would make sense that price movement here would be closely linked to direction in other markets, especially in India, the world’s largest pulse buyer.

The chart above is an example of the relationship (or lack thereof) between the average yellow pea bid in Saskatchewan and the key market of Mumbai. The Indian price in the chart has most transportation costs removed and is converted to Canadian dollars per bushel. Some additional costs related to warehousing and bagging in India aren’t included, so it’s not an exact comparison and the spread doesn’t represent the margin earned (or lost) by traders.

The chart shows that over the past number of years, prices have often moved together but there are exceptions. During 2012/13 and 2014/15, Canadian and Indian prices were fairly closely linked, while in 2013/14, the spread was exceptionally wide. And in 2015/16, Canadian bids were actually on par with or higher than prices in India, at least until the last couple of months.

Timing is probably the most common factor behind the apparent disconnect between the two markets. Partly, that’s because of the several weeks needed to transport pulses from Canada to the destination. Mostly though, it’s because buying peas from the farmer is often done at different times than the sale is made overseas, when dynamics could be different.

Using 2015/16 as an example, prices in both locations started to move higher as disappointing Canadian yields became apparent. Despite the smaller 2015 crop, Canada moved big volumes (666,000 tonnes) of yellow peas to India in AugOct and those peas (plus more from other countries) kept the Indian market well supplied, allowing prices there to dip slightly.

Even while that was happening, buying interest for Canadian peas from India and China remained strong and pushed yellow pea bids here up to record levels. As shortages in India began to be felt more severely and its rabi crop was a wreck, Indian prices took off again and hit extreme highs.

But by early summer of 2016, Canadian buyers had already stopped trying to buy more peas and were looking ahead to the 2016 crop, causing bids here to drop sooner. Prices in India didn’t follow suit until recently when new-crop pea shipments from the Black Sea region and France were on the horizon.

Other factors that influence the spread are domestic developments in India. Looking at the large price difference in 2013/14, we see Indian prices spiking while Canadian bids barely moved off the lows. That year, weather events in northern India damaged its pea crop and caused local shortages which drove prices higher. At the same time, Canadian supplies were relatively comfortable and it didn’t require very aggressive bidding to convince farmers to sell. Overseas buyers did their job of purchasing as cheaply as possible and selling as high as possible.

It should also be noted that the Indian market structure has many layers of importers, wholesalers and retailers before the peas get to the ultimate consumer. These multiple participants can also keep the market from responding in a timely and proportionate way.

Finally, the presence of other competitors and substitute pulse products can cloud the picture somewhat. When it comes to yellow peas, farmers in other countries have seen this year’s attractive prices and responded by planting more acres. Traditionally, France and the US were the main competitors but the Black Sea region and, more recently, Baltic countries are becoming more prominent. And it’s not just yellow peas; supplies of desi chickpeas grown in India or imported from other countries such as Australia also have an impact on yellow peas as the main substitute.

While there are periods of time when prices in the selling and buying countries seem to be unlinked, it’s important to recognize that these disconnects are related to temporary events in one country or the other. Eventually, prices start to converge and move together and that equilibrium will show up again in 2016/17. That’s why it’s still important to keep track of what’s happening overseas.