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Making Decisions about 2017 Pulses (PCN Winter 2017) JAN 4 2017 | Consumers and Producers | Pulse Crop News

This article appeared in the Winter 2017 issue of Pulse Crop News.

Chuck Penner, LeftField Commodity Research

Only a couple of years ago, thinking about next year’s crop rotation started with canola in late fall, with other crops waiting until January or beyond. In the last couple of years however, planting decisions for pulse crops have moved months earlier and many readers have likely already made up their minds about planting peas, lentils or chickpeas in 2017. For those who haven’t or are still on the fence, here are a few ideas to help with the thinking.

Last year’s cropping season was a “bit” of a roller coaster. Early on, people were very bullish about the 2016 crop with aggressive new-crop bids showing up months earlier than normal. That triggered the expected acreage response and the positive early growing conditions suddenly turned (most) people bearish. Bad weather intervened however, which suddenly made the market bullish again.

At the time of writing, buyers and farmers are once again bullish about 2017 pulse markets, a bit of déjà vu all over again. Historically strong new-crop bids started to up again in late October, much earlier than usual. Some people see attractive bids as a sure sign that prices will just keep going higher, but that’s far from a sure thing. In fact, high forward-contracted prices are more likely to encourage more acreage, which (with normalish weather) will weigh on prices down the road.

Last year’s experiences of crop losses and damage made for some difficult contract negotiations this fall. As a result, there’s a good chance farmers will be a little gun-shy about forward contracting the 2017 crop. While that’s understandable, if last year’s problems keep farmers from contracting this year, it would be too bad.

Frankly, last year’s weather events and price levels are irrelevant for making decisions about planting (or contracting) peas, lentils or chickpeas in 2017. Certainly, agronomic considerations about crop rotations are very important but from a marketing perspective, 2017/18 won’t play out the same way as last year. Next year will have a whole new set of conditions, maybe better, maybe worse.

What’s important in deciding about growing and marketing pulses is what factors are in front of you now. Is it a profitable scenario, especially compared to other cropping alternatives?

At the time of writing, newcrop bids for yellow and green peas are around $7.25 per bushel. That isn’t at the same level seen last year but, from a longer-term perspective, it’s still historically high as a contract price. For most people, contracting a few bushels at that price level is a good way to start locking in profits. As the old saying goes, “if that’s your worst sale of the year, you’re doing well”.

The same thing applies to lentils. Buyers are already looking to encourage acreage in 2017 and are presenting some very attractive bids. At the time of writing, bids of 40 cents per pound or more are showing up for large green lentils while reds can be contracted at 25-30 cents per pound. While those aren’t quite at the lofty levels of oldcrop bids, they’re historically quite favourable. Of course, farmers will have to face the agronomic issues of crop rotations, but these bids should be enough to provide a profit on a first increment of sales.

New-crop chickpea bids weren’t available at the time of writing, but the extremely strong market should encourage more acres. It should be noted for chickpeas though, that developments outside of Canada play a much larger role in next year’s market outlook.

The same market signals seen by Canadian farmers will also be noticed by farmers in other exporting countries, including the US, Russia, Ukraine and many others. And it’s important to note that farmers in these countries are getting more comfortable growing and selling pulses, which suggests their presence as suppliers will now be a regular feature of the market.

These supply-side factors are important, but price direction is also determined by demand. It’s impossible to predict with any precision how next year’s market conditions will look in key destinations like India, China, Middle East and North Africa, but the general trend is toward increased consumption and growing import needs.

The inability to accurately forecast demand is another reason why farmers here should be looking at what kind of bids are in front of them now. The alternative is to use a crystal ball or hope-based marketing. Trying to outguess the market may work occasionally, but it’s a high-risk strategy.

Finally, there’s also the contrarian way of making cropping decisions. Essentially, it’s based on watching what other farmers are intending to do, and then doing the opposite. In the case of pulses, this could mean reducing acreage of the most popular crops and boosting acreage of crops that are currently in the doghouse. Or, if someone is still determined to grow pulses, it means planting the type (yellow versus green peas or green versus red lentils) that other people are avoiding.

I wish farmers much success in their 2017 planting decisions, with hopes of that rare combination of strong prices and big high-quality crops.