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Implications of the Indian Pulse Crop (PCN Spring 2017) MAR 28 2017 | Consumers and Producers | Pulse Crop News

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

Chuck Penner, LeftField Commodity Research

Over the past year, prices of various pulses in India have been historically high. Farmers there have responded the same way farmers do everywhere by planting more acres. In the latest kharif (summer) crop, seeded area of pulses was 32% larger than the previous year and 26% more than the long-term average. In the rabi (winter) crop that’s just wrapping up now, plantings were 15% above last year and 10% more than average.

On top of the increased acreage, conditions were mostly favourable for both the kharif and rabi crops. That compares to the past two years, when drought and poor harvest weather damaged the crops badly. The Indian government’s production estimate is 22 million tonnes, a new record by a wide margin. And that could still be understated, as the rabi estimate was issued before the harvest began.

The response in Indian prices has been about as expected; bigger crops have a way of causing smaller prices. Of course, larger crops from farmers in other countries like Canada, the US, Australia, Russia and others have all contributed to the pressure on prices. The drop from the highs seems extremely large, but prices are actually just returning to the longer-term levels that are more normal for these crops.

The larger Indian crop won’t have the same impact on every type of Canadian pulse crop. India is a larger player in the yellow pea and red lentil markets and that’s where the greatest influence would be. Even so, stronger Chinese demand for yellow peas and heavier Turkish purchases of red lentils are helping offset slower Indian purchases. For pulses like green peas and green lentils, India is just one of many buyers and reduced Indian interest will have less effect on prices, although there could be some spillover effect. Kabuli chickpea markets will also see some influence as India is actually a net exporter and a larger crop could be negative for prices.

One of the implications is that price expectations likely need to be recalibrated. The high-price environment that’s been around for the past couple of years is now in the rearview mirror. As long as weather remains sort of normal in India and exporting countries like Canada, pulse markets looked like they’ll get a little more “boring”. It will take another big crop problem here or in India to really drive prices back up again.

The bigger Indian pulse crop also means the flow of exports will slow. Export volumes already tend to be fairly quiet in the spring and summer months so this impact may not be all that noticeable yet. The difference will show up more this fall when the pace of exports is solid compared to the near-frantic activity of the past two years. The practice of buyers phoning regularly to see if farmers are finally ready to sell their peas or lentils will likely change. If the Canadian crop is a decent size this year, the onus may be on farmers to find out which buyers are paying the best prices for their pulses.

That’s not to say pulse demand will disappear. In fact, one of the benefits of a lower price environment is that it can stimulate additional demand and could help broaden Canadian export opportunities. Other countries in South Asia that have been priced out of the market the last couple of years may return and buy larger volumes again.

From a longer-term perspective, the lower price environment that accompanies this big crop is the first step in helping the market shift higher again. As the old saying goes, “the best cure for low prices is low prices”. While Canadian farmers are still seeing decent new-crop prices and may not cut back on acreage this year, Indian farmers won’t be nearly as exuberant about planting pulses in 2017, increasing the odds that India’s 2017/18 crop will be smaller again. That could set the stage for another turn of the cycle higher.

Of course, layered onto all of these ideas is the realization that weather events, either here or on the other side of the globe, will have the final say. And that uncertainty is what keeps my job endlessly interesting.