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

Chuck Penner, LeftField Commodity Research

One of the most useful indicators of potential direction in a market is the seasonal price tendency. In a typical year, crop prices (including pulses) tend to follow similar patterns. Even though these movements aren’t always a sure thing, the charts can provide clues about when a price change could occur. Some seasonal patterns, such as “the harvest lows”, are predictable enough to influence marketers’ decisions.

While those lows caused by heavy farmer selling at harvest are well-established, other seasonal patterns are also useful if they point to possible timing of market highs. That’s particularly the case in the 2015/16 market where most pulse prices are extremely high and farmers are trying to maximize prices but avoid holding the crop too long.

The difficulty is that price patterns tend to be most reliable in a “normal” year when supply and demand are relatively well-balanced. Does that mean they’re irrelevant in 2015/16, when many pulse prices are already sky-high? We’ll look at some price tendencies in light of the current hot market environment to see what lessons are possible.

For peas, prices tend to rise steadily once the harvest rush is over and then go sideways in the November to December timeframe. Once the new calendar year starts, bids tend to start climbing again. Those patterns have generally held so far in 2015/16, although the changes have been much more extreme, especially for yellow peas. The chart also shows that these seasonal highs tend to remain in place until early to mid-May, when buyers start to look ahead to the next year’s crop. It’s possible this year’s tight pea supplies could mean more upside than usual and a delayed decline, but it’s also likely that when the drop occurs, it will be much sharper than usual.

Lentils have the same seasonal lows as peas at harvest time but lentil prices follow different tendencies than peas and the two main lentil classes have distinct differences. Green lentil prices tend to recover quickly from the harvest lows and reach their highs in the late fall. Bids then tend to turn slightly lower with a small bump in late spring or early summer. This year, that hasn’t been the case as exceptionally tight supplies have forced buyers to continue raising bids to encourage farmer selling.

The tendency for red lentil bids is to remain relatively flat through the fall months and then rise fairly steadily through the winter and spring. In 2015/16, the strength in red lentil bids began earlier than usual. More recently, market jitters at the extreme highs are causing bids to look a little more vulnerable. That doesn’t necessarily signal the end of strong old-crop prices, but there is certainly more volatility. And when the midsummer decline begins, it will very likely be a sharp drop.

So what are the takeaways? The first is that pricing the 2016 crop should either be done now when new-crop bids are strong, or well after harvest. The problem this year is that those bids for fall delivery have been so attractive, a lot of contracting has been done already and some bids are already declining. Even so, most new-crop bids for peas and lentils are well above other years and are still profitable.

These seasonal tendencies also clearly demonstrate that prices will eventually fall, even in an unusually tight supply situation like the one in 2015/16. Prices won’t keep going higher forever, and the normal patterns suggest when that shift might occur. It’s not a sure thing, but it’s certainly better than strictly guessing.

For the time being, the seasonal charts don’t show any immediate danger of lower prices for either peas or lentils, but this is an unusual year. And when prices are at extreme highs, they tend to come down very quickly. Those who wait too long to market their pulses will likely end up feeling some pain.