The 2018 Acreage Guessing Game

It’s that “crystal ball” time of year when analysts and other market participants try to figure out what farmers are planning on doing with their acreage this spring. To be honest, seeded area projections at this stage of the year are really just guesses, with hopefully some experience behind them. Of course, this also assumes farmers have already made up their minds about their planting decisions. For 2018 however, there’s far more uncertainty than usual in pulse markets.

Most of the turmoil in pulse markets has been caused by the trade policies imposed by the Indian government. The requirement to require fumigation for all incoming crop imports has been delayed again until June 30, 2018, but fumigation fees will still be charged. More important than this issue though are the 50% and 30% import tariffs on peas and lentils, respectively. Based on current price relationships, these tariffs are essentially blockades on Indian imports and have many farmers questioning whether they should be planting pulses in 2018.

It’s not just farmers who are unsure of the 2018 outlook. Exporters and processors are also trying to sort out the outlook picture. New-crop bids are still quite scarce compared to the last few years when bids already started showing up in October.

Prices will be the main signal for farmers, even though expectations are already being scaled back. In early January 2018, average old-crop bids for yellow peas are $1.65 per bushel lower than they were a year ago while greens are down $1.05 from January 2017. New-crop bids are $1.05 per bushel lower than a year ago for yellows and $0.50 lower for greens. For lentils, old-crop bids for large greens are down 31 cents/lb from a year ago while reds are lower by 9 cents. We still haven’t seen any new-crop bids for green lentils but red lentil bids of 16½-17 cents/lb are 11 cents lower than bids a year ago.

These lower prices and the trade uncertainty will certainly discourage some acres of peas and lentils. Prices for other crops have been much more stable and pulses have lost the advantage that they’ve enjoyed the past couple of years. Some farmers will put more weight on these lower revenue forecasts while others stick to their rotations and still others choose to be contrarians, increasing land in pulses because others are cutting acres. Exactly how much pulse acreage will drop is the “guessing” part of the forecast.

Our guesstimate is that seeded area of both peas and lentils will decline somewhere around 20-25% to 3.2 million and 3.4 million acres respectively. For lentils, that would mean the lowest acreage since 2014 while pea acreage would be the smallest since 2011.

High prices are still a feature for kabuli chickpeas and while new-crop bids are lower than last year, they still the stack up favourably against other crops. We’re hearing about strong interest from farmers and think that 2018 seeded area could double to 350,000 acres, the most since 2007. That would mirror what happening in other countries, setting the stage for a large production response and burdensome supplies that would drive prices lower, likely sooner than later.

The drop in pea and lentil acreage will end up being helpful for markets that are currently oversupplied. But because of the large stocks carried over from 2017/18 into 2018/19, next year’s supplies may not drop much at all. As always, yields will be the largest determinant so nothing is written in stone just yet. But if yields end up somewhere close to the average, it would mean another year of comfortable supplies. This suggests that unless there is a big crop failure elsewhere (especially India), the lacklustre price environment will continue well into 2018/19.

Pulse Market Insight provides market commentary from Chuck Penner of LeftField Commodity Research to help with pulse marketing decisions.