Marketing Types & Uses
Did you know Canada is a leading exporter of lentils? Known for their earthy flavour, this dried pulse seed is perfect as a side or main dish and offer an astonishing number of health benefits. They are also very easy to prepare!
With a wide variety of lentils accessible, lentils are on the way to becoming the next staple food alongside potatoes and bread. Types of lentils to look out for include green lentils, black lentils, beluga lentils, red lentils, and yellow lentils.
Alberta normally produces two main market classes of lentil. The small red lentil which normally makes up 80% of the Alberta lentil acreage; and the large green lentil that typically makes up the remaining 20% of the acreage. The small red lentil commands the largest market demand in the world with India, Sri Lanka, Bangladesh, Turkey and Egypt along with other Middle East countries all favoring the consumption of this type. Red lentils are most often consumed as a split lentil.
The large green lentil is popular in the diets of many other cultures around the world and commands a focus on quality attributes to meet the market demand.
Production Economics & Marketing
The key to obtaining the right price for lentil:
- Know the production costs
- Know the markets you are targeting
- Know the quality of lentil you produce
- Understand the different types of contracts and methods to merchandise your crop
- Study and leverage market information resources
Costs of Production
Understand your fixed and variable costs of production and know your break-even costs to assist in planning a marketing strategy. Knowing the break-even price is critical to knowing when to sell. Costs can vary from farm to farm, so use figures from your own farm.
Economic benefits are only part of the reason for growing lentils. Lentils offer rotational benefits as well:
- decreased need for nitrogen inputs to the following crop
- decreased costs for herbicides and fungicides in a following crop
- rotational benefit in breaking disease cycles of cereal crops
- increased yields of the following crop
- increased quality of the crop grown the year after that of the lentil (for example, protein premium on wheat)
It is best to understand the market opportunities available for the various market classes of lentils before you seed in the spring. Some market classes have niche market demand that may be limited and reduce your ability to easily market your crop.
The largest market volume types are the small red lentil followed by the large green lentil. All other types such as the extra small red, the Spanish lentil, the French green and the eston lentil can all have limitations related to market size, quality and time of year.
Make sure to check all available market information sources and market outlooks for lentils. There are numerous weekly market information newsletters, satellite information sources (DTN, Global Link), Internet websites (STAT Publishing) and radio commentaries available.
Global Production & Market Outlook
The world produces 2.5 million metric tonnes of lentil per year. India, Turkey and Canada are the world’s largest producers, but Canada is the largest exporter. Turkey, the U.S. and China are Canada’s biggest competitors in the export market.
Canada’s average lentil production from 1994 to 1998 was 420,000 tonnes per year. About 22 per cent of this production is used domestically for seed, feed and human consumption. Canadian lentil exports averaged 280,000 tonnes per year from 1994 to 1998, with exports widely distributed among 75 countries.
- exports to Europe averaged 60,000 tonnes per year, mostly to Belgium, France, Germany and the Netherlands
- exports to Mediterranean countries averaged 63,000 tonnes per year, with Spain, Italy and Greece as the major buyers
- about 92,000 tonnes per year are shipped to South America, with most countries being buyers
- Mexico, Panama and the U.S. are the major Central and North American importers of Canadian lentils
- Arab and African countries import 42,000 tonnes per year on average, with the highest volume customers being Algeria, Egypt, Israel and Morocco
- the Pacific Rim market has averaged 2,600 tonnes per year and is growing
- Overall, the global market for Canadian lentil is stable and increasing slowly. World supply is the greatest factor affecting farm lentil price changes from year to year.
- know the quality of the lentil you’ve produced – harvest-time is best for taking samples:
- take the same number of cross-section samples of the grain as each load is unloaded, to provide a representative sample for each bin
- store the composite sample for each bin in a clearly marked container
- submit representative sub-samples to determine grade and to potential buyers
- grading services are available from grain buying companies or by sending a sample to the Canadian Grain Commission
One method of selling lentil is through contracting. Contracting a portion of the crop can reduce market risk. There are several types of contracts, each with advantages and disadvantages.
- guarantees the delivery of some or all production to a buyer
- may or may not specify the price or total volume accepted
- some production contracts specify price for a certain volume, with over-deliveries accepted only by mutual agreement between buyer and seller and priced at the market on delivery
- a date of acceptance for delivery may be specified, and some contracts will implement a storage fee to be paid to the producer after a certain date
- some seed growers or seed dealers will contract lentil production for seed purposes – while these contracts can be profitable to the grower, consider the extra management required to produce high-quality seed
Deferred Delivery Contract
- also referred to as a DDC, this contract is an agreement to deliver a specified tonnage of a certain grade of product to the buyer by a certain date in return for a guaranteed price
- advantages to the producer of a fixed price and delivery opportunity can be considered a disadvantage later on if higher prices are offered by other buyers
- most deferred delivery contracts include escape clauses to cover production failure due to adverse weather
- any contract that specifies a grade should also state how grades different from the one specified are handled – if other grades are accepted, the price and terms should be stated in the contract
- the contract should specify storage charges to be paid by the buyer to the seller, should the buyer delay delivery beyond that stated in the contract
Dealer or Producer Car Contract
- similar to other deferred delivery contracts except shipping is by producer-loaded railcar
- the difference between a dealer car and producer car is that the dealer car is allocated to a grain dealer, who in turn offers the railcar to a producer for loading, while the producer car is allocated directly to a producer for loading
- dealer car loaded product may have a lower price than a producer car since the profit for the dealer is part of the price – however, a dealer car often has a better price than sale of the same product through the elevator system
- some trade-offs exist between dealer/producers cars and elevator delivery:
- delivery to the elevator is usually more convenient, involves less administration and can often provide mixing/blending benefits to improve grade
- deliveries to an elevator can also result in immediate payment, while payment for railcar delivery is made after unload, which can be three or more weeks after the car is loaded
Read the contract before signing it. This may mean getting an unsigned copy from the buyer, taking it home and taking the time to study it. Remember, contract contents can be amended by mutual agreement, and a section in disagreement can be omitted or amended to suit both parties. Answering the following can help you get the best contract arrangement:
- Are all charges accounted for?
- Is the quoted price a net price at the delivery point, or will there be additional freight charges?
- Is a grade or specification stated? Are other grades deliverable and, if so, at what premium or discount?
- How is dockage assessed? Is freight to be paid on dockage? Will dockage be paid for and at what price? How are grade and dockage disputes settled?
- Is a delivery date specified? What happens when one party defaults on delivery date? Will the buyer pay storage charges after a certain date? Will the buyer pay post-delivery interest charges after a certain date?
- What protection does the seller have in case of payment default by the buyer?
Two electronic markets are available in Alberta, and both are available through the Internet.
A.J. Bat is a site where buyers and sellers can list what they want to buy and sell.
- lot size, terms of sale and price are listed
- there is no charge for buyers or sellers to post a bid or ask – it is between buyer and seller to work out the trucking and payment directly
- if there is a grading problem, then the Canadian Grain Commission is consulted
- a yearly subscription gives access to reports and listings
A.J.BATexport Trading Page is where producers, processors and buyers (both locally and internationally) post product for sale or product wanted.
- all prices are converted to a common point of export, depending on the crop
- individual companies and processors then work back the price to their point of origin
AgDirect.com is an electronic marketplace for feed grains where customers can trade in specific regions across Western Canada.
- has approval of the Alberta, Saskatchewan and Manitoba Securities Commissions to operate as an Exchange
- allows trading in the spot, forward and basis markets
- the system was designed by grain traders for grain traders
- all potential users are closely screened
- AgraLink handles all payments and has an optional freight exchange service for trucking
- since there is a higher level of security and services, the fee is higher than with A.J. Bat