Global pulse market update
- India government pulse stockpile being pushed into commercial marketplace at discounted pricing
- Offshore pulse market remains lethargic and passive
- Repair of pulse market conditions will likely be a longer term process
A report last week stated that India’s government will immediately sell 550,000 tonnes of its 1.8 million tonne buffer stock of pulse crop supplies. Part of this was accumulated last year to fight rising domestic prices, while the rest was acquired at government farm support pricing when the market crashed.
Misconstrued trade action
This is a good example of where trade action in pulse crops can be misconstrued as actual consumptive demand. In fact, it was simply front-loaded ownership - a business decision to repopulate government-owned inventory.
This disposal process by the Indian government is now a business decision to blow-it-out because the terminology of use in welfare schemes was referenced. There is no mention of pulse type in the inventory or which one will be sold, but I recently read that red lentil buffer inventory was thought to be about 135,000 tonnes of the total.
This news offers some explanation why the broad offshore pulse market remains lethargic and passive. It explains why repair of pulse market conditions will likely be a longer term process and doesn’t occur overnight.
This 550,000 tonne internal disposal in India is an important step because it doesn’t matter who uses it or how it gets used – it just needs to get consumed and pushed off the books. The process should expedite respective speed of usage given its low price and bring the point of supply/demand into better balance sooner.
But it doesn’t help determine how long this process could take. It could still be a year away, with much dependent on the perception of India’s upcoming rabi (winter) pulse crop production.
Consumers are shifting from having a cushion of inventory to a situation of operating more hand-to-mouth with near zero cushion.
Also keep in mind that most consumer sentiment on the pulse sector is price trend bearish right now, with a higher than normal percentage of smaller trading participants still recovering from stressed financial conditions. This means consumers are shifting from having a cushion of inventory to, in time, a situation of operating more hand-to-mouth with near zero cushion. The latter tendency is a blow to nearby trading demand but not to consumptive demand.
It also creates a potential situation of pent up trading interest whenever momentum flows the other way, which is why all-or-none behaviour in the pulse market has been referenced in the past.
While interim demand and price find a balance in a period of supply/demand equilibrium - red lentils are a perfect example - the job of the market is to:
- allow time to clear surplus (real or perceived)
- enable traders to become financially repaired
- restore confidence that price might have upside risk potential without India policy squashing business or speculative bias
- discourage seeded acreage, especially outside of Canada.
Then the pulse market can cycle higher. However, the repair process from the current hangover of markets maintaining too high a price for too long can be a two-year process. We’ve basically done one year.
Without a new fundamental catalyst, like a crop threat, lentil price recovery is likely a ways out for now.
Mike Jubinville of Pro Farmer Canada offers information on commodity markets and marketing strategies. Call 204-654-4290 or visit www.pfcanada.com to find out more about his services.