By Ryan Bonnett, Marketing Advisor, Airdrie, Alta.
Like many crop markets, peas have come under pressure over the past few weeks, dropping up to 50 cent/bu or more across most prairie locations. While the recent drop in prices probably over exaggerates the fundamental reality, and represents more a case of buyers temporarily backing away from the market, there is an increasing risk of a shift towards a more bearish picture on the supply / demand balance.
The primary concern is about exports, and whether movement over the course of the crop year will be strong enough to keep ending stocks from building to burdensome levels. Official Canadian Grain Commission statistics, which do not include container traffic, show exports running only about 50,000 tonnes behind last year’s record pace. If sustained through the remainder of the year, ending stocks would get drawn down enough to be supportive to prices.
However, the market is concerned about the pace of sales going forward. India is by far our biggest export destination, and so far they have done a good job of keeping exporters off-balance with their intentions, which is preventing grain companies from coming in the market for a big round of buying as was seen in previous years. This would also cause the market to pop higher. In addition, India’s winter pulse crop is reportedly in good shape, and price of Chana, with is what peas substitute in their diet, have fallen over 20% since November. Other key destinations such as Cuba and Bangladesh have also been slow in early season purchases.
Most analysts are now projecting a 2009/10 pea carryout of between 600,000 to 700,000 tonnes, which is generally higher than earlier estimates and starting to get on the heavier side, even given the higher level of demand over the past two crop years. The somewhat more bearish revisions aren’t necessarily that dramatic in themselves, but when combined with the shift in market sentiment they’ve helped to push cash prices lower. In addition, the longer that sales are slow, the closer we get to the summer months when lower priced French and Ukrainian supplies will put additional pressure on Prairie values.
While producers may need to revise their price expectations lower, we are not as bearish on the yellow pea market going forward as some others. With 6 months left in the marketing year, there are several things that could help this market going forward. For example, even a moderate increase in export movement beyond current projections would have a meaningful impact on lowering ending stocks. In fact, this would not be totally unexpected, since peas are a relatively low-priced pulse crop, and food inflation continues to run high in Indian and other importing countries, while Canada is the only major global supplier of peas for the next four months.
Marketing is about striking a balance between managing downside risk and upside potential. Growers that are behind on sales should use any kind of price rebound to do some catching up, since the pea market does have its risks going forward. However, the potential is there for positive surprises as well, meaning growers should be holding some inventory back in the event of better prices in the coming months.