Canada Markets

A study was released by the Associated Chambers of Commerce and Industry of India (ASSOCHAM) this week which shed light and caution on the risks faced by India over the current state of its pulse industry. ASSOCHAM is described to be the "highest body of Chambers of Commerce" in India, which includes 300 chambers and trade associations. The study looked at the potential impact to the country as a result of an El Nino event which could reduce monsoon rains and lower the overall crop potential.

The study suggests that such an event would "affect the household's budget the way onion brought tears to the common-man in the recent past and may give pain to the stomach." The comparison to the onion market is an interesting one which highlights what can go wrong without carefully crafted food regulation.

In October, the Economic Times released an article titled "Why onion prices will singe consumers again and again". Onions are the second most consumed vegetable in India, next to potatoes, and a critical ingredient in Indian dishes. Problems in this market first occurred in 2010 with a substantial price spike from 58 cents to $1.50/kg in one week due to a production shortfall, which was viewed as a crisis within the economy. The same situation took place in August 2013, when prices jumped nearly 500% to $1.55/kg.

The Economic Times refers to a government study which lists the following issues as contributing to the rapid price escalations in the onion market, which include:

-- market collusion

-- a power imbalance between traders and small producers

-- hoarding of production by traders

-- monopoly traders with concentrated ownership of storage

-- weak government controls and the exploitation of loopholes.

The report, released in January 2013, suggested that the situation would happen again and again without changes made. Given that the crisis happened all over again later in 2013 suggests that the issues pointed out in the report are very real.

This is the backdrop for the ASSOCHAM study on pulses. India is both the largest producer and consumer of pulses, with 33% of the global area dedicated to pulse production while producing 24% of the world's pulses. Recent production in the 17 to 19 mmt range compares to demand of 21 mmt, which is expected to grow to 23 mmt in the coming years.

So how big of a threat is an El Nino event to India? First of all, the weather phenomenon is expected to hit this summer. The National Oceanic and Atmospheric Administration (NOAA) in the United States pegged the chances of an El Nino event as exceeding 50% by summer. The India Meteorological Department has recently pegged the chances at 60%, with monsoon rains to be a "tad" lower, or 95% of normal, as reported by the Indian Express. At the same time, they warn that it is too early to predict the overall impact to the crop.

El Nino events have lead to drought in the years of 2002, 2004 and 2009, although while El Nino years impact the Indian monsoon, overall rains have been described as normal during many El Nino years. In 2002, overall food grain production fell 18% while monsoon rains fell 19% from the previous year. In 2009, food grain production fell 6.8% as compared to a 23% reduction in monsoon rains, while in 2010, another El Nino year, food grain production actually increased by 12% while rains were normal, according to the Indian Express. This portrays the difficulty in making forecasts based on the looming El Nino event this summer.

The study suggests that domestic supplies can be improved with an increase in planted acres, increased research and development in order to increase yields as well as the expansion of acres under irrigation to stabilize production.

Prices for some price crops on the Prairies are seeing a move higher. Recent STATpub price data indicates that green peas have stabilized at $12.96/bu. where they have been since late March. At the same time, interest is building in yellow peas, with the average price reported at $6.69/bu., up from the $5.40/bu. low reported in late January by Saskatchewan Agriculture. Large green lentils are reported at an average of 21.69 cents/lb on April 30, grinding higher from March lows of 19.29 cents/lb. The red lentil market is showing the largest move, averaging 25.30 cents/lb on April 30, up from a 2014 low of 19.11 cents/lb.

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Cliff Jamieson can be reached at cliff.jamieson@dtn.com

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