Canada Markets

Are Lentil Prices Really a Bust?

Cliff Jamieson
By  Cliff Jamieson , Canadian Grains Analyst
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While lentil prices have dropped from last crop year's record highs, current levels are well-above the five-year average prices for this week. (DTN graphic by Scott R Kemper)

Bloomberg ran a piece Thursday titled "Lentil Boom goes Bust as Crops Recoup from Canada to India", with prices suggested to be "plunging" from record highs. Perhaps this is viewed as the case but it may depend on whether the glass is viewed as half-full or half-empty.

Looking at a combination of Saskatchewan Agriculture Market Trends data and daily Statpub.com data, large green lentils reached a weekly average record price delivered to Saskatchewan plants of $76.06/cwt during the week of April 20. From that point, they drifted to a low of $44.72/cwt in mid-August and have since recovered 18.2% to today's reported average of $52.85 for No. 1 Laird lentils. This price is 18.6% higher than the same week last year, as seen on the attached graphic and is 74% higher than the five-year average for this week.

Red lentils also reached a high of $52.28/cwt in January. From that point, they drifted lower to an average of $25.78 the week of September 9 and have since recovered close to 15% to today's $29.61/cwt, 12.3% below the same week last year but 25% above the five-year average for this week.

It's doubtful that many felt prices would hold near last year's record highs. India is recovering from two consecutive droughts, while government sources suggested they had never faced three consecutive droughts. As well, prairie lentil acres are estimated to have increased 44.7%, to 5.840 million acres, 2.85 million acres or 95.4% higher than the five-year average.

Some things to watch include:

1) Over the past five years, average prices have reached a weekly high in May for both large greens and reds. In this period (2011/12 through 2015/16) large greens have gained an average of 38.8% from August 1 through the second week of May, while red lentils have gained an average of 24.9% between Aug. 1 and the third week of May.

2) Uncertainty over the prairie grade distribution is making headlines. On Sept. 12, the Saskatchewan government reported that 4% of the province's crop would grade No. 1 and 42% would grade No. 2, when the crop was 72% harvested. The Canadian Grain Commission's grading program has estimated the crop to reach 28% No. 1 and 35% No. 2, while Producer.com reports that one of the province's processors has stated that these numbers do not reflect reality, with just 4 to 6% of the crop estimated to make the top grade, with the bulk of the crop expected to be a low No. 2 or Extra 3.

3) When one applies percentage retracement theories to this market, or tendencies that markets have that result in corrections prior to resuming movement in the direction of the trend, we see that large green lentils had corrected by more than 67% of the move from the August 2015 low to the April 2016 high. That's a bearish move which often would have resulted in further selling and additional downside, while prices instead recovered. Today's prices are nearing resistance of the 33% retracement of the resulting downtrend, found at $55.06/cwt for large greens and $34.53/cwt for reds. A move above these levels would be even more positive for prices.

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

Follow Cliff Jamieson on Twitter @CliffJamieson

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