Nidera Australia Weekly Market Report – 12th December, 2017
Nidera Australia Pty Ltd (a member of the COFCO International Group)
It’s difficult to understand why the Pulse markets fall generally, but specifically, chickpeas are falling. This year, our crops are mediocre at best and full of quality issues, so in this environment why have prices been falling sharply? It comes down to lacklustre demand, so let’s look at several of the key factors effecting demand particularly for chickpeas.
At the risk of generalising, it’s fair to say that global pulse production is much higher this year. Production of yellow (field) peas, has jumped sharply. On the surface production looks static with the traditional producers like Canada and US down a little. Europe however, is where the increases have come. The Black Sea countries along with several new players in Eastern and Western Europe, have sharply increased production. Many of these countries have limited storage infrastructure so this product has all hit the market since July. This has driven Yellow Pea prices sharply lower.
With Yellow pea prices less than half the value of Desi Chickpeas, there’s always going to be some substitution and changes in consumer habits has surprised the market. In India, the change has been particularly significant with many Mills choosing to switch to yellow pea Dal and Besan production completely. In countries like Bangladesh, the increase in consumption of yellow pea products are at the expense of Chickpeas. Simultaneously, we have seen other pulse products such as lentils and pigeon peas fall sharply. Whilst it’s in response to the same issues, it leaves chickpeas on their own at the top of the price tree. Most anticipated that reduced consumption was coming but expected the lower crop in Australia and hence exportable surplus would compensate.
It is now becoming apparent that the 2017 Indian Chickpea crop is considerably bigger than first thought. This time last year there was no stocks left in Indian farmers hands, however this year we are still seeing farmers bringing stocks to market. We are also hearing forecasts from the Indian Govt that the 2018 crop will be big, with favourable conditions in most areas indicating up to a 30% increase in area planted. Some within the trade question these numbers but it is what the market is currently trading.
The last and most contentious issue has been the attempts of the Indian Govt to control local prices using import quotas and duties. Unlike last year, the Govt seemed to be directed at putting a lid on out of control price increases and hence food inflation. This year it’s attempts seem directed at putting a floor in values to support local farmers’ incomes. So far, pigeon peas have had import quotas imposed to limit the volume being imported. On other products, its either new duties or increased duties. A notable mention here is the 50% import duty on yellow (field) peas. Obviously, this is to stop or increase the value of imports to provide a price advantage to local farmers. The duty on Chickpeas and lentils has rumoured strongly for weeks now, though not yet imposed, some say it is still coming.
Debating the merits or otherwise of Government intervention in markets, uncertainty and rumours can bring long term damage to the market and perhaps are even counter-productive. Currently, no-one dares buy anything in India for fear of the unknown. Even worse, this contagion has moved to the other market destinations who now watch and wait. In the Pulse industry we have learnt to deal with market vagaries and uncertainty.
Whilst we are at a level never experienced before, the long-term future remains bright. While demand from India is in a downturn at moment it is still fair to say that demand for pulses is generally outweighing local supply. Consider this, If India is only one crop failure away, they will require substantial imports once again.