WithTheGrain: Pulse outlook stable despite price volatility

Author: | Date: 12 Jul 2018

Pulse Australia chairman Ron Storey expects global demand for Australian pulses to remain steady despite short-term unpredictability in overseas markets.

While the short-term price outlook for pulses remains unpredictable due to a variety of political and environmental factors, global demand and production in Australia are expected to remain steady and give reason for long-term optimism in the pulse sector.

Hefty tariffs and welfare surcharges which were instated on imports into India in the first half of 2018, as well as a large local supply, have seen prices slide for the major pulses and demand soften.

Pulse Australia chairman Ron Storey expects demand from India to remain soft for the rest of 2018 based on signals received from the Indian government, but the outcome of its looming monsoon could alter that outlook.

“India’s next major crop development will be the monsoon which is expected over the June/July period, so that will be the next major indicator of what the Indian government is likely to do as far as the security of their supply of pulses is concerned,” he says.

“If they get a poor monsoon they could easily reverse, or certainly reduce, tariffs they’ve put on in the last six months, as a lower crop would cause them to dig into their own stocks. That could be positive for the market because the marketplace needs to see them reduce their overall level of stocks before we’ll see a price rise for global pulses.”

Demand in other subcontinental markets including Pakistan, Bangladesh and Sri Lanka is expected to remain firm and a reliable export destination for Australian traders.

Moving into 2019, Mr Storey said the impact of India’s monsoon season and the outcome of the Australian season will be the big influencers on price.

“This season in Australia has been, so far, very dry on the east coast which is where most of our pulses are grown so the Australian supply will have an impact on the price direction as well,” he says.

“If we stay very dry on the east coast we will end up with a much lower crop than normal and that would be a positive as far as price is concerned.”

Global update

A recent global update was developed by the Grains Industry Market Access Forum, Pulse Australia and Grain Producers Australia with the support of GRDC, with information sourced from reports and data presented at the Global Pulse Confederates meeting in Colombo, Sri Lanka, in early May 2018.

The report was collated to provide growers with a source of information to assist in production decisions, particularly with the market volatility caused by the situation in India.

A number of factors contribute to a positive global demand outlook, including:

  • Increased snacking pulse consumption in India
  • Growth in demand for peas in China
  • Growing demand for hummus in North America impacting trade flows, with Canada reportedly importing kabuli chickpeas to meet growing demand
  • Canadian demand for peas has switched to Canadian domestic stockfeed, providing a workable outlet for peas otherwise destined for India
  • Indian restrictions on imports of yellow peas increasing consumption of other pulses, particularly chickpeas, which is helping to reduce stocks of pulses in India
  • Domestically, feed shortages are presenting favourable positions for faba beans, lupins and peas
  • Pakistan remains in short supply of pulses and will require imports to meet demand in 2018

According to the global update, prices remain firm for kabuli chickpeas, with reports of a massive increase in chickpea plantings by Canadian farmers this year.

Indian stocks are at record levels, while a domestic shortfall in Pakistan means they require another 250-300,000 tonnes before their 2019 harvest. Demand from Bangladesh remains stable. Australia finished last season with a high stock/use level of 21 per cent. Decile pricing shows chickpeas to be in the middle ground.

Despite a global oversupply of lentils, the long-term outlook remains positive for sustainable production in countries like Canada and Australia. The oversupply of lentils is driving domestic prices lower.

Peas have returned to normal price relativity compared to grains and oilseeds. Australia and global pea balance sheets are good, with year ending 2017 stocks at eight per cent and 12 per cent respectively. Domestically, pea prices have been subdued but the level of drought feeding has seen prices firm.

The domestic faba bean and lupin outlook remains positive, driven by demand for high-protein feed in drought-impacted areas of New South Wales and Queensland. Australian faba bean supply to Egypt has softened, with any potential domestic oversupply readily taken by the feed market. The relative strength of faba beans is holding prices to middle ground, while lupins are currently at decile seven to eight.

Production forecast

There is expected to be a reduction in Australian production to a more ‘average’ level this year, with pulse plantings expected to decrease by 20 to 30 per cent.

Mr Storey said that was to be expected on the back of two record years

“We’re going to see lower pulse production – no question – because the area planted will be lower. Australian growers increased pulse plantings significantly in 2016 and 2017 due to the very high prices arising from poor Indian crops at that time,” he says.

“Coupled with good prices in 2016 and 2017, we’ve had two very good production years.”

“We don’t expect pulse production to hold up at that level.

“Growers have reduced area to chickpeas and lentils primarily as a result of the prices coming down from what they were in the prior two years.

“The area planted to both chickpeas and lentils was up by well over 30 per cent in those two years. A reduction of at least 30 per cent in area planted is tipped, but that’s more or less a return to long term averages of what Australia plants.

“On top of that though, we also have a very dry and late start to the 2018 season, especially for northern NSW and Queensland. So further cuts to area and yield are expected.”

Long-term outlook

According to Mr Storey, the long-term outlook for pulse production and demand is bright, with pulses having a significant role to play in satisfying food demand globally.

He says the quality and nutrition factors are key to that demand, with global food companies beginning to introduce pulses as ingredients in mainstream products.

“The trend globally from a diet and nutrition point of view all supports an increased consumption of pulses,” he says.

“In Asia, there are more mouths to feed. That demand remains strong.

“At the Global Grain Asia Conference in March 2018, we heard that India’s population was still growing and, with rising incomes, prosperity and urbanisation would come more demand for proteins and better food.

“It was noted that India’s ground water levels in many parts of the country were causing long-term grain production challenges and making harvests more erratic with pulse production particularly volatile.

“India’s grain demand is increasing as India’s rising middle class consumed more protein via rising demand for meat.

The Organisation for Economic Co-operation and Development expects China’s middle class to exceed one billion people in 2030, up from 157 million in 2009, with China’s food and agricultural imports projected to grow by 11 per cent so demand for grains is unlikely to slow in the coming years.

“In tandem with normal population increases, there is this greater awareness of the value of pulses in a diet – being very affordable and an environmentally friendly source of protein – which is gaining in prominence as far as food companies are concerned,” Mr Storey says.

He says farmers are recognising the importance of pulses in their rotations and are likely to keep them, irrespective of the price outlook.

“The production scenario here in Australia is expected to remain strong, even though from a market point of view we’re going to continue to have these geo-political interferences with tariffs and quotas,” he says.

“Those influences have more to do with shorter-term domestic politics and do not reflect the underlying, strong, long-term supply and demand outlook. That background noise will always go on.”

More information

Ron Storey, 0418 332 431, ron@storeymarketing.com.au

Useful resources

Pulse Australia website