Grain Snippet: Burdensome Lentil Supply Lowers Price Prospects
New-crop 26/27 lentil prices have declined roughly $50/MT over the last month on a delivered Adelaide and Melbourne basis, now circa $600/MT. A primary driver behind the decline is the improving new-crop prospects for Australia, with ABARES pegging production at a record 2.2MMT. According to ABARES, the total area committed to lentils has been more than doubled over the last five years as growers have responded to the strong market price signals and healthy gross margins. The market now faces oversupply, similar to the years following 2017 where local prices slumped below $500/MT.
The most recent harvests in both Australia and Canada each resulted in record-large lentil crops, at an estimated 1.9-2.0MMT and 3.3-3.4MMT, respectively. Similar to 2017, growers in Kazakhstan and Russia again ramped up lentil acres, adding an additional estimated 1.7MMT of supply for 25/26, representing a 65% increase y/y and a sharp increase from the ~0.2MMT produced in 2020 and 2021.
Amid the huge global supply response to several consecutive years of strong prices, demand is struggling to keep up pace, leading to lower relative price expectations for 26/27. With that said, the low prices of 25/26 lentils during the Aussie harvest period helped spur exports; between Oct-Feb, Australia exported nearly 1MMT of lentils, eclipsing the previous volumes for that period. Whilst March and April were a bit lacklustre in comparison, exports for the month of May were again strong at 198kMT with Bangladesh as the primary destination (72.7kMT). For the shipping season to-date, India has been the major destination market for Aussie lentils (at nearly 40%) with Bangladesh second (near 30%).
Since India remains such a key demand factor for the lentil market, all eyes are on the potential impacts of El Niño this year. Historically, El Niño events have negatively impacted the onset timing and the strength of India’s southwest monsoon. This Jul-Sep monsoon event makes up roughly 75% of the annual rainfall for the country, and impacts their pigeon-pea crop production potential as well as the moisture profile ahead of the lentil and chickpea crops grown in the rabi season.
To-date, the monsoon front was about 10 days behind normal as it covered the primary pigeon pea growing region, and cumulative rainfall is also below average. In the case of a below-average pulse production for India through 26/27, the global lentil market could once again find its footing, though given the high carry-in supply it is unlikely to climb to the highs seen in recent years.
Australian crops can also be negatively impacted by El Niño, and growers are acutely aware of this prospect for the tail-end of the season. However, SA and Vic have an above-average soil moisture profile which will likely limit yield losses even if the rain were to cut off. Nevertheless, risk of a relatively dry spring and a heightened potential for frost remain.
This is a sample only, if you would like to view the entire document and our recommendations, please contact CloudBreak to discuss becoming a member on (08) 8388 8084.