Through most of March, lentil prices in SA hovered around the $900-910 a tonne level on a delivered basis (Adelaide or up-country). Despite being a strong decile price (8.4), market liquidity remained relatively muted in SA since lower prices for both the product and freight were available across the border in VIC.
This period also coincided with India's rabi crop harvest, their primary pulse crop in which the Indian government had reported a lentil production forecast of 1.64 million tonnes, up a potential 5 per cent on their prior season forecast due to higher planted area.
While India's harvest was keeping a lid on the market, so too was the incumbent government, which has been striving to keep domestic pulse prices in check. This action comes on the heels of several years of increasing lentil prices and a deficit of pigeon peas amid high levels of food inflation.
It is also an election year for the Indian government, where naturally there is increased incentive to ensure both consumer and farmer needs are met. Subsequently, India has made significant purchases of lentils to shore up supplies and the government buffer-stock, far more of Aussie origin than in previous years.
Through the 22/23 season (with the shipping period Oct-Sep), India's lentil purchases made up 47pc of all Aussie lentil exports, up from 21pc in the previous year. For the 23/24 season to date (records Oct-Feb), India has eclipsed all other destinations, making up nearly 64pc of Australia's lentil export total. Historically, Bangladesh was Australia's largest lentil importer, making up roughly 40-50pc of the share.
In addition to significantly raising lentil imports and buffer stocks, India relaxed yellow pea import duties in December '23, where a 50pc duty had been in place for roughly seven years. Swathes of yellow pea imports followed, predominantly from Russia and Canada. The 'temporary' relaxation of the pea duty has been extended a couple times, now ending June 30.
Recently, the Indian government has expanded the scope of the essential commodities act to include stocks reporting on yellow peas to prevent any potential hoarding of stocks and keep tight control over both supply and price of pulses.
It would be easy to anticipate lentil price pressure amid the factors of: increased pulse stocks, reported high-production forecast in India, high governmental controls, and a large Aussie lentil crop. However, we note a sudden surge in lentil prices, up between $40-$50/t in the span of the past week. This has been spurred by a sharp decline in the Aussie dollar, which has dropped 3.25pc in the past week.
The decline is due to a reassessment of relative interest rates between the RBA and that of the US Fed, where the Fed's recent comments have turned somewhat more hawkish based on recent inflation data (which was higher than expected). Stronger risk-off sentiment surrounding the heightened conflict in the Middle East has also contributed to a shift toward the US dollar over the Aussie.
The currency is not the full story, however, as the market value has increased more than the currency component in its isolation. This move, amid the measures imposed by the Indian government, is highly suggestive of a lack of domestic supply. While firm figures of India's final production are absent, anecdotally the lentil crop could be short of the government's estimates by up to 300,000t (18pc).
Reportedly, domestic deliveries have been slow; imported product from Canada has also been slowing and Russian supplies have effectively been drained. After the peak period of Ramadan and its food festivities, it looks as though India is needing to re-engage with lentil imports to cover a lack of commitments ahead of new crop international supplies.
Supply and demand fundamentals for lentils have been showing a tight global balance sheet for the past two seasons, despite the large increase in Australian production; ABARES production estimates came to 1.69mt in 22/23 and 1.38mt in 23/24 vs the prior five-year average of 0.66mt.
The global tightness is reflective of India's increased demand due to low domestic supply of other pulses (including pigeon peas and this year likely chickpeas), combined with lower Canadian supplies due to combinations of reduced area and drought through recent years.
Fundamentally, the global market has remained highly supported at high-decile prices for an extended period; the question is how far this rally can go and what the new season could bring to relieve the tight global stocks-to-use. For 24/25, Australian lentil production could be similar to that of 23/24 with likely unchanged commitment to planted area.
Meanwhile, Canada is forecasting a slight increase year-on-year, but a return to average production (about 2.3mt). With that said, the soil moisture profile is lacking in major lentil producing regions of Australia and Canada and is of growing concern. May-June rainfall in each country will be critical for the lentil market to keep up with India's insatiable appetite.
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