Lentils have proven themselves to be a good break crop across much of the SA cropping region.
With relatively good gross margins and an ability for frosted crops to be made into hay, lentils have made their way into rotations across the state.
Despite being a favourite crop in some farmers' rotations, lentils have had a rocky ride in the past few years, struggling to find support in a marketplace with the protectionist policies of the Indian government. In 2017, after a bumper global harvest the previous year and burdensome lentil stocks, the Indian government introduced a 30 per cent tariff on all lentil imports.
The lentil market has been relatively subdued in the past few years. Up until early this year, lentils have struggled to spend large periods of time above the $600 a tonne mark.
But this year, it changed. Lentils soon soared post-harvest to above the $900/t mark, something that hadn't been seen in more than three years. This had been helped by shorts, that had been exposed, and a relaxation of the lentil tariff to 10pc by the ruling Modi government in India. The reduced tariff is mainly due to a challenging rabi lentil crop and increasing domestic prices causing the rural population to get angsty with the re-elected government.
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The relaxation in the lentil tariff was only meant to be temporary, potentially being reinstated to the full 30pc at the end of August. This reduction prompted a stream of lentil trade into India, as the rush was on to get shipments of lentils landed and through customs. Reports show that 400,000-500,000t of lentils have been imported under the reduced tariff, 80pc of which came from Canada, with the remaining 20pc from Australia.
With the August 31 deadline, no news from India indicates the full reinstatement of the tariff on lentils. But, there is potential that the reduced tariff will be in place for at least the next few months. This will allow a large amount of new crop Canadian lentils to enter into India, potentially at the expense of new crop Australian lentils.
The most recent crop and pasture report from PIRSA is also putting some shadows over long-term lentil pricing. The 2020-21 crop is expected to be above the five-year average and the largest area sown to lentils in the past five years. Some of this is coming from outside the typical lentil area, such as the Mallee.
With the increase in area and expected production locally, our biggest lentil market competitor, Canada, is also looking at potentially increased production for 2020-21. The forecasts for August have been indicating a rise in lentil production of 14pc to 2.5 million tonnes, the fourth-largest Canadian lentil crop on record.
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The combined harvest pressure of lentils from Canada and Australia is not conducive to the prices seen earlier this year.
Adding to the complexity surrounding lentils and lentil markets is the decision to segregate Hallmark lentils for the 2020-21 season. They are trading at a $15/t discount to other NUGT-type lentils, primarily due to the need for the trade to work with their buyers in Bangladesh and other lentil importers, on market acceptance of the new variety. For the meantime, segregation is the way to manage the market access issue, but this should be resolved with continued work from the trade and industry.
For 2020-21 and coming into this season's harvest, considering the volume of lentils around globally, and forward pricing at decile 5 levels, the gross margin on lentils can still be profitable. But, with pressure coming into harvest, we could be looking at a very different pricing situation.
Lentil pricing is in a more positive position than last year, but it is still a long way from the pre-2016 $1300/t.
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