Australian lentil markets have seen a marked decline over the past four weeks. Old crop prices in SA have shed over $100 a tonne as many of the vessels that had been lined up for June/July found the required coverage.
Growers engaged with the market at prices between $1050 - $1100/t in late May/early June. Now that prices have drifted back around or below $1000/t, growers have again shied away.
Of note, the SA market is beginning to equalise with that of VIC, where prices have been at a discount due to the more limited capacity for bulk lentil shipments.
A primary diver behind the SA price premium for much of the season (not just for lentils but for many commodities) is its capacity to accommodate a higher pace and volume of bulk exports. The container market has remained constrained by high container price, access, and shipping rates.
The shipping stem remains incredibly full, but lentils are a lesser priority as the market begins to shift its focus forward. Short-term demand is weighted toward cereals amid the northern hemisphere harvest; meanwhile lentil buyers are eying off the upcoming Canadian crop.
Canadian lentil production is expected to rebound after last year's dismal season. The eastern Prairies has received sufficient rainfall to alleviate drought concerns. In some cases, this rain has been in excess, with some pockets expected to be left fallow due to the over abundance of moisture, wind, hail and cold during the seeding window.
Meanwhile, the west has been desperately looking out for a decent drop. Certainly, the lack of rainfall in much of the western region for the season-to-date has been the precursor to a low level of forward selling for Canadian growers in these areas. However, over the past fortnight, respite rain has helped to alleviate many fears of another poor year.
While more rain in the west will be welcome, the weather relief has caused a return of the Canadian grower to the market. As such, Australian lentils are expected to face the seasonal weakness as we get closer to Canada's harvest in late August/September.
The seasonal period for Aussie lentil price strength has come to its conclusion. Further rallies would be predicated on weather woes for the season ahead or another round of shipments, the latter of which is looking unlikely at this stage.
Between Australia and Canada, 2021/22 season ending stocks for lentils will be low enough to maintain high prices for 2022/23, yet there is a notable inverse in the market. While Aussie exports have been solid (up 3 per cent year-on-year), Canadian exports have remained laggard which could further weigh on both old and new crop prices.
With the SA and VIC June/July vessels effectively covered, the inverse has shrunk from about $140/t to just $45/t. Old and new crop prices may well converge by the time August rolls around and the seasonal weakness rears its head.
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