SA lentil markets have continued to erode. Old and new crop offers from Canada have become more competitive after the June rainfall, alleviating many of the drought and yield concerns from the previous year. Meanwhile, local bulk exports are effectively finished for lentils, leaving residual exports up to the container market.
The market as a whole is awaiting better certainty over Canadian and Australian supplies from September onward. Aussie lentil prices are now being guided by declining Canadian offers and their aggressive selling mindset. For new business, international buyers are weighing up the potential benefits of improving new crop production prospects and cheaper prices. As a result, the market is in no rush to secure more Aussie lentils for the time being.
Meanwhile, container export rates remain at an exorbitantly high price. Unless they have been able to secure freight, it is a challenge and liquidity is limited. Generally speaking, containers remain uncompetitive for lentil exports, and it looks like bulk shipments will again rule the roost in 22/23.
At this stage, we expect Canadian lentil production to sit between 2.45-2.55 million tonnes, about 56 per cent higher than last year's 1.6mt. After significant drought, yields tend to take a couple years to fully recover. The moisture profile of the Canadian prairies is certainly improved on last year, yet they are not completely out of the woods. June weather has done a great deal to help alleviate prior production concerns, but overall soil moisture remains lacking; these next couple months will be critical.
We now approach the seasonal lows for lentil prices as we get closer to the Canadian lentil crop harvest in late Aug/Sep. Last year saw an anomalous price hike that worked against seasonality because of the heat dome that hit Canada in July/Aug; this is not an event that we expect to see again this year.
Once the Canadian harvest pressure begins to subside, but before the Aussie crop harvest starts to hit the bins, we often would see another price rally for lentils. Of course, the extent of this will be determined by the outcome of Canada's crop and the expected production in Australia.
Markets are now looking forward; the prospect of an improved Canadian crop with higher-than-expected carry-in weighs on the market.
In a strong response to high prices, Aussie and Canadian growers have significantly increased planted area for the 22/23 season. While Canada's crop is unlikely to make new records, the Aussie lentil production this year could be another bin-buster if the weather holds up in Aug/Sep. This poses a price risk at harvest if we see another year of local heavy selling once the headers start rolling. History tells us that emotional selling and high exporter margins occur in years of large production when prices are at a high decile.
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