Lentil Harvest & Commentary - Kevin Hursh

[shaney]

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For those farmers that are able to get a grasp of this market and get their crop off on a timely basis this will be a win. The trouble is that many farmers are still battling lentil harvest in late September which is highly unusual. One thing is certain lentils a highly profitable crop but the risk is definitely present. Good luck to everyone !!

[wmoebis]

Genuine question;
I am new to this lentil marketing thing. Can someone explain to me Why the producers that don't lock in contracts before harvest are concidered the RISK TAKERS?

It would seem to me that if I lock in price, quantity and quality before they are in the bin I would be a higher RISK TAKER.

If I would have locked ANY of this years crop at a #2 I would be pooched and would be buying out a contract that I couldn't fill.

[cottonpicken]

Never heard of anyone buying out a lentil contract.

Three words "act of god".

[wmoebis]

Yes I agree on act of god and should delete "buying out contract". But why are the guy's with "bird in hand" the risk takers for price?
Like Keven says He priced at 22 cents now the price is almost double. Didn't he take the same risk on price, at least on that portion of crop that was contracted?

[charliep]

I guess a matter of definition of risk.

In the example, Kevin locked in a price of 22 cents/lb because it was
profitable, fit cash flow needs, historically good or whatever. He gave
up the opportunity of higher prices but he was also protected against
lower prices. He knew what he was going to get in the fall and needed
to be prepared to live with it.

Production and grade is another risk that needs to be considered with
an act of god one alternative.

[dave4441]

He is referring to Viterra as they are forcing growers to buy out red lentil contracts that did not have the AOG.

[cottonpicken]

Holy cow I was unaware of the viterra thing.agree that risk and perception go hand in hand

[dave4441]

On Friday they were washing 25 cent contracts with growers using a mkt price of 32-33 (which was totally unsellable in the destination mkt)cents. Meaning grower pays out 7-8 cents/lb. On Monday they were bidding 25 cents, which was closer to world price. Apparently, some guys got invoices in the $50,000 area. Was told they were really agressive, saying mkt is only going higher. Problem is that grower does not see lack of demand in the export mkt at this time and therefore assumes that he better get out of his contract.

[charliep]

Dave

Just wondering what alternatives the pulse industry is looking at to
provide more visible pricing and contract settlement. The
Clearinghouse project (not under consideration anymore) would have
provided alternatives to have more visible price discovery and more
accurate buyouts. It would have also been an independent 3rd party
that would settle based on actual replacement cost. A third benefit
would be to allow a bigger window for settle of a contract. If a
farmer would have known a month ago they were not able to meet
their contract quanity, they would have more time to settle (i.e. could
trade out of contract).

Getting away from the act of god (someone takes on this risk by the
way) and the specific issue under question.

[dave4441]

Charlie-to answer your question, not much is being done. The grower has a big advantage with the AOG contract and should want to see nothing replace it. THe risk is taken for virtually no cost to grower. A futures Mkt of course can address it, but there is no chance of that on these small volume crops, just will not peak the speculaters interest to take the risk. I think the clearing house model would not fly, too much margin (on both sides) and personally did not support it for special crops. Comments are more based "payment protection" basis. It is almost impossible to get the benifits of a futures mkt without the costs being offloaded to anyone but the grower/trader.

[charliep]

The question always comes to how the processor/broker covers their risk with an act of god clause - i.e. cover a sales to an end user with a priced farmer contract. The obvious answer is to build bigger margins into their pricing but there is a cost and still risk.

Maybe the answer is an improved suite of weather based risk management products for processors or an insurance product that covers grade risk.

[dave4441]

They trade there way thru the risk by trying to be long or short depending on the circumstances of the mkt, it is not done by larger margins in a current AOG system. Also adds liquidity to a small volume market when on any given day the buyers overseas may or may not be buyers of product.

There may be a better way with insurance, would have to know the costs I guess.

[gustgd]

Viterra no longer makes you buy out contract if not #2 but have a 5 cent discount on extra 3.
In my experience their buyers are still learning and defaulting to lower grade. Like wmbonisis says learn what grades are. Don't take less.

Question. How are other exporters looking for exportable supplies ?
IMO right now is harvest pressure, (wide basis) and by Jan things will be 5 cents higher maybe 8 cents by march???.
But What is happening in importing countries. Does Turkey/Asia have a crop?
Little help?

[checking]

The lentils were diseased out, and a write off even 45 days after seeding in this area. It didn't matter whether growers had hit it with multiple applications of fungicides, or not. I'll say there was rain during a third of those days (300 mms) with the other 300 mms in the following 60 days.

Question - India has monsoons, always equivalent to 800 mms plus, grows pulses, some of which only Larry could pronounce! Do they ever struggle with pulse diseases, or is this just our issue?

[charliep]

Will have to do a little research on Monday for a couple of your
questions.

one comment would be to look at seasonality and lentil prices. Lentils
into Europe are for soups - winter food. There is also seasonal
demand for other types of lentils ahead of the rabi crop harvest in
India. There is seasonality to lentil prices although not as much with
all lentil classes.

Will also have to watch the Canadian situation including Monday. We
are a significant portion of world lentil trade - particularly on the large
greens. Grade patterns will also be important. I eat lentils at home
and spend some time looking in clear packages at the raw product -
quality is important.

Also have been to Turnisia and looked at how sold there. Likely
similar other consuming regions. Product is displayed in the local
markets in nice neat piles. I suspect hand picked to remove poorer
quality seed. The consumers expectation about quality of the product
(seed is very visible as not processed) is no different than mine.