Careful with the lentil lottery
Sometimes a market goes bonkers and that’s what has happened with lentils. Whenever craziness ensues, there are inevitably negative consequences and it will be no different with this bit of insanity.
Sky-high record price levels are certainly a good news story for producers lucky enough to sell into this rapidly rising market, but observers are actively speculating on the potential downside in the months and years ahead.
First, for areas where lentils are not normally part of the crop rotation, let’s recap price performance. Red lentils were a good price at harvest time, selling off the combine for around 35 cents a pound. Now, they are 55 or more. That 20 cent a pound price increase is an extra $12 a bushel.
Top quality large green lentils were selling for around 40 cents a pound off the combine. Now some buyers are reportedly paying 70 cents, an $18 a bushel increase in about four months.
If you grew a really good crop of lentils and had the foresight/luck to hold them until recently you could have grossed $1,000 or maybe even $1,500 an acre.
Of course, very few will have reached those lofty returns. Stories abound of could have, should have, would have, from producers who wish they could have grown a bigger crop and wouldn’t have sold it so soon.
Analysts attribute most of the price strength to dry conditions in India which have stoked the demand for lentil imports. A chunk of the price strength also comes from the weakening Canadian dollar.
New crop contract prices were available in the early fall, months ahead of the normal time and those prices have also ratcheted up to record levels. Prices of 40 cents a pound on the first 10 bushels per acre have been available with an act of God clause in the contract.
This makes lentils the stand-out winner in 2016 cropping options. Some producers who have never grown lentils want to try their luck and price contracts are being signed with farms in such unlikely locations as Prince Albert and Winnipeg.
Lately, new crop red lentil prices have retraced a bit. Some buyers have withdrawn from the market. They’ve filled their contracting needs even before the time when new crop contracts are usually just being initiated.
This overheated market will produce winners as well as losers.
There’s a reason why lentils aren’t grown in higher moisture regions. If those regions have drier and warmer weather than normal in 2016, they might grow a decent crop. Otherwise, there could be huge crop failures.
In areas where lentils are normally grown, many producers will be pushing their rotation to seed as many as possible and that could result in disease issues. In some cases, producers are rolling the dice and seeding their entire farm to lentils.
If you don’t have a contract, will you be able to sell 2016 lentils and what will the price be if acreage and production is as high as anticipated? Producers in many other locations around the world are also excited to cash in, so international competition will likely increase.
What will happen with negotiated sales with buyers in far-away countries when the price inevitably falls? Lentils marketers would seem to be facing a lot of risk.
Analysts say the cure for high prices is high prices. Overproduction typically leads to a number of years of depressed returns.
Lentils are hot and that probably means someone is going to get burned.