Special Crops Market Review Volume 1
Issue 3
August 2006
Dry Beans Production The summer of 2006 has been the opposite of 2005. Hot, dry conditions have been the topic of coffee shop discussions and the concern of most farmers in southern Manitoba and north central U.S. However, at least in Manitoba, it appears the near saturated soils from 2005 provided the much-needed moisture for the crops to grow in the hot, dry conditions of 2006. Although the yields for beans are not yet known, some of the early harvested crops such as winter wheat and canola have resulted in pleasant surprises. Growers in bean producing areas are optimistic that dry edible bean crops will come through this summer with reasonable yield results. In late June, the USDA released its 2006 planted acreage report for U.S. crops, showing acreage for dry edible beans at about 1,562,000 acres. To the surprise of many, this is almost 6% lower than the approximately 1,659,000 acres planted in 2005, and almost 9% lower than the March 2006 intended planting report. With normal abandonment and acreage loss, the 2006 U.S. crop should result in 1,465,000 acres of dry beans being harvested. This decrease is mainly the result of lower market prices and higher returns being generated by other crops.
U.S. Dry Edible Bean Acreage Planted Acres
2,000,000 1,500,000
Table of Contents
1,000,000 500,000 0
2001
2002
2003
2004
2005
Dry Beans
Page 1
Lentils
Page 3
2006
Source: USDA/NASS
1 1
Exports
The combined U.S. and Canadian planted acreage for 2006/2007 is 1,946,000 acres, versus 2,149,000 acres of dry edible beans from the previous season (2005/2006). This represents a decrease of slightly more than 9% planted in North America this year (excluding Mexico).
Over the past year, exports from Canada and the U.S. have been active (especially the U.S.). According to the USDA, exports from the U.S. have increased 60% during the first six months of the marketing year (September 2005 to February 2006) compared to the previous year, mainly due to the surge in shipments of pinto beans and black beans, followed by great northern beans. The demand for pinto and black beans from Mexico and pinto bean shipments to Africa have helped move a large percentage of last year’s U.S. production. At this time, it looks like demand will remain promising going into the 2006/2007 marketing year. For the first time in many years, Iraq was back in the market buying U.S.-origin great northern beans, which added to the demand increase. Additionally, smaller crops in many producing areas around the world have helped generate demand for the North American crop.
Planted Acreage of Dry Edible Beans in the Major Producing U.S. States
State
2006 2005 Acreage Acreage
2006 as % of 2005
% of U.S. Acreage 2006
North Dakota
600,000
620,000
96.5%
38%
Michigan
225,000
235,000
96%
14%
Nebraska
135,000
175,000
77%
9%
Minnesota
135,000
145,000
93%
9%
Colorado Idaho
80,000
125,000
64%
5%
110,000
100,000
110%
7%
33,000
34,000
97%
2%
Wyoming
Mexico continues to be an important market for beans produced in Canada and the U.S. In early July, the National Action Party (PAN) – the political party viewed to be the most pro-business – won the Mexican national election by a very slim margin. This victory, however slim, has restored Mexican importers’ faith in the economy, which bodes well for exports to the country in the coming year from Canada and the U.S. Since the election, the Mexican stock market has risen and the Peso vs. the U.S. dollar has improved, hopefully paving the way for increased imports. Plus, unless the rules change, the duty on beans entering Mexico from Canada and the U.S. is scheduled to decrease on January 1, 2007 from the current level of 23.5% down to 11.8% as per the agreement made under NAFTA.
Source: USDA/NASS
Above is a breakdown of the planted acreage of beans in the major producing states, which represents about 84% of the total U.S. acres. These states are the highest producers of the primary types of beans grown in Manitoba (i.e. pinto beans, black beans, and navy beans).
Estimate of U.S. Bean Industry for Three Main Types Percentage of Total U.S. Dry Edible Bean Acreage
Equivalent Acres of U.S. Production
Pinto Beans
48% - 50%
750,000 - 782,000
Navy Beans
13% - 15%
203,000 - 234,000
Black Beans
8% - 10%
125,000 - 156,000
Type
Harvest There is still a fair amount of time before bean harvest in Canada and the upper mid-west of the U.S. begins;
Canadian Dry Edible Beans – Supply and Demand Crop Year
2002/03
2003/04
2004/05
2005/06
2006/07
Harvested area (ha)
219,000
167,000
163,000
197,000
166,000
Production (mt)
414,000
356,000
220,000
324,000
320,000
Imports (mt)
40,000
31,000
28,000
35,000
30,000
Total supply (mt)
489,000
482,000
303,000
364,000
375,000
Exports (mt)
298,000
344,000
278,000
295,000
310,000
Domestic Use (mt)
96,000
83,000
20,000
44,000
45,000
Carryout (mt)
95,000
55,000
5,000
25,000
20,000
$445.00
$495.00
$650.00
$ 485-$505
$ 480-$520
Average price $/mt***
*** Prices are average blended prices between varieties and types in CAD$ FOB plant. Source: AAFC / Statistics Canada and Industry consultations.
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therefore it is still difficult to predict what size crop will actually be harvested. There is little doubt that the hot, dry conditions have reduced the crop in Manitoba from optimal to a best-case estimate of average. The bean crop in the Northern U.S. (especially North Dakota and Minnesota) has likely suffered the worst, and it would be a fair assessment to predict a less than average crop from a yield perspective. In fact, some early reports indicate the yields in many production areas will be poor, especially in western North Dakota. On the positive side, barring any serious rains during or just prior to harvest, the Canadian crop should be of good quality. Hopefully this can translate into some quality premiums. The first priority for growers this fall will be to get the crop harvested as quickly as possible, trying to ensure quality is as good as possible, making the crop easier to market. On most years, good quality translates into price premiums. Based on the expectation of a smaller crop coming from both the U.S. and Canada, and the reduction of the import duty coming January 1, 2007, it may be wise to consider selling some of your crop at a later date in the season.
Black Beans Stocks of good quality black beans are very low and demand looks good coming into harvest. Expect to see demand pick up as we get closer to the end of the calendar year. If you have not made any sales up to this point it would be prudent marketing to consider pricing some crop prior to harvest. This will allow prompt delivery and assist in post-harvest cash flow. China will harvest its crop in October with goods being available in late November and December for export to world markets. There is little information available on the Chinese crop at this time, but the situation will become clearer as harvest approaches.
yields there could be fairly significant price increases on pinto beans. As stated earlier in this report, North Dakota is the largest production region for pintos and a reduction in that crop could mean higher prices in Canada. Either way, there will not be a burdensome supply of pinto beans as demand is expected to be stable.
Lentils Production In late June 2006, Statistics Canada released its planted acreage report confirming what the March intended acreage report showed. Canadian farmers planted a lot fewer lentils in the spring of 2006 compared to 2005. In fact, the reduction in lentil acreage was almost 33%. This decrease is a result of low market prices and improved prices for cereal grains. The late June report said that 1,470,000 acres of lentils were planted in Western Canada for the 2006/2007 marketing year as compared to 2,190,000 acres for the 2005/2006 marketing year. There is a general consensus in the industry that of the 1,470,000 acres of lentils planted in 2006, the break down among the types of lentils will be approximately as follows: Green lentils (all sizes): 55% and red lentils: 45%. This is a reversal from previous years when the percentage of red lentils rarely exceeded 20% of the planted production.
Canadian Lentil Acreage
Navy Beans Supplies of navy beans continue to be ample and there is very little pointing to drastically higher prices. Quality is key for navy beans and it is strongly recommended to get the crop off in the best possible condition. Watch for the Ethiopian crop to come in late fall or early winter (October/November). Although Ethiopia is always a competitor for white bean production, a large or small crop from that country can have a positive or negative impact on Canada’s ability to service the European packaging market.
Pinto Beans Since a very large percentage of North America’s pinto beans come from North Dakota it will be very important to watch the progress and the result of harvest in that region. If the hot, dry weather has had a large negative impact on
Planted Acres
2,500,000 2,000,000 1,500,000 1,000,000 500,000 0
2000 2001 2002 2003 2004 2005 2006
Source: Statistics Canada & AAFC
In early July, the USDA released the U.S. planted acreage report for lentils showing U.S. acreage was also reduced from the previous year. In 2006, U.S. farmers planted 420,000 acres compared to 450,000 acres in 2005. The decrease in acres occurred mainly in Idaho, Washington, and Montana. North Dakota maintained a similar acreage to last season.
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Canadian Lentil Production/Stocks vs. Exports and Usage
U.S. Lentil Acreage
2,000,000
400,000 300,000
1,500,000
200,000 MT
Planted Acres
500,000
100,000 0
2001
2002
2003
2004
2005
2006
Source: USDA/NASS
1,000,000
500,000
0
The lentil production for the U.S. is broken down by state as follows:
U.S. Lentil Plantings by State** State
2006 Acreage
2005 Acreage
North Dakota
150,000
150,000
Montana
140,000
150,000
Idaho
55,000
65,000
Washington
75,000
85,000
420,000
450,000
Total
**The U.S. primarily grows medium green lentils
Stocks The reduction of acres in Canada and the U.S. is a clear signal that farmers were not happy with the record low lentil prices that have been in place for the last number of months. Even with the lower acreage, Canada is faced with a burdensome (read: record) inventory of lentils from the large 2005 crop. Based on information from Statistics Canada we will carry in from 2005 approximately 550,000575,000 metric tonnes of lentils. This carry over is mainly large and medium green lentils and the quality will generally fall in the grade categories of No. 2, No. 3 Extra, and No. 3 Canada. This becomes very frustrating for farmers still holding green lentil inventory; however, the only solution to seeing higher prices is the time it takes to work through processing, shipping, and exporting this burdensome inventory. In all likelihood we need at least a year of exporting to move the large carry over. We will likely be into the 2007/2008 crop before we see considerably higher prices. As the saying goes: the cure for high prices is high prices and the cure for low prices is low prices.
2001
2002
2003
Stocks/Supply*
2004
2005
2006
Usage**
*Stocks/supply is the tonnes of production plus carry in, plus imports **Usage includes the combined exports & domestic use Source: Statistics Canada, AAFC, and industry consultations
The prospects for 2006 going into 2007 are not brilliant, but prices should increase as we move further into the marketing season. There is little chance that prices will go lower and very good chance that as we move into the crop year we will gradually move out of the basement to higher price levels that make more economic sense from a bottom line/profit perspective. On the plus side, it is interesting to note that Canada exported and used a record quantity of lentils over the past 12-14 months. As demonstrated in the S&D on the next page, there are still a lot of lentils to move before we get inventories to more reasonable levels that will allow for higher prices. Unfortunately, the information provided on exports lentils used to prepare the S&D, reports lentils as one commodity. In reality, the prices paid and the markets into which different lentils are shipped can differ immensely. Therefore, strictly from an S&D perspective, exports and carryout inventory can be somewhat misleading. The carryout from the 2005/2006 Canadian crop is mainly green lentils. However, the production coming into the 2006/2007 crop year will have a large percentage of red lentils (almost 50%). By the time we work through to the 2007/2008 season we should have moved a large portion of the burdensome 2005 crop carry over of green lentils.
Marketing As stated earlier, the majority of the inventory being carried over from 2005/2006 is lower end grade No. 2 Canada as well as No. 3 Extra and No. 3 Canada. This should mean that
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Canadian Lentils Supply & Demand (S&D) Crop Year
2002/03
2003/04
2004/05
2005/06
2006/07
Planted Area (ha)
601,000
554,000
778,000
884,000
587,000
Production (mt)
354,000
520,000
962,000
1,270,000
670,000
Imports (mt)
9,000
5,000
10,000
10,000
10,000
Carry In (mt)
131,000
55,000
38,000
245,000
560,000
Total Supply (mt)
494,000
580,000
1,010,000
1,525,000
1,240,000
Exports (mt)
320,000
367,000
451,000
650,000
700,000
Domestic Use (mt)
119,000
175,000
314,000
315,000
300,000
Total Usage (mt)
439,000
542,000
765,000
1,280,000
1,000,000
55,000
38,000
245,000
560,000
240,000
Carryout Stocks (mt)
***2006/2007 is estimated based on previous year’s information Source: Statistics Canada, AAFC, and industry consultations
premiums will be paid for nice quality grade No. 1 and No. 2 Canada. If you produce a grade No. 1 or a very nice grade No. 2 it is suggested to shop it around to ensure you are getting the best price available. This strategy could add a few dollars to your final sale price. Hopefully the hot, dry, sunny summer has not bleached the lentils too badly while in the pods. This heat and sunlight exposure very often results in a tan colour occurring that ends up putting the lentils into a No. 2 grade category. In addition to large and medium green lentils, there should be good demand for small calibre greens. Canada is close to sold out of small green lentils and there should be higher prices paid over medium and large green lentils for small greens, especially for the top grades. The main demand time for the small lentils is August to December and very often the premiums disappear after this period. The main demand areas for the small calibre green lentils are the countries in the Mediterranean region as well as Mexico. They like early season deliveries and like to get shipments as soon as possible after harvest. All information points to Canada producing a larger quantity of red lentils in 2006, probably the largest crop of reds that Canada has produced to this point. Although not for certain, it is doubtful you will see the high prices that were paid last season. From the production side we could easily see 330,000 mt of red lentils produced this year compared to 230,000 mt produced the previous season. We will likely see prices settle in the CAD $0.11-0.13 per pound range. However, until we can establish the amount of demand out of the Middle East and the Indian Sub-continent, and see the results of the Australian harvest in December, it would be prudent to save some of your red lentil production to market later in the season. Any shortfall
in production or increase in demand could easily absorb the extra production of about 100,000 mt over last year. As a grower it is important to be aware that the majority of green lentil exports occur each year from August to January. Normally Canada exports over 60% of its green lentils between August and January, with the balance being marketed during the remaining five months from February to July. Since this is the time period that product has demand, it would make sense that as a grower the largest amount of sales should be made during this period. For nice quality and high-grade material it makes sense to sell earlier as opposed to later when the demand is slower and the risk of downgrading due to oxidization and colour loss increases. This is also true for red lentils, but very often red lentils can experience good demand throughout the year. This will depend very much on production in other countries, e.g. Australia harvests in November and India harvests in February and March. Early harvest and yield reports for this crop (2006/2007) indicate there will not likely be a bumper crop or above average yields. The best we can expect is an average crop. More than likely we will be closer to a slightly below average crop from a yield perspective because the heat and lack of moisture took its toll. Some areas will report very high yields and some areas will report low yields, as usually happens, but at the end of the day we should end up with an average to slightly below average crop. It will be wise to market prudently. Sell good or top quality early (to meet demand) and market to cash flow requirements and bin space limitations. After these are looked after and demand is better known, wait a while to see if the market can pay a better price for lentils. Have a good harvest.
As a service to Cargill’s FarmSense clients, recognizing that Cargill does not actively trade many of the special crops marketed by our client base, Cargill has solicited information and opinions from those directly involved in the “special” crop industry to prepare the “Special Crops Market Review”. While Cargill has no reason not to believe that the information and opinions are applicable as of the date of this publication, the nature of the special crop industry is extremely volatile and can change quickly. Cargill Limited, its employees and agents, do not guarantee the accuracy or completeness of the information contained in this 5 publication and make no representations or guaranties, expressed or implied, as to expected results. Cargill accepts no liability for any loss arising out of any use of or reliance on this publication or its contents.