Pulses may rule soft as production rebounds

Based on preliminary estimate of world dry bean, field pea and lentil production for 2013 combined with lower carry-in, there is widespread expectation that supplies would turn tighter. A consequent firmness in prices is therefore being assumed. To what extent is this assumption justified? What factors can potentially cap the upside for pulses?

The pulses market cannot and does not operate in isolation.

After all it is part of the overall global agricultural commodity market covering in the main grains such as corn (maize) and wheat as well as oilseeds.

With generally benign weather and improved input management, 2013 currently witnesses a rebound in world agricultural production, with significant contribution from the northern hemisphere.

Markets have taken cognizance of this supply side response to high prices of the previous two years. A, in a surplus market, speculative capital tends to stay on the side lines in the absence of any price appreciation potential.

Currency factor

The other factor is currency, especially the dollar. Despite recent weakness, there is ample reason to be bullish about the dollar. Near-imminent tapering of quantitative easing by the US Federal Reserve this month would lend strength to the greenback. Currency experts assert that demand for the dollar will allow it move below 1.30 to the euro in the first stage (from 1.33 currently) and gradually test the 1.25 levels. In other words, the liquidity-led commodity boom of last three years is set to come to an end. More important than other factors, it was too much liquidity and availability of the dollar at near-zero interest rate that drove commodity prices higher. A correction is due.

So, when the overall global commodity markets are awaiting price correction and agricultural markets have already turned soft in the wake of supply rebound, can pulses market (a minor component of world agricultural trade) defy the downward price pressure? The price of pulses will be impacted by the overall sentiment, notwithstanding the anticipated tightness in supplies going forward.

Yellow pea, among the cheapest pulse available, is a good example.

Demand

Its prices have already declined by 10 per cent in recent months from the level of about $430 a tonne in April.

Another critical factor is demand. With currencies of major importing and consuming markets especially in the Asian region having depreciated rapidly, the risk of higher import costs and prices leading to demand compression is real.

This point was well argued by a reputed trader from Switzerland at the recently concluded pulses trade seminar in Harbin, China.

Finally, South Asia – represented by India, Bangladesh and Pakistan – is the mover and shaker of the world pulses market accounting for well over a third of the world import.

Pulses production, now ready for harvest, has rebounded in the region.

The world’s largest producer, importer and consumer of pulses India is set to harvest an anticipated seven million tonnes during the current kharif season, significantly higher than 5.9 mt last year.

So, it looks like the pulses market will not be able to swim against the tide of softening overall agricultural market prices.

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