August 8, 2022
Viterra is a multi-national agricultural commodity business that is active worldwide through acquisitions and growth. In terms of volume, it is one of the largest pulse handlers worldwide. As an origin-focused business, Viterra’s model is built around ports and railhead assets at the point of origin. Will Watchorn is Global Head of Pulses and has over two decades of trading experience. Jens Harder caught up with him last week to get his insight on the pulses market as it stands.
Pulses is one of the last true markets for agricultural commodities where you don’t have the involvement of funds and outside influences. I don’t just trade one commodity - I trade multiple commodities, each with different characteristics and links to each other. Also, pulses are not like corn and wheat, where famers can more easily find out what is going on in the market. The pulse market is still a little bit grey. I enjoy doing the research and analysis so it's a good fit for me.
There are multiple sectors that are growing. The alternative meat market is a fantastic opportunity for expanding the pulse area. One of the problems pulses have is the illiquidity of the market and that it is a minor crop in many parts of the world where it is not the farmers’ first choice. Developments such as the alternative-meat sector can increase demand and the spread of buyers, which will drive farmers to grow pulses.
But there are problems and growing pains in the alternative-meat, which is reflected in the recent battering of some companies’ stock prices.
Aquaculture is a growth sector for lower grade pulses, such as yellow peas and faba beans. Another is the use of pulses in animal feed, particularly faba or peas, into pigs or chicken rations. But more research needs to be done, for example into increasing protein content through extrusion, a way of concentrating protein.
I think that the fact that pulses are not genetically modified is a unique selling point as the world splits into two camps: those who will eat GM and those who avoid it like the plague. For example, in Germany they don’t want to eat pork that has been fed on GM feed. That's an opportunity for pulses.
In terms of human consumption, India is the main destination and this can be a headache as it is quite protective. It is very hard to convince farmers to base their cropping rotation decisions on what duties the Indian government may or may not impose on imports. We need to keep encouraging market access and then we can keep growing the area.
What is going on in Ukraine is utterly terrible. But Ukraine is not a big producer and so the impact on the wider market is limited.
In Ukraine, yellow peas are the biggest crop with annual production of around 550,000-560,000t. This year, I would estimate that should fall to 150,000t.
Ukraine is a no go zone and it is very difficult to do business there unless the pulses come out overland.
In contrast, Russia produces 3mn t/yr of yellow peas. The biggest problems we face regarding Russia are finding countries and companies that are able to move, buy or pay for Russian pulses – that is a headache. In the pulses market, wealthy countries tend to sell to less wealthy countries. So, with US dollar rates going up, countries’ ability to afford pulses is being hit. And this is being fueled by what is going on in Russia. There are countries that would like to buy Russian pulses but if I want to charter a vessel to go to Russia I’d have to pay a big premium because of insurance costs.
More people are buying only spot cargoes which is making forward planning very difficult. This is adding to existing logistics issues. Shipping lines are bulking up shipments into bigger blocks so buyers have to pay for more in one go, which creates cash flow issues.
Yes, but it will be less. One factor is that the rouble is extremely strong, which makes Russian pulses more expensive. Business for Russian pulses into the EU will be less because it is very competitive but also as there is quite a pushback there against Russian pulses. But Europe can afford to play those games – if you are Pakistan and Bangladesh, I don’t think you can.
What is going on in Russia does open up opportunities for other countries. For example, Europe has been a small player but as prices have been higher so pulses flow out to replace Russian supply.
Other problems arising are trying to find banks that will pay for Russian cargoes, finding vessels that will go there, or finding container lines that are willing to process Russian documents. These are all headaches the industry is facing today. And that just increases costs in an already inflationary environment.
The shortages of Kabuli have eased. For example, Covid’s impact on India’s wedding season and hospitality sector meant demand fell off a cliff. The best cure for high prices is high prices because you kill demand or increase supply. But we’re also expecting better crops in Canada following last year’s drought-affected harvest.
We forecast that Canada’s crop this year is looking average or above average – but the final harvest and quality will be decided by weather.
The pea market has two big legs – one for feed and one for human consumption. You can kill demand for feed because you can use other grains, which can make it quite quick to sort the market out. For example, in one year I’ve seen China take 2.6mnt for feed or 1.1mn t, all from Canada. China has 1.5mn t to 2mn t of elastic demand for peas for feed, depending on price.
Yields in southern Russia might be 25-30% down but there’s the black soil of Siberia still to go. Northern Europe is looking good with a decent crop in UK of faba beans. And the Baltic regions are also looking good.
Canada is OK, having had a relatively dry winter. We need to keep seeing good, on-time rainfall to keep the pulses in good condition. I think the Canadian crop is average or thereabouts. The US also is seeing a decent rebound from last year’s drought.
In Australia, they are in the middle of the growing season. Australia is split in two parts. The east, with its chickpeas and faba beans, is extremely wet. There is excess moisture and the flooding is also creating logistical challenges. Southern Australia at the moment is OK although it could do with a bit of rain but there is time to make up for it.
India is a concern that we need to keep an eye on. We are watching the monsoon in India extremely closely. Decent rain will set up a decent crop. Things can still go wrong in Australia and India.
Pulses can play a part in helping use less nitrogen but a lot depends on consumer demand. If the consumer wants to eat less meat or meat fed with non-GM grains, then pulses can help. I am a big believer in open markets. Consumer demand defines what growers grow.
Innovation can get pulses into other sorts of feed and human consumption, such as lentil pasta or alt-meats and this will grow the market. If you want to transition from a meat-based diet to a more varied diet, pulses can make up a big part of your protein requirements.
But there are many challenges to this transition. For example, split red lentils are not easy to work with. So, many of my friends buy pulses and then put them in the cupboard and then they stay there. Education is key. People need recipes and ideas. World Pulses Day is an absolutely fantastic idea for sharing knowledge about these products and hopefully that can increase demand.
Another important route for increasing demand is getting them into ready meals. But there is a large risk in over-refined food. When you buy something in the supermarket and the list of ingredients is the entire back of the pack, that is a potential pitfall. I am a big fan of simple.
There is a big issue with the lack of seed technology. If we could grow the market, there would be more demand for seed, which would attract more investment from the big seed companies. If you compare the growth in yields of wheat to pulses since the Second World War, you will see how pulses are far behind. Better yields from seed would make growing pulses more profitable for the farmers. However, I am not proposing more GM technology. For now, pulses should stay away from GM as the market develops.
It was fantastic to see the companies we do business with face-to-face. Although the virtual conventions of the past two years were good, they can’t compare. A pulse conference is hard to organize as there are so many different commodities but GPC do a good job. It was a pity no one from China was there but it was to be expected due to the Covid lockdowns.
Prices have softened quite a way but the biggest problem is lack of inventory at destination, which will at times mean the market remains volatile.
Crops in the northern hemisphere are basically made now but farmers are a little resistant to selling at the current prices as they still see a bullish macro-environment due to Ukraine, although that isn’t really a factor in the market.
There is potential downside but demand for feed should provide a price floor.
If outside markets, such as grains and oils, stay firm, then its difficult to see pulses running down on their own. Overall, I don’t see the shortages that we had last year.
Will Watchorn / US / Australia / India / Viterra / alternative meat / Aquaculture / yellow peas / faba beans / war in Ukraine / Russia / chickpeas
Disclaimer: The opinions or views expressed in this publication are those of the authors or quoted persons. They do not purport to reflect the opinions or views of the Global Pulse Confederation or its members.
