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Chickpea markets in the balance

Rob Brealey, May 22, 2018

DESPITE all the Indian Government efforts, the local Indian farmers are still only receiving at local market yards between 70 and 75 per cent (pc) of the government’s mandated Minimum Support Price (MSP).

I am sure this would be a disappointment for both the farmers and government ministers. The Government has purchased more than 1 million tonnes (Mt) at the minimum support price from farmers. What this says is that farmers are giving the government what they can against the MSP (there are various restrictions which limit farmers participation) but are still finding it necessary to sell in the free market to generate the cash they need.

Tonnage purchased under the MSP scheme is quite impressive, but for me tells us that the local crop was not as large as forecast. Also, the government has now a substantial stockpile of product to sell and would be targeting the price paid (MSP), or a little better, to release this back to the market.

On the flip side, we now see chickpeas in India trading again at levels equivalent or in some cases even cheaper than alternate pulses, which should stimulate a reasonable increase in demand.

The bottom line is while we have most likely now seen the bottom of the market in India, it will probably be capped by government selling at or around the MSP, for the foreseeable future (barring any catastrophe with India’s crop).

All this means we are unlikely to see India return as a buyer to the global market until sometime in 2019 (or later depending on their next crop cycle).

Trade may flow in new directions

So, without India as a buyer where does Australia sell its crop?

Well, we have roughly 5/600,000 tonnes per annum of demand into other markets which is reasonably inelastic.

Markets such as Pakistan, where their crop has once again been sub-par, will continue to be a steady buyer, as will the likes of Bangladesh, UAE and an ever-increasing array of new markets where vegetarian diets are becoming increasingly fashionable.

We do, however, need to guard against India becoming an exporter to these destinations in competition with Australia but so long as we remain reasonably price competitive, then this is unlikely to happen in a meaningful way.

Australian chickpea crop likely to be smaller than last year

Of course, overriding all of this is the dry weather in the larger producing areas of Australia and the strong prices available to farmers for alternate crops in the domestic feed markets.

How much will Australia grow this year? Well, I don’t think anyone knows yet – I am sure there are many farmers just wishing for sufficient rain to be forced to make that decision.

Until the planting window closes, and the weather gods have played their hand, we can only guess, but on balance it is likely to be substantially less than last year.

With the Indian Government effectively saying, “don’t grow chickpeas for us”, we must be mindful that a crop larger than 5/600,000t will need to either find new markets or discount to find homes in India. A crop of less than 5/600,000t will need to see some rationing in markets outside India. Both scenarios will have their market impacts.

As usual, never a dull moment in agriculture but even more so in chickpeas where the story continues to evolve.

 

Written by Rob Brealey, pulse trader, COFCO International Australia – Toowoomba

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