THE Australian chickpea harvest is well under way and the market dynamics are certainly quite interesting and challenging at the moment. In stark contrast to last year, where the late start to harvest drove September bids higher, prices this year have been falling steadily over the past few weeks to close out last month around $100 off the high.

Nidera Australia, Peter McMeekin

The majority of the domestic crop is grown in Queensland and northern NSW, and these are the regions that have suffered the most this season. Extremely low in-crop rainfall, multiple frost events in late winter and early spring followed by hotter-than-average temperatures to close out the month of September have all contrived to decrease production estimates.

Some areas are faring much worse than others and those crops that had moisture underneath them thanks to Cyclone Debbie certainly seem to be faring the best. While the yields in Central Queensland are much less than last year, the crop has held up extremely well. That can’t be said for the balance of the crop further south, where yields are expected to be well below average.

The final domestic crop size is almost impossible to estimate, and won’t be known for some months, but the poor season means it is unlikely to exceed 1 million tonnes (Mt). That is less than 50 per cent of last year’s record crop. While many would consider that a disaster, it is worth noting that it is still on track to be the third-largest Desi chickpea crop ever grown in Australia.

So why are prices decreasing if production is so much lower than last year? Like every commodity market, there are two sides to the equation. Clearly supply is lower, but what is happening to demand?

There is no such thing as inelastic demand in pulse markets, but domestic demand (including seed retention) and exports to the rest of the world (excluding India) is expected to be around 500,000t. If we accept this, then it is easy to see why India is the key demand driver, even in this smaller crop year.

India is the world’s biggest producer and consumer of chickpeas. That means our biggest customer is also our biggest competitor. Leading into last year’s Australian harvest, India had suffered two consecutive years of poor production. Their supply pipeline was basically empty.

Consequently, India imported well over 1Mt, or around 50 per cent, of last year’s Australian crop. Reports out of India suggest that their production this year was still below average. However, it was also reported to be about 30pc larger than in 2016. This will reduce demand for imports.

In addition, consumption of Desi chickpeas in India is expected to be somewhat smaller this year. This is primarily due to their price strength relative to most other pulses. Lentil values have decreased considerably and are about half that of chickpeas, while yellow peas, most of which come from Canada, are close to one-third the value of chickpeas.

Price is the regulator in the supply-and-demand equation. When new-crop values here in Australia crept up to around $1,000/t in mid-September, demand in India switched off. As the Central Queensland harvest swung into full gear, growers were happy to sell, increasing supply. In the absence of strong Indian demand, prices suffered. While the consequential fall in prices, back under $900/t, may not be the desirable silver lining, it does appear to be improving demand in India.

The next part to the jigsaw is 2017/18 planting conditions on the sub-continent. This will determine the strength and longevity of Indian demand. Good Indian crop prospects will most likely switch demand off in late November; poor sub-continent crop prospects, and demand will continue into the New Year.

Anyone who has been watching the Aussie cricketers falling like flies with heat stroke during the recent one-day series will realise it is unseasonally warm in India at the moment. While it is far too early to get an accurate reading, it does seem conditions are less than perfect as their planting window approaches.

Although it is fair to say chickpeas are more volatile than most commodities, the market is doing its job. It is reacting to changes in supply and demand. The compelling question is whether we are correctly priced to stimulate enough demand from India to import the remaining 400,000-500,000t on the domestic balance sheet, even push it into deficit. Only time will tell.

Source: Nidera Australia Pty Ltd, a member of the COFCO International Group.