Trading Pulses in a Bearish Market: Lessons from 2024

Why Are Prices Dropping?

The scale of the price decline has been remarkable, with pulses experiencing price drops between $200 and $650 per tonne. This dramatic shift has created substantial challenges for traders who failed to anticipate the market's direction.

Two key factors have driven this market dynamics:

Too Much Optimism

The trade appears to have over-speculated on price increases. A telling example is the Indian black matpe market, where prices dropped 25% despite a significant 25% reduction in domestic kharif production (1.2 MT in 2024 vs 1.6 MT in 2023).

Surprise Supply Surge

The market was caught off guard by:

• Brazil's unexpected entry with 50,000 tonnes of supply
• Myanmar's increased export volumes, averaging 67,000 tonnes monthly in 2024 compared to the usual 45,000 tonnes
• Myanmar's upcoming record harvest of 1-1.2 million tonnes

The Price Story

The price impact has been severe. Premium black matpe varieties that commanded $1,200 per tonne in November have plummeted to $860. The desi chickpea market has faced similar pressure following Australia's announcement of a multi-year high harvest of 2 million tonnes, leading to a $200 per tonne decline.

Cash Crunch in the Market

The continuous price decline has created a challenging cycle:

• Traders attempting to average down their procurement costs kept buying into the falling market
• This strategy has tied up significant capital in increasingly depreciated inventory
• Market liquidity has been severely impacted as traders find themselves holding specific pulse varieties with limited ability to diversify

Looking Back and Forward

The current situation draws parallels to the 2014 market crash when black matpe prices fell to $450 per tonne. The ongoing price weakness may have longer-term implications:

• Myanmar farmers currently receiving $675-700 per tonne for black matpe may shift to alternative crops
• This mirrors the Indian farmers' shift away from black matpe in 2024 following poor returns in 2023

Key Takeaways

The current pulse market situation serves as a stark reminder of the importance of robust risk management and the dangers of trying to average down in a falling market. For traders and market participants, the key lessons include:

• The critical importance of maintaining trading discipline
• The need for diverse sourcing strategies to manage supply risks
• The value of maintaining adequate liquidity rather than overcommitting to a single position
• The importance of monitoring global supply dynamics, including unexpected market entrants

As the market searches for a bottom, traders would be wise to exercise patience and ensure they have the financial flexibility to capitalize on opportunities when price stability returns.