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Marketing ’03 Sunflower

Tuesday, April 1, 2003
filed under: Marketing/Risk Management

Take advantage of seasonal rallies to market remaining old crop and sell new crop

Last year, sunflower prices strengthened through the summer, instead of peaking early in the summer, as prices usually do.

Don’t count on that happening this year, however.

Sunflower prices that neared $20 per hundredweight last summer were driven by buyers caught short by low supplies. Buyers will not likely be caught short by supplies again. “Last year many buyers were comfortable that there’d be enough supply available. When supply became unavailable or hard to buy, that’s when prices started to run up,” says Guy Christensen, merchandiser with ADM’s Northern Sun, Enderlin, N.D. “This year there is more supply rationing, and summer buyers who ran the market up last year probably are going to have their needs bought.”

From 1986-1999, oil sunflower prices on average reached a peak in May, according to George Flaskerud, extension grain marketing specialist at North Dakota State University. When new crop supplies were smaller than expected, prices during that same time span peaked later, in July on average. During years with larger-than-expected new crop supplies, prices also reached a peak in May on average, but then fell sharply into August, again on average.

While seasonal trends still have value, Christensen points out that there are other dynamics in the marketplace now compared to ten or even five years ago which can play against seasonal trends:

Explosion in the global production of soybeans and other oilseeds—The expansion of South America as an oilseeds producer means more market focus on supply and weather in the Southern Hemisphere. It is even possible that an import market for Brazilian soybeans and Argentine sunflower could develop in the U.S. Global sunflower production this year is forecast to increase about 14% from a year ago, according to Oil World. Dry conditions may curb yields in some parts of Argentina, while production (and exports) in the Ukraine is expected to increase significantly.

More market options for sunflower— There are multiple market options for sunflower these days, including hulling, crush, and bird food. Supply and demand drives prices in all three markets, with prices rising and falling accordingly.

Glyphosate-resistant crops—Even though sunflower might have stronger price potential than other oilseeds, producers these days are less likely to respond to market signals to grow the crop, preferring glyphosate-resistant crops that are easier to manage.

Farm program and crop insurance— The loan rate is a major factor in planting decisions. Increasingly too is crop insurance. Christiansen points out crop insurance rules that prevent planting sunflower after soybeans. “I think there’s a lot of acres that will be unavailable to sunflower this year, just from an insurance standpoint,” he says. “And the uncertainty about weather has a lot of people worried more about what insurance to pick up rather than what crop to plant.” Christiansen says some farmers are less likely to commit to early production contracts, taking a wait-and-see approach to the weather and to purchasing inputs.

Tom Young, a sunflower producer from Onida, S.D., says the weather will definitely affect his production and marketing decisions. He’s offsetting risk from continuing dry conditions with crop insurance. He has no old crop sunflower left in the bin, and had not priced any new crop sunflower as of mid March. He says he’ll watch for a market rally in May or June. “I can’t see the August highs happening again this year. So I’ll be looking at the May-June time period, and maybe do some forward contracting then, I suppose up to 25% of my anticipated production, and look at contracts with an ‘Act of God’ clause.”

Northern Sun is offering one such “Act of God” production contract for mid oleic (NuSun™) sunflower this growing season in the Dakotas and Minnesota. The contract covers the first 1,000 pounds of sunflower harvested on every acre at a guaranteed price that is about 30 cents below the daily cash price at Northern Sun’s Enderlin plant.

At harvest, Young usually delivers the sunflower he has forward contracted, and follows seasonal prices and the open market for the rest of his production. Beyond crop insurance and production contracts, he hasn’t been using any advanced pricing tools to market his ‘flowers. “I’ve tried soybean options, but when sunflower prices are good, they break away from soy oil options. So they’re not a viable tool at this time, for me anyway.”

The worst marketing mistake one could make this growing season is to do nothing, says Christensen. “Which of your crops right now cash flows? Those that offer the best cash flow potential, that’s where your marketing needs to be done,” he says. “It would not make sense to go out and sell new crop soybeans that are close to loan value, but you might go and sell some new crop sunflower.” – Tracy Sayler

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