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‘Flowers Coming Up Roses
Tuesday, November 15, 2005
filed under: Marketing/Risk Management
By Mike Krueger
This is going to be a very good year indeed for North American sunflower production. Even the freak early October snowstorm that dropped as much as two feet of heavy wet snow across the western and northern production regions of N.D. didn’t put much of a damper on crop prospects.
The USDA estimated the total (oil and non-oil) U.S. sunflower crop would be 3.88 billion pounds. This compares to a total crop last year of 2.049 billion pounds. Harvested acres of all types will be up 50% from last year. Yields are expected to be up 25% from last year and total production is projected to be up 88% from last year. Those are impressive numbers.
Even more important, quality appears very good and oil contents are well above last year and also above average. Oil content is expected to fall between 42% and 43%. There was very little disease pressure. The USDA will not officially break out the production data between oil and non-oil until the final crop production summary; however, 78% of the harvested acres will be oil and 22% non-oil. This year’s crop could establish a new record yield per acre.
The other good news is that prices for oil sunflower haven’t declined to loan levels or less in spite of the big crop. NuSun bids delivered processing plants are still in the $12.00 range. Last December the industry came out with new crop bids of $13.70 with “Act of God” contracts available at a $.50 discount. The objective was to revitalize interest in sunflowers and attract more acres. That strategy was successful. Demand for sun oil continues to be very strong and will likely get another boost when the new food labeling laws take effect in January of 2006. This should continue emphasize to the consumer that sun oil is a “healthy” oil.
Another major change in the outlook for vegetable oils in general is the massive movement towards the production and consumption of biodiesel both in the U.S. and abroad. $65 to $75 a barrel crude oil prices and diesel and gasoline prices over $3.00 in the U.S. has created renewed – and hopefully sustained – interest in bio fuels. The ethanol industry in the U.S. has enjoyed remarkable growth in just a few short years. The biodiesel industry, though still a fledgling industry, should now expand quickly as well. This will create significant competition between food and industrial demand for vegetable oils that will result in a reduction in world ending supplies.
Remember that the oil side of the processing equation is typically the weak link with meal driving the crush. That weak link will not be so weak anymore, and that is good long-term news for high oil content oilseed crops like sunflower.
The bearish side of the oil seed markets in general has been soybeans. Much better yields than anticipated in the midst of the summer drought in some key soybean producing states took soybean prices down $2.00 a bushel. The October USDA production estimate did again raise the overall soybean yield a whopping two bushels an acre from the September estimate, but harvested acres were trimmed by 900,000 acres. The smaller harvested acreage number offset part of the yield increase. The result was an ending supply estimate of 260 million bushels compared to 256 in the last marketing year. This ending supply estimate was smaller than expected. China continues to be a weekly buyer of U.S. soybeans.
The eyes of the market will shift to Brazil and Argentina now that the Northern Hemisphere oil seed production cycle is behind us. Soybean acres will increase in Argentina. The lingering drought there has reduced corn and wheat plantings. Those acres will go to soybeans.
The situation in Brazil is far less certain. Soybean farmers in Brazil are facing some severe economic obstacles that could result in fewer planted acres than expected today. Those obstacles include a strong currency that means sharply lower soybean prices, very high interest rates and high fuel and fertilizer prices. The combination of these factors has made soybean production unprofitable. Some analysts suggest soybean acreage in Brazil could decline as much as 10% from last year. A smaller than expected soybean crop in Brazil coupled with continuing strength in energy markets could turn a bearish price outlook bullish.
Krueger is owner of The Money Farm, a grain marketing consulting company, and can be reached at mike@themoneyfarm.com. While the information in this article is believed to be reliable, marketing involves risk, and the author and The Sunflower assume no liability for its use.
Get daily updated oil and confection sunflower prices online: http://www.sunflowernsa.com/daily-market-news/