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Row Crop Yields Among Key Market Uncertainties

Friday, November 1, 2013
filed under: Marketing/Risk Management

It has been another interesting period in the markets. The corn futures market has made the transition from super tight old-crop supplies and high prices to expectations of a record 2013 corn crop and low prices. Corn ending supplies will more than double in this new marketing year. Soybean futures have resisted the price plunge because demand for soybeans continues to be very strong, and soybean ending supplies are projected to again be tight in this new marketing year. Wheat futures have made a major separation from corn futures since the middle of September, with Chicago wheat futures gaining nearly 70 cents on December corn futures. U.S. wheat ending supplies will tighten in this new marketing year.

Oilseeds markets continue to be driven by the demand for protein, and that means strong demand for meal, not oil. This is typically the situation, but it has been magnified by the seemingly insatiable appetite for meal around the world. China is obviously still the major force in oilseeds markets. The more oilseeds we crush for meal, the more oil we also create. World consumption of vegetable oil, although also expanding, has simply not been able to keep up with production, and oil surpluses are building while meal supplies remain tight.

Stack these bearish oil fundamentals on top of big palm oil production and a record canola crop in Canada, and it becomes easier to see why sunflower and canola (high oil crops) are struggling while the market for soybeans (low oil crop) has maintained much of its strength.

We are now even seeing corn oil enter the fray and competing with sun oil and canola oil in food processing markets. That has been a rare occurrence and is due partly to reduced shipments of corn oil to Middle East markets where economic and political turmoil has restricted consumption.

All of these issues were compounded with the U.S. government shutdown that began on October 1. The result was that there was no information released from the USDA, including daily and weekly export sales reports, weekly harvest progress, etc. The regularly scheduled October crop production updates and supply and demand revisions were postponed and had not been released as of this article’s writing.

So uncertainty over U.S. row crop yields, including sunflower, is still in the air. It was an unusual planting season followed by an unusual growing season across the entire Corn Belt and Northern Plains, and that has meant wide variability in early yield reports. The market is assuming that corn yields will be above the September USDA estimates. That won’t make much difference to the corn market because of the very high ending supply estimates. What’s another 100 million bushels? The soybean yield estimate will be important because of the potentially very tight outlook for the coming year. Fifty million bushels or so does make a difference to the soy complex. Canada has a record canola crop almost in the bin.

The U.S. sunflower yield certainly had the potential to be very good, with late-season rains and some September warmth providing a good finish to the crop. It has turned wet across the Dakotas and Minnesota, and that has slowed or stopped any harvest progress. There is not enough information at this point to make a good assessment of what the actual yield will be.

There have also been some sunflower harvest problems in Russia and the Ukraine. It has been extremely wet across a very wide area, and those wet conditions have caused sunflower harvest delays and probably yield losses. It has also resulted in significant problems getting the winter wheat crop planted.

So what happens next? Here are market factors to watch:

• U.S. corn and soybean harvest progress and yield estimates.

• U.S. sunflower yield estimates.

• Planting progress and weather in South America. The market is assuming an increase both in acres and yields and a record crop. It is early. Little has been planted yet. It is dry across some key parts of Argentina and too wet in some regions in Brazil.

• Export demand. China continues to be a big buyer of U.S. soybeans.

The markets feel like wheat has bottomed and corn should form a bottom in the midst of this record harvest. That doesn’t mean that prices will rebound significantly. The soybean market action will depend on crop progress in South America. If we get to December and early January and crop prospects look good in Brazil and Argentina soybean prices should start to slide lower. Crop problems in South America will mean another soybean rally will occur.

The world needs to absorb some of the glut in vegetable oils before the sunflower market can rally. The alternative would be a harsh East Coast winter that would create strong demand from the birdseed market.

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