The Race for ’07 Acreage
Friday, December 15, 2006
filed under: Marketing/Risk Management
By Mike Krueger
In the last issue we discussed how the markets this fall have been both interesting and profitable. That scenario continues. In fact, corn and soybean markets rallied over $1.00 a bushel right in the middle of harvest – this rarely, if ever, happens. Typically, rallies of this magnitude happen because of threats to yields during the growing season. That’s not the case this year. Corn has been the clear price leader because of rapidly expanding demand, a slightly smaller than expected corn crop, and significant fund buying. Farmer selling has also been lighter than expected.
The rally in corn has pulled soybeans along every step of the way. Demand for soybeans, soybean oil and soybean meal has also been very strong. If soybeans don’t stay within a relative price ratio to corn, the crop will lose too many acres in 2007. The South American soybean crop is also in the planting stage. The dollar gain in soybean prices should result in more soybean acres in Brazil than projected just a month ago, but economic conditions there are still poor, and crop inputs tough to find in some key soybean growing areas. That could limit yields.
Nearly all of the excitement in the markets has centered on corn. The growth in ethanol production continues at a much faster pace than thought possible even a year ago. That means more corn consumption and smaller ending supplies.
The November USDA crop production estimates reduced the corn crop more than expected. The soybean crop was increased, but only by 15 million bushels. That was far less than most analysts were expecting. This was supportive to oilseeds in general.
The October soybean crush (processing) statistics were also supportive to oilseeds in general. 153 million bushels were processed – a very big number – but soybean oil and soybean meal supplies did not increase. That says demand is better than expected. It also appears that the oil content of this year’s soybean crop may be up to half a pound per bushel less than the 2005 crop. That means if we process the same number of bushels we’ll produce significantly less oil.
The old crop sunflower market has trudged slowly higher, with none of the excitement of corn or soybeans. Last year’s new crop sunflower contracts also contained split delivery periods, and that has tended to smooth out the delivery process and also evened out the price swings.
In the meantime, soybean oil futures have pushed to new highs, with the March contract almost at $30. That’s a remarkable run of nearly $5 since early October. Even more interesting is that it has happened in the face of record large soybean oil supplies in the U.S. and while energy prices have weakened. Strong vegetable oil demand to China recently, plus projections that vegetable oil supplies will decline quickly once the biodiesel machine gets energized, are pushing world vegetable oil prices higher.
More new crop sunflower bids are coming out. New crop oil contracts are available in the $13 to $14 range, depending on delivery choices. New crop confection contracts are also now available in the neighborhood of $18. Most of these new crop contracts are for split delivery periods with premiums paid for delivery later in the year. Most also contain Act of God clauses.
Virtually every crop has started the race for 2007 acreage. We alluded to that in the last issue’s article. Every crop needs more acres in 2007 except soybeans, and some analysts are starting to question if soybeans can really afford to lose five to six million acres in 2007.
Markets still don’t feel like they’ve topped. It’s too early in the marketing year for soybeans, corn and wheat and there is little evidence, despite what you may read, that prices have risen enough to ration demand. The interesting and profitable marketing scenario continues.
Krueger is owner of The Money Farm, a grain marketing consulting company, and can be reached at firstname.lastname@example.org. 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.
Keep on top of daily updated oil and confection sunflower prices online: http://www.sunflowernsa.com/daily-market-news