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Lack of Heat in ’09 Season May Be Big Market Issue

Tuesday, September 1, 2009
filed under: Marketing/Risk Management

The summer of 2009 has been an interesting one for several reasons.

First, it is one of only a few summers I can recall that did not contain a weather scare of some sort — not even a little one. Global warming was replaced by global cooling, at least across the northern half of the United States. Heat has not been an issue.

The lack of heat may become a significant issue because corn, soybean and sunflower crops are lagging well behind "normal" in terms of crop maturity. This year, a normal frost would result in big yield reductions, and an early frost would be a disaster. Western Canada faces a similar problem with late crops.

Markets don’t fare well when growing season weather is deemed "perfect" in the eyes of traders. The result is big yield estimates, increasing ending supply estimate. This scenario has pressured the corn market since early June and driven prices to below $3.00 a bushel.

USDA's August crop report hiked the corn yield by six bushels an acre from the July estimate and pegged the U.S. corn yield within fractions of a bushel of the all-time high of 160.4 in 2004. Few would have thought that possible, given the late planting season across the eastern Corn Belt and Northern Plains; but if the cold holds off well into October, it could occur.

The soybean market has been very different for a number of reasons:

• Argentina's soybean crop was 32 million metric tons (MMT), compared to a normal crop of 50 MMT. That has effectively taken the Argentines out of the world soybean and soybean meal markets.

• China has purchased and imported a record quantity of soybeans and shows few signs of slowing down that pace of imports. In fact, China's economy appears to be among the first to show signs of renewed growth.

• U.S. soybean acres did not expand as much as expected, and the August USDA report actually reduced the estimated soybean yield.

The monsoon season in India has been disappointing, and that will mean reduced oilseed production and increased oil imports in that country.

All of this has held soybean prices high relative to the price of wheat and corn. The corn:soybean price ratio has now exceeded 3:1 for the first time in years. The problem is, nothing can fix this ratio until South America’s next crop becomes available to the world market next spring.

There also are some problems with the sunflower crop (oil and confection) in the United States and the canola crop in Canada.

U.S. "all sunflower" acres were reported to be down 17% from 2008, with oils down 17.5% and confections down 11%. The August 10 North Dakota Crop, Livestock and Weather Report indicated that just 19% of the state’s sunflower crop was blooming, compared to 64% last year and the five-year average of 72%. It is questionable how much of the Northern Plains sunflower crop — oil and confection — will make it to maturity. North Dakota planted 53% of the U.S. oil sunflower acreage and 58% of the confections. Canada’s canola crop will be much smaller than last year despite more planted acres. Drought across much of the provinces of Saskatchewan and Alberta, coupled with numerous “soft” frosts or freezes, has trimmed yield potential. The crop is also late, and even a normal frost date would trim yields more.

U.S. and world oilseed markets should stay strong at least until the potential outcome of South American production is better known. Argentina will plant more acres of soybeans and sunflower because the severe drought sharply reduced wheat and corn acres from the previous year. Planted acres of wheat in Argentina will be historically low. Soybean acres are also expected to increase in Brazil.

The final U.S. soybean and sunflower yields — plus the canola yield in Canada — will also be important. While we have sailed through the summer without weather being a market factor, weather still has the potential to significantly alter the supply and demand numbers for North American oilseeds and corn.

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