Revenue Insurance Price = More ’Flower Acres?
Thursday, April 1, 2010
filed under: Marketing/Risk Management
By Mike Krueger
It has been an interesting period in the markets since the last edition of this magazine.
The USDA reports have continued their generally bearish tone as corn and wheat ending supplies continue to get larger. U.S. old-crop soybean supplies, however, were again reduced in the March 10 supply and demand revisions. This was expected. In fact, many analysts believe soybean ending supplies are still overstated because the export pace was too strong too long and will exceed the latest USDA objective —and because the monthly soybean crush numbers are consistently above expectations.
The problem is that as U.S. supplies are getting smaller, world supplies are getting bigger — and are expected to hit an all-time high at the end of the current marketing year. That’s because the production estimates for Brazil and Argentina seem to get bigger every week.
The pace of U.S. soybean export sales has slowed considerably as the harvest in South America moves along. Demand for soybeans from South America is very strong, especially to China.
There has been the usual threat of port strikes, and rain in Argentina has slowed the harvest pace. It appears that farmers in Brazil and Argentina also have slowed their selling of newly harvested soybeans. These issues have created some market rallies; but in the end there should be plenty of soybeans around.
Soybean oil futures have staged a significant rally since February 1, even considering a sell-off following the USDA’s March reports. Sunflower prices have been firming along with the soybean oil futures. Palm oil prices also have been strong.
February was an important time period for the 2010 crop year because the initial (and minimum) price guarantees for the crop revenue insurance programs were established. The sunflower revenue prices came in at $20.90/cwt for oil sunflower and $25.90/cwt for confections.
The initial price for oil sunflower is much higher than the new-crop sunflower market is currently trading. The formula for the calculation is based on a price relationship with soybean oil futures.
This definitely works in favor of the producer and could be an incentive to plant more sunflower acres in 2010. The entire issue of what farmers are going to plant in 2010 will take center stage in the markets leading up to the March 31 USDA planting intentions report. The market is generally expecting a 3.0- to 4.0-million-acre increase in corn acres and a steady to 1.0-million-acre increase in soybean acres.
It will be interesting to see what Northern Plains producers will plant, given relatively low wheat revenue insurance price guarantees and relatively high oilseeds price guarantees in place.
The spring planting season also will again be affected by weather. Most of the Corn Belt and nearly all of the Northern Plains are again saturated, and flooding is becoming an issue across a wide area. Planting delays may affect planting decisions again in 2010.
Wheat, corn and soybean futures markets have been generally weaker because of increasing supplies and the recent strength in the value of the dollar. The sunflower market, on the other hand, has been moving gradually higher and is now back to near the highs for this marketing year. The world sunflower situation is still relatively tight. The rains in Argentina came too late to help their sunflower production.
Vegetable oil prices in general should also find some support when the U.S. Congress finally reinstates the biodiesel tax credit that expired at the end of 2009.
It is now time for producers still holding old-crop sunflower to carefully watch the market and not get too greedy, even as the market appears to be strong. The same holds true with making new-crop sales.
The overall oilseed fundamentals are not nearly as positive as they were a year ago. World soybean supplies will be record large. Most analysts are anticipating an increase in canola acres this year. It is also possible that U.S. soybean acres will be larger than expected if the spring planting season does become late.