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Tight Supplies & Weather Issues

Tuesday, February 1, 2011
filed under: Marketing/Risk Management

By Mike Krueger

January USDA reports were clearly bullish to markets, and prices responded by moving to their highest levels in nearly three years in days following the reports.

The 2010 corn and soybean yields were reduced more than expected. In fact, most analysts were expecting to see a slight increase in the bean yield and instead got a 0.5 bu/ac reduction. Corn and soybean ending supplies are now extremely tight, and price rationing will have to occur.

In addition to the tightening of U.S. and world supplies, weather continues to play a bullish role in the markets. The U.S. Southern Plains remain entrenched in a drought that has resulted in very poor emergence, stands and root development across a very wide area. Temperatures have also dropped to zero or below as far south as Oklahoma on several occasions.

Much of Argentina has remained very dry and extremely hot. USDA’s January report cut the production forecast for corn and soybeans in Argentina slightly, but many private analysts have cut the corn forecast 20% and the soybean forecast by 10% or more. Weather in South America will continue to play a big role in the markets well into March.

USDA also released its “final” sunflower production estimates in January.

Total (oil and nonoil) production was pegged at 2.74 billion pounds — down 10% from last year. The yield was very good, but down about 94 lbs/ac from last year’s record. Oil sunflower production was down 20% from 2009, mostly because of a 14% reduction in planted acres. But confection production was up 46% from 2009 because of a 50% increase in acres.

The rest of the world wasn’t as fortunate, with yields in Russia cut sharply by the drought. The Argentine sunflower crop also is being affected by the hot and dry weather there. It seems world weather in 2011 is not being nearly as cooperative as it has been the previous two years.

All of these bullish market factors have continued to push sunflower prices higher as well. Old-crop oil sunflower prices have pushed above $23/cwt, and new-crop bids are now above $25/cwt.

The declining supplies of virtually every commodity will put even greater emphasis on what farmers plant this spring. It looks like corn needs to increase acres by at least 4.0 million from 2009 and that soybeans will need at least a 2.0-million-acre increase to restore ending supplies to reasonable levels. Cotton prices have soared to all-time highs, and that will certainly attract more acres to cotton.

We already know that more winter wheat acres were planted last fall. The minor crops, like sunflower, barley, dry beans, etc., will also be trying to attract more acres. This suggests that U.S. farmers will need to plant between 12 and 13 million more acres than in 2010.

The question is where those acres will come from. About 2.5 million acres are set to expire from the CRP, but few of them are in the Corn Belt. Most expiring CRP acres are not in highly productive areas. There was a fair amount of prevented plant acres last year, but many parts of the northern Corn Belt and Northern Plains are still saturated, and growers are concerned another wet spring will mean more prevented plant acres than a year ago.

The markets will continue to very interesting until well into the spring planting season. Tighter supplies, coupled with weather issues in Argentina, will keep prices high. The next major report is the March 31 USDA planting intentions report. All eyes will be on that to see what farmers in this country are planning to plant.

Mike Krueger is owner of The Money Farm, a grain marketing consulting firm. 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.
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