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2012 Acreage Bidding Underway

Tuesday, August 30, 2011
filed under: Marketing/Risk Management

By Mike Krueger

It has been another summer of extreme volatility in every market, from grain markets to energy markets to financial markets. There is no reason to believe that we will see a return to “calm” markets anytime soon.

Demand for world food continues to exceed supply, even with generally good world crop production in 2011. That generally bullish undertone in world commodity markets has been undercut by the crush of sovereign debt troubles around the world that started in the EU countries of Greece, Spain, Italy, Portugal and Ireland, but then spread to the U.S. when Standard & Poor’s downgraded the U.S. credit rating.

Government spending far exceeds revenue, and deficits are getting bigger, not smaller. The commodity markets see that as a threat to demand — and that has resulted in big price moves, both higher and lower.

Asian markets (China, India and Southeast Asia) are the key growth markets for commodities, and growth has remained strong in this region. There have also been some persistent problems in the U.S. and Europe that cut into crop production, while Russia and the Ukraine have seen a significant rebound in production following last year’s drought.

USDA’s August production estimates gave the markets another shock, with corn and soybean yields dropping well below early season expectations. December corn futures set a new contract high following the report. Soybean futures also strengthened, but were still well off contract highs. Wheat markets also gained strength following the USDA August reports, as hard red spring wheat yields were very disappointing.

The lower production estimates will mean that prices must ration demand throughout the coming marketing year to maintain ending supplies of soybeans, corn and wheat at reasonable levels. Small ending supplies also mean we will again see demand for more acres of virtually every crop in 2012. Some of the “minor” crops (including sunflowers, barley and dry beans) are already showing bids for 2012 production in an effort to stay ahead of the acreage curve.

There is also still a very big question of how many acres did or did not get planted across the Northern Plains (especially North Dakota and eastern Montana) because of the extremely wet spring season. Estimates of unplanted (prevent plant) acres in North Dakota alone are as high as six million acres.

USDA did resurvey North Dakota planted acres for the August report and reduced wheat acres by 480,000 acres. It is very likely that subsequent reports continue to reduce planted acreage for all crops.

The August survey also reduced oil sunflower acres by 6% from the June report, with nonoil acres down 3% from June. Planted acres of nonoil sunflower are now forecast to be down 37% from 2010. This is especially significant, given the current makeup of the U.S. sunflower market. The birdfeed sector of the industry has been the price driver since late last winter. Confection supplies were very short, and that pushed birdseed buyers to cover their needs with oil sunflower. That should continue to be the case as we move into the new marketing year because of the steep decline in nonoil acres.

Another issue with most markets, including sunflower, is when will new-crop supplies become available? Harvests of all crops across the Northern Plains will be later than normal because of the late planting dates and extremely wet summer.

The August USDA reports painted a more bullish picture than most analysts expected because of the yield declines for corn and soybeans and the uncertainty over planted acres. These uncertainties will carry over into the September reports when yields are again revised. Oilseed prices remain at very high levels. Soybean, canola and sunflower yields will be very important because of the tight supplies.

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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