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Sunflower Market Outlook 2018

Saturday, January 6, 2018
filed under: Marketing/Risk Management

       I know I will sound like a broken record, but from the looks of it, 2018 will again be another challenging year in terms of marketing commodities. Margins will be tighter, so producers are going to have to buckle down and watch their marketing in the year ahead. You will also have to sharpen your pencil when it comes to figuring the bottom line, as crops that were profitable last year may not be in 2018. It will also be important to watch the markets carefully to take advantage of market rallies when selling old crop and locking in new-crop prices.
       Before we look ahead to 2018 let’s see how the 2017 growing season turned out.
       What a difference a year makes. The overall U.S. sunflower yield in 2016 was the highest yield on record. This past year, drought and/or extremely dry conditions in much of the Dakotas and parts of Minnesota led to a difficult growing season, leaving many in the trade scratching their heads about where the overall final yield would end up. As would be expected, yield reports during harvest were inconsistent, ranging from below average to above average, depending on the area and weather conditions it experienced last year.
       In USDA’s October sunflower production report, 2017 production was forecast at 1.81 billion lbs, down 32% from the revised 2016 production of 2.65 billion lbs. USDA shaved off 3.0 million lbs from 2016’s nonoil sunflower production.  The 2016 oil-type production was left unchanged. Area planted, at 1.40 million acres, was up 11% from the June estimate but down 12% from the prior year.
       The October USDA report expected U.S. sunflower growers to harvest 1.35 million acres, up 11% from June but down 12% from the 2016 acreage. The overall average yield for all sunflower types was forecast at 1,339 lbs/ac. This is 392 lbs lower than last year’s record-high overall average yield. Lower yields are expected in five of the eight major sunflower production states compared to 2016. USDA forecast that average yields in the Dakotas would be down more than 500 lbs/ac compared with last year due to drought conditions. The bright spot in the report was a record-high yield forecast in Texas, with Minnesota also seeing a yield increase from last year.
       Per USDA, old-crop sunflower stocks in all positions as of September 1, 2017, totaled 649 million lbs, up 57% from a year ago. All stocks stored on farms totaled 134 million lbs, and off-farm stocks totaled 515 million lbs. Stocks of oil-type sunflower seed are 495 million lbs; of this total, 115 million lbs are on-farm stocks and 379 million lbs are off-farm stocks.
       Nonoil sunflower stocks totaled 154 million lbs, with 18.9 million lbs stored on the farm and 135 million stored off the farm. Stocks of oil-type sunflower seed were in line with trade expectations and significantly higher than last year at this time. Given the expected reduction in oil type production, this should minimize the reduction in the oil crush and the opportunity to maintain sunflower oil customers. Nonoil stocks were also in line with industry estimates.
What’s in Store for Oil-type Sunflower in 2018?
       No forecasts are out yet on 2018 oil-type sunflower acres, but industry analysts believe that acres will increase, given the interest they are hearing from producers. I wish there was a crystal ball to predict this, but as you know, there isn’t. However, based on historical usage, an increase in acres of 15-20% in 2018 can easily be added, given current demand, without impacting present prices to a great degree.            
       Several new domestic customers have come on-board, adding sunflower oil to their product mix. Export markets are growing as well, giving several market options to sell oil.
       Obviously, world events can change markets in a hurry. But based on the reduced 2017 oil-type production and product demand, the sunflower market should be aggressive in 2018 to get acres to replenish stocks and meet demand.
Should You Plant NuSun or High Oleic?
       There is a good market for both oils at this time. The NuSun era opened many opportunities in the U.S. and Canadian markets since its inception and is still doing quite well. There are also buyers in the market that want oils to have saturated fat levels at or below 7%. High-oleic sunflower oil fits the bill here. Both sunflower oils are very stable and give food processors extended shelf life and fry life, coupled with a neutral taste profile, adding more value to their purchase.
       The markets for NuSun and high-oleic sunflower oil are very distinct and require crop segregation and correct hybrid choice to meet the product specifications of oil buyers. “If you want to capture any price premiums and fulfill your contract, make you sure you are growing the right hybrid,” advises John Zietz, seed origination manager for Cargill Processing at West Fargo, N.D. “Our customers are telling us they are willing to pay a premium for sunflower oil, but need identity-preserved oil— and the only way we can do this is by producers delivering the appropriate seed to the crush plant.” 
       High-oleic sunflower oil has been around since the mid-1980s, though for several years its production was restricted to just one company due to patent issues. This limited oil availability, and it was mostly sold into high-end niche markets. Today, most hybrid seed companies offer high-oleic hybrids. “We have been growing high-oleic sunflower for years with no yield drag and great oil content,” says Arthur Ridl, NSA chairman and Dickinson, N.D., grower. “As sunflower producers, we need to deliver the products our customers want — and there is increasing market demand for high-oleic oils.”
What About Confection Sunflower in 2018?
       According to USDA figures, confection sunflower has been one of the highest return-per-acre options available in this growing region since 2010. That trend is expected to continue this year as well. If you are going to take advantage of the profit opportunity that producing confection sunflower offers, you should be selecting hybrids based on the percentage of large seed and percentage kernel fill they will produce.
       Seed size is generally evaluated as percentage over a ‘___/64th’ round hole screen, comparing 16, 18, 20 and 22, the four most common sizes. “The export market is very important and prefers the longer seed, so variety selection is important when planning confection sunflower production,” states Bob Majkrzak, president and CEO of Fargo, N.D.-based Red River Commodities. “Processors are buying more on seed size, so the larger the percentage of seed over a 20/64 round hole screen, the better.”
       Confection processors had ample beginning stocks to start last marketing year, along with good crop production in 2016. As a result, confection acres were at reduced levels in 2017.  But this is expected to change in 2018. It is highly unlikely that there will be much of a carryover going into next fall’s harvest.  There should be strong demand at harvest for the 2018 crop as processors look to replenish seed supply to meet domestic and export market demand.
Act of God or Cash Contract?
       If you would like to sleep a little better at night during the growing season, maybe you should consider contracting sunflower with an Act of God (AOG) production clause. Confection and oil sunflower contracts offer AOG clauses.
       The AOG clause basically means the producer doesn’t have a production risk. Should drought, hail, insects, disease, etc., result in a yield loss and you don’t have enough production per acre to cover your sale, the AOG clause kicks in. You are only obligated to deliver what you produced, not what you contracted. These “fail safe” contracts have become very popular with farmers throughout the production region.  It provides an opportunity to “lock in” attractive prices now for fall delivery, and it removes that all-important factor of “price risk” in these very volatile times. 
       As of this writing, crushers in the Northern Plains are offering both 2018 cash and Act of God (AOG) contracts for NuSun and high-oleic sunflower. NuSun is around $17.00-$18.15/cwt, with high-oleic in a range of $17.25-$18.25.
       Something else to consider is the oil premiums that crush plants pay on sunflower. Sunflower is the only oilseed that pays premiums for oil content above 40%. In considering oil premiums that are offered at the crush plants on oil content — at a rate of 2% price premium for each 1% of oil above 40% — this pushes a contract with 45% oil content gross return 10% higher per cwt. An $18.00 contract would be $19.80, and a $18.25 contract goes over $20.00.
       With harvest wrapped up in the Northern Hemisphere, traders’ attention will turn to the Southern Hemisphere. There are thoughts that oilseed production numbers for South America might be too high, based on the developing La Niña. If any major weather damage occurs to South American crops, it will be very bullish for new-crop values in the U.S. To keep up with price movement, visit the NSA website.
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