Oilseed Markets Should Stay Firm Through ’09
By Mike Krueger
Markets have been dominated by the ever-increasing yield estimates for wheat, corn and soybeans and corresponding increases in ending supply estimates. USDA’s October numbers increased production and ending supplies, but the actual increases were below market expectations.
The October USDA report also gave us the first look at U.S. sunflower production, projecting harvested acres down from 2.4 million acres in 2008 to 1.9 million in 2009. The forecast yield is 1,538 lbs/ac (compared to 1,429 lbs in ’08), bringing total production to nearly 3.0 billion pounds (compared to 3.4 billion for 2008). USDA did not break down production between oil and nonoil in the October report.
There was real concern in August and early September that much of the North Dakota sunflower crop would not mature since it was so late. Fortunately, those fears were not realized, as this September was one of the warmest on record.
World sunflower production also will be smaller than last year. That will not affect the U.S. oil sunflower outlook because this is primarily a domestic, not an export, market. It also is important to remember that U.S. old-crop sunflower ending supplies were very large. That will offset the impact of this year’s smaller crop.
Markets have generally rallied recently, despite the increasing supply forecast, for a number of reasons:
Export demand for soybeans has been, and continues to be, huge. China, of course, dominates the soybean export market and has a record amount of soybean purchases from the United States on the books. The carry-in of old-crop soybeans was the smallest ever, and the market has been anxiously awaiting the big new-crop harvest; but persistent rain (and snow) has kept the combines parked.
The early October freeze that extended into parts of Missouri and Illinois created at least a shadow of a doubt that corn yields could exceed the October USDA forecast. That, by the way, was for a record yield of just over 164 bu/ac. The same harvest delays existed for corn as for soybeans. Ethanol margins are the best they’ve been in a long time, and export demand, although not nearly as robust as soybean demand, has been perking up.
The value of the dollar continues to sink lower. It has now given back about 50% of its post-economic-crisis gains. The dollar weakness has undoubtedly brought investment money back into commodities in general. In fact, there are those who will argue that the dollar weakness has been the primary reason we have had the rally in nearly all commodity markets. It would seem likely we will see additional dollar weakness in the months ahead, based on the increasing size of the U.S. deficit.
Oilseed markets, led by soybeans, should stay firm through the rest of 2009. Export demand for soybeans and soybean meal is big, and nearly all of it is front loaded. The bearish factor for oilseed markets in general is the projected record soybean crop in South America to be harvested starting in late January. Every analytical group is forecasting big acres and big soybean yields. The increased acres will come from reduced plantings of wheat and corn.
The lingering drought in Argentina prevented corn and wheat plantings. Improved moisture conditions, coupled with the fact they can plant soybeans in Argentina into December, will encourage a lot of soybean acres. Production estimates for Argentina today are as large as 53 million metric tons. That compares to the drought-ravaged 2009 crop of 32 million metric tons. China has been actively buying South American soybeans for shipment in April and beyond.
The U.S. sunflower harvest has also been delayed by the very wet weather. The impact on the price of sunflower hasn’t been as noticeable as soybeans because of the large quantity of old-crop sunflower still on hand. The problem, once the weather finally allows row-crop harvests to resume, will be available space to store the crop. Barley and wheat yields set new records, and there is still grain piled on the ground, especially in western North Dakota.
Unsold production that is forced to move to commercial space at harvest will likely put downward pressure on prices, at least in the short term. In the longer term, world vegetable oil prices likely have bottomed and have been trending higher. Processing margins have improved, and crushing rates should increase. The world economic outlook is improving. Markets will remain very volatile. Use sharp rallies to make sales. Don’t panic when prices collapse.
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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