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2020 Market Outlook

Monday, November 25, 2019
filed under: Marketing/Risk Management

Before we look ahead to 2020, let’s take a look at how the 2019 growing season turned out.  

Well, a difficult season in much of the Dakotas and parts of Minnesota is leaving many in the trade scratching their heads about where the overall 2019 final production figure will end up.  Planting got off to a late start in most sunflower growing areas, and crop development was behind the five-year average all season.  Yield reports during harvest were inconsistent, ranging from below average to above average depending on the area and weather conditions it experienced this year. 

A widespread powerful winter storm hit the Dakotas and Minnesota in mid-October, resulting in some yield loss. At that time, harvest was underway in Colorado, Kansas and Texas but had not yet begun in the Dakotas or Minnesota.  Facing extremely wet soil conditions, producers in these states needed to wait for the ground to firm up and/or freeze before attempting to harvest, delaying the wrap-up of sunflower harvest until well into November. 
USDA October Production Estimate Could Be Overly Optimistic
In October, USDA released its first production estimate of the 2019 sunflower crop. The caveat to the USDA report was that it was based on growing conditions before the winter storm hit the Dakotas and Minnesota in mid-October, and it assumed normal weather for the remainder of the growing season.  So, take these figures below with a grain of salt and compare them to the next production estimate that will be released in January. 

USDA pegged 2019 sunflower production at 2.25 billion lbs, up 7% from the revised 2018 production of 2.11 billion lbs.  USDA shaved off 9 million lbs from 2018 oil sunflower production and left nonoil production unchanged. 

Area planted, at 1.36 million acres, was down 2% from the June estimate but up 4% from last year.  U.S. sunflower growers were expected to harvest 1.31 million acres, down 3% from June but up 4% from last year. 

The overall average yield for all sunflower types was forecast in October at 1,724 lbs/ac. That’s 7 lbs lower than 2918’s yield, but would be the third highest on record, if realized. 

USDA expects lower yields in five of the eight major production states compared with last year, with increases only expected in Kansas, Nebraska and North Dakota. Compared with last year, average yields forecast in North and South Dakota are up 72 lbs/ac and down 67 lbs/ac, respectively.  The forecasted production in North Dakota would make it the leading sunflower-producing state this year, at 956 million lbs up 29% from 2018.  In South Dakota, production is forecast at 913 million lbs, down 6% from last year.

Again, keep in mind these projections came out prior to the October snowstorm in the Northern Plains region. 

According to USDA, old-crop sunflower stocks in all positions as of September 1, 2019, totaled 286 million lbs, down 26% from a year ago.  All stocks stored on farms totaled 65.7 million lbs, and off-farm stocks totaled 220 million lbs.  Stocks of oil-type sunflower seed were 216 million lbs; of this total, 60.8 million lbs were on-farm stocks and 155 million lbs were off-farm stocks. 

Nonoil sunflower stocks totaled 70.4 million lbs, with 4.92 million stored on the farm and 65.4 million lbs stored off the farm.  Stocks of oil-type sunflower seed were 23% lower than last year at this time but in line with trade expectations.  Nonoil stocks were down 34% from last year and also in line with industry estimates. 

The stocks figure for oils and nonoils were bullish market news; and, depending on this year’s total production, seed stocks could be extremely tight by September 2020. 
New-Crop Prices Are Out at the Crush Plants
As of this first-of-November writing, crushers in the Northern Plains are offering both 2020 cash and Act of God (AOG) contracts for NuSun and high-oleic sunflower.  Cash NuSun prices are around $17.75-$17.80 with AOG in a range of $17.30-$17.50 per cwt. High-oleic cash prices are $18.25-$18.30 with AOG at $17.80-$18.00 per cwt. 

In the High Plains, NuSun AOG contracts are at $17.40 with high oleic at $18.65 per cwt. 

Something else to consider is the oil premiums crush plants pay on sunflower. Sunflower is the only oilseed that pays premiums for oil content above 40%.  Considering premiums that are offered at the crush plants 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.  The AOG $17.50 contract increases to $19.25, and the cash $18.30 contract moves up over $20.00. 
What’s in the Offing for Oil-type Sunflower in 2020?
No estimates are out yet on 2020 oil-type sunflower acres, but industry analysts believe that acreage 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 20-25% in 2020 can easily be added, given current demand, without impacting present prices to a great degree. 

“The outlook for sunflower oil continues to be bright, thanks in part to the U.S. Food and Drug Administration’s 2018 qualified health claim for high-oleic oil and its heart health benefits, as well as the FDA’s ban on partially hydrogenated oils in the United States,” states Clark Coleman, NSA president and Bismarck, N.D. producer.   “Several new domestic customers have come onboard, adding sunflower oil to their product mix.  Export markets are growing as well, giving several market options to sell oil.”

“There is excellent demand right now, for both high and mid oleic,” Coleman notes, adding that sunflower oil consumption in the United States has grown five to 10% in each of the last three years.  And he doesn’t see any signs of the trend slowing down.  “The sunflower market should be aggressive in 2020 to get acres to replenish stocks and meet demand,” the NSA president believes.
What About Confection Sunflower in 2020?
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 in 2020 as well.  

If you are going to take advantage of the profit opportunity 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. 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 the last marketing year, along with good crop production in 2018.  As a result, confection acres were at reduced levels in 2019 — but this is expected to change in 2020.  It is highly unlikely there’ll be much of a carryover going into next fall’s harvest. There should be strong demand at harvest for the 2020 crop as processors look to replenish seed supply to meet domestic and export market demand. 
Act of God or Cash Contract?
Confection and oil sunflower both offer cash or Act of God (AOG) production contracts. 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. “Having the option of getting an Act of God (AOG) production clause when contracting sunflower helps me sleep a little better at night during the growing season,” remarks Lance Hourigan, NSA vice president and Lemmon, S.D., producer.  “It removes that all-important factor of ‘price risk’ in these very volatile times.”
If you haven’t considered growing sunflower for a few years, take another look and you’ll be surprised how this crop’s genetics have changed.  As you prepare your crop budgets for this upcoming year, take another look at sunflower.  You may be looking at your most profitable crop in 2020. 

To connect with confection and oil sunflower buyers about contracting opportunities check out the NSA website,
* John Sandbakken is executive director of the National Sunflower Association.      
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