By John Sandbakken
Both confectionary and oil sunflowers are projected to be top earners in 2017. New-crop sunflower prices are very competitive with other crops, and processors are still offering contracts. Processors want to build on the momentum the large 2016 crop allowed to rebuild product demand and expand market opportunities. All sunflower sectors are offering act of God (AOG) contracts for fall delivery. These fail-safe contracts have become very popular with farmers throughout the production region. They provide an opportunity to lock in attractive prices now for fall delivery and removes that important factor of price risk in these very volatile times.
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%. Consider oil premiums that are offered at the crush plants on oil content above 40% 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 and would raise the value of a $17.50 base contract to $19.25 per cwt.
Market fears of potential trade wars with our trading partners continue to keep oilseed and product prices on the defensive. Concerns were raised about trade after President Donald Trump said he would impose a 20% tax on goods imported from Mexico to pay for the wall he plans to build on the border. Market analysts, investors and farm groups have expressed concern that if the 20% levy is approved and imposed, Mexico will retaliate by putting its own import tax on U.S. goods, effectively reducing some of the demand for U.S. agricultural products. Traders are also concerned that revamping or exit from the North American Free Trade Agreement will curb demand for domestic agricultural products as well.
Looking at the global picture, sunflower production in 2016-17 is forecast higher at 44.8 million metric tons. Global production is up on higher forecasts for Ukraine, Kazakhstan and the European Union. Export markets are expected to absorb the higher output of sunflower meal and oil. Argentine sunflower-planted acres are lower than what was initially expected in the beginning of the season as adverse weather conditions did not allow producers to complete the anticipated increase in planted acres. USDA’s forecast of Argentine sunflower production is currently 3.3 MMT, but this will likely decrease given the reduction in planted acres.
Consistent demand for seed from crushers, bird food and confection processors is expected in the final months of this marketing year. The main market mover from April onward will be USDA's March Prospective Plantings report. Trade expectations about planted acreage will likely be in a wide range, but it seems reasonable to expect wheat and corn acreage to decrease and soybean to show an increase over 2016 levels. Oil and confection sunflower acres should show an increase. With the release of the report, North American weather conditions and 2017 U.S. oilseed crop prospects will progressively become a more important factor in price.
Sandbakken is the executive director of the National Sunflower Association.