By Tregg Cronin
DTN Contributing Analyst
There's an old market adage that says, "There is always a bull market somewhere." Corn, soybean and wheat bulls have had opportunities during the 2019-20 marketing year, and some of that story is still being written as harvest continues to plod along across the Midwest. One market that hasn't gotten a lot of attention until combines began to roll, however, is the sunflower market.
For obvious reasons, the sunflower market doesn't garner the interest other grain and oilseed markets do given the largest number of planted acres over the last 10 years was 2 million. The sunflower market is taking on added importance this year given the tightening U.S. and global vegetable oil markets, as some DTN authors have written about recently.
South and North Dakota rank No. 1 and No. 2, respectively, in sunflower production in the United States. It is no secret to anyone that these two states were inundated with rain throughout the summer growing season with both running 150% to 600% above normal precipitation over the last 90 days. Unlike corn and soybean crops, sunflower crops do not need near the amount of moisture as their row-crop brethren to produce bumper yields. As producers know all too well, excess moisture can be a large hindrance to yield in the way of disease pressure. Producers in the Dakotas are seeing that play out this year with anecdotal reports from both Dakotas suggesting yields are down anywhere from 15% to 50% versus a year ago.
Based on the last production estimates from USDA, the national average sunflower yield in the United States was expected to be 1,722 pounds per acre (ppa), which would be down from last year's record-tying yield of 1,731 ppa, but still the second highest in history. That percentage change would be down half of 1%. Total sunflower supplies of 2.748 billion pounds are expected to be essentially flat from a year ago.
Assuming USDA is close on their ideas for demand at 2.492 billion pounds, this would produce a carryout of 253.4 million pounds. If accurate, this would be the smallest carryout since 2014-15. The projected stocks-to-use ratio at current estimates of 10.17% would be the smallest since 2013-14. The USDA assumptions are based on yield ideas that clearly look elevated at this juncture, not to mention harvested acreage, which could prove optimistic given the soggy field conditions in the Northern Plains.
If the national average yield is reduced even 10%, which would seem conservative based on reports from producers, projected carryout would be reduced to just 20.2 million pounds versus 286.5 million pounds a year ago. If we plug in the lowest yield of the last 10 years, which would be 1,383 ppa from 2013-14, and down 20% from last year, carryout goes negative by 189.6 million pounds if demand is left unchanged. Obviously, demand will not remain static, but it helps illustrate the degree to which rationing could be necessary in 2020.
If the U.S. situation weren't enough on its own, the global sunflower balance sheet offers its own compelling argument for higher prices. Using USDA's latest estimates, global sunflower production is expected to be the second largest on record at 51.381 million metric tons (mmt), or 113.2 billion pounds, just behind 2018-19's record number of 51.417 mmt (113.3 billion pounds).
Total supplies in 2019-20 are essentially flat from last year's record while demand is expected to rise to 54.055 mmt (119.1 billion pounds), a new record. Carryout is projected at 2.450 mmt (5.399 billion pounds), which would be the tightest since 2010-11. The projected stocks-to-use ratio of 4.53% is seen as the tightest since 1997-98. All of the aforementioned assumptions are obviously before making any changes to the U.S. To be fair, the U.S. ranks 10th in global sunflower production with Ukraine, Russia and the European Union ranking first through third, respectively.
As noted above, a tight sunflower market takes on added importance in a year with a tightening global vegetable oil market. Combining supplies of coconut oil, cottonseed oil, olive oil, palm oil, palm kernel oil, rapeseed oil, soybean oil and sunflower oil yields, the largest total supplies on record sit at 313.4 mmt. Combined demand for these individual markets is estimated by USDA at 293.8 mmt, also a new record, and providing a carryout of 19.659 mmt. Assuming this to be accurate, carryout would be the smallest since 2010-11. The estimated stocks-to-use ratio of 6.69% would be the tightest since 1976-77.
With general market expectations that the soybean supply situation could tighten further before the end of the 2019-20 marketing year, the global vegetable oil outlook could get even more constructive. The largest vegetable oil markets in the world are palm oil, soybean oil and rapeseed oil, respectively. When just these three markets are isolated, the trends remain the same with the smallest carryout since 2010-11 and the tightest stocks-to-use ratio since 1976-77.
Based on the latest crop progress data from USDA, sunflower harvest nationally was estimated at 31% complete as of Nov. 3, which is the slowest since 2013 but above 2009's record-slow harvest progress of 15% at this time. Over two-thirds of the U.S. crop is yet to be harvested, but if early yields are an overall indicator of this year's sunflower crop, much tighter supplies look like a certainty in 2019-20. With an abundance of prevented planting acres in the Dakotas this growing season and wet conditions pointing toward another year of prevented planting in 2020, sunflowers may need to send a strong price signal next spring to ensure producers do not opt for other crops.
Tregg Cronin can be reached at firstname.lastname@example.org
Follow Tregg Cronin on Twitter @5thWave_tcronin
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