October 18, 2001

Market Advisor: USDA Reports Have Implications for Oilseed Marketing Strategies

By George Flaskerud, Crops Economist
NDSU Extension Service

A larger-than-expected soybean crop was projected by USDA on Oct. 12. The report indicated the crop is more than 2 percent larger than projected a month ago. Canola production was also projected to increase about 11 percent from a year ago, while sunflower production was projected to decrease by about 1 percent. What are the implications for marketing strategies?

Some recovery in the soybean futures market and basis would be expected following harvest. Targeting nearby soybean futures in the $4.45 to $4.70 range for making sales may be the best strategy. For sales in that price range, use a minimum price contract with out-of-the-money call options to capture a portion of any unexpected price increases. Consider completing the strategy on two-thirds of inventory by the end of January.

Compounding the problem for soybeans is USDA’s projection for the South American soybean crop. Brazil’s crop is projected to be about 6 percent larger than projected last month and Argentina’s crop is projected to be about 4 percent larger. Their combined production is projected to be just 14 percent less than the U.S. crop. This second major soybean crop will be on the world market beginning in March.

The futures market was not rewarding the storage of soybeans as of Oct. 15. The carry in the futures market and a modest improvement in the basis would just barely offset storage costs in the months ahead. Unfavorable weather in South America or larger than expected exports and crush will be needed to generate price increases sufficient to justify storage.

For canola, targeting a price of $9 per hundredweight at Velva to begin sales may result in selling for at least the average price of the marketing year ending July 31. Achieving that price by mid-March would provide a return to storage of about 50 cents per hundredweight.

Higher canola prices are expected due to limited world supplies. Canola production in Canada is down by 33 percent from a year ago, according to Ag Canada as of Oct. 11 ( http://www.agr.ca/policy/winn/biweekly/English/index2e.htm ). Ag Canada projects that total use of canola will be reduced by that same percentage. Ending stocks are projected to be less than half of a year ago, which were about half of the previous year’s stocks. Ending stocks are projected to be only 7 percent of total use.

The reduction in Canada is being partly offset by production in other countries, especially relative to expectations one to two months ago. Germany, Poland and the Czech Republic had higher production than expected earlier, according to Oil World on Oct. 12. Oil World indicated that rapeseed and canola supplies at the world level would be down 6.5 percent from a year ago and 12.4 percent from two years ago.

Sunflowers typically show sufficient price strength into May to justify storage and this year should be no exception. This strength will come, not because of the 1 percent decrease in U.S. production, but because of the tight world situation for sunflowers. Oil World indicated that world supplies of sunflowers will decline to an eight-year low during 2001-02 and that supplies of sunflower oil and meal will be very low. The tight supply situation could get worse if Argentina fails to come through with an acreage increase. Oil World indicated that heavy rains are delaying plantings there.

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Source: George Flaskerud, (701) 231-7377, gflasker@ndsuext.nodak.edu
Editor: Tom Jirik, (701) 231-9629, tjirik@ndsuext.nodak.edu