We all need to be prepared for the upcoming oil seed market price increase which in turn drives up the cost of all vegetable oils. And, of course, sunflower oil is included in this market.
The rising cost of the oil seed market has many contributing factors. The first and foremost driver of this market is the soybean oil market. Commodity prices have dramatically increased over the past several weeks. This price increase is a result of factors such as competing crops consuming production acres, drought throughout the US and also in South America, and high export demand to name a few.
China is in high demand of soy products as it recovers from the swine flu that devastated its pork production. Since they are now back to somewhat normal levels of swine production, they are importing high amounts of soybean meal which in turn has a direct impact on the cost of soybean oil. As the cost of soybean oil rises, so do the other vegetable oils including sunflower oil.
South American countries such as Brazil and Argentina are large producers of soybeans and also sunflowers. Brazil is coming out of drought conditions which will increase their production of soybeans, but the drought relief has come in the form of late rains. These late rains have extended their normal harvest dates beyond the usual timeframe causing a short supply of crops coming from Brazil. This has supply low and demand high for the time being. Their South American counterpart, Argentina, has not been as fortunate in its recovery from the drought conditions. Argentina is still in a drought pattern which has caused their crop production to be less than normal. So, our neighbors to the South are experiencing mother nature conditions that have put a damper on the supply of crops such as soybeans and sunflowers coming on the market. This interruption in supply has a direct effect on the price of sunflower oil due to supply and demand.
Drought conditions in the US are still at alarming levels. As of January, 94% of acreage in the US High Plains region was categorized in some sort of abnormally dry or exceptional drought condition. The US Midwest region has 40% of its land base labeled as dry acreage. The drought conditions in the US have caused concerns in regard to the number of acres to be planted. Farmers are making planting decisions right now as this is written for the upcoming 2021 growing season. Sunflowers are competing with the other commodities for these acres. All other commodities such as soybeans, corn, and milo are all seeing higher prices for the upcoming harvest season. This competition between the commodities is driving the market for sunflowers as well. With the drought conditions we are dealing with, 2021 could be the third consecutive year of crop shortfalls.
In conclusion, we at Colorado Mills are very aware of the impact that rising costs will have on your business and the sunflower oil market. We are doing everything we can to help mediate the increasing cost of sunflower seeds which is the raw ingredient for our premium sunflower oil. But at the same time, the rising cost of sunflower seeds is something that is dictated by factors outside of our control. We have your interests and well-being at heart, thus we wanted to make you aware of the factors that are driving the sunflower oil market. We hope that this will help you to prepare yourself for the unavoidable price increase that is coming in the near future.
The Colorado Mills management team is always here to discuss any concerns you might have. Please do not hesitate to contact us with questions or comments. We are here to help you achieve success and profitability.
Yours in partnership,
Kent R Wollert
CFO, Colorado Mills