The start of the 2024-2025 campaign for the main season, in the areas where sunflowers are historically produced in Argentina, is not in question. The key factors are productive ones, such as the impact of the “La Niña” phenomenon and the outcomes from comparative plans with other summer crops.
To begin the analysis of the sunflower market, it is necessary to go down a path where we can focus on variables outside of commodity markets, such as the international volatilities that have affected the price of all assets at the start of August, caused by changes in macroeconomic policy decisions in some countries, such as Japan. In a second step, it is crucial to focus on internal market variables. Here, we will focus on fundamental issues, concentrating on the main countries supplying the product and by-products, as well as the countries that demand them.
External Factors
Starting with external variables, the first thing we need to describe is the report that made the short-term economic dynamics of the United States vulnerable. This specific data is the unemployment rate, which increased from 4.1% to 4.3%, causing a shift in the decision-making process of major global investment funds regarding which assets to invest in. At the same time, Japan decided to make a change in its monetary policy and raised the interest rate, which also created a risk concerning the development of the global macroeconomy.
It is worth clarifying that this did not create a trend change in the price of any asset, but it did create significant volatility and a search for safe havens, which had an impact on the real economy and keeps us in constant alert regarding what may happen going forward.
How does this impact commodity prices?
Overall, the harshest weeks of volatility were not positive, which is why it is important to pause and analyze what the scenario might look like going forward and how it could impact commodity prices. It is also true, to conclude on external factors, that international geopolitics is an important element in market volatility, specifically as we turn to the sunflower market and the Russia/Ukraine war, which has had new events that cast doubt on how this long-running situation may ultimately end.
Internal Factors
The internal market factors that we need to analyze are related to what the global production volume will be. According to the latest USDA report, global production is expected to be 4.6% lower compared to last year, which saw an increase in global production. The countries that account for the largest share of the absolute drop in production are Russia and Ukraine, with an approximate 8% decrease between them. These countries are facing adverse climatic impacts on crop development and there are also uncertainties linked to the ongoing war they have been engaged in since 2022.
Demand
The interesting point on the demand side is that both India and China are demanding sunflower oil in greater proportions than in previous years. This is clearly due to a decrease in the price of the entire oil complex, including sunflower oil specifically. As long as the price of sunflower oil remains at levels similar to the beginning of the war in 2022, which reached over $2,300 per ton, this demand will continue to be strong.
Conclusion
It seems that the international price of sunflowers has a basis to remain at current levels, with a potential price increase due to climatic adversities yet to come in major producing countries such as Russia, Ukraine, and Argentina. Breaking down the price analysis to the decision-making of Argentine agricultural producers, sunflower seems to be the crop with the best comparative result in the areas where it is most influential among other summer crops. However, it is also true that for the previous 2023/2024 campaign, 50% of production still needs to be marketed, which could create some price ceilings for both spot and future prices.
Lastly, starting to take forward price hedges around $350 per ton would be very prudent, as this represents a positive return in an environment of macroeconomic uncertainty.
