Biodiesel Featured Articles
US Oil Crops Outlook
Volatile global oil prices and fluctuating financial markets are having an impact on the US and international oil seeds market, with demand and yields for soybean oil down in August according to Mark Ash and Erik Dohlman from USDA's Economic Research Service in the Oil Crops Outlook
Stronger Supply, Dimming Demand Outlook Pressures Soybean Prices
US sown acreage for soybeans soared in 2008 to a record 77 million acres, which is 2.2 million acres higher than last month's estimate.
Despite a half-bushel reduction in yield to 39.5 bushels, soybean production was forecast 49 million bushels higher than last month's forecast to 2.983 billion bushels. A combination of higher supplies and lower domestic use raises the forecast of 2008/09 ending stocks to 220 million bushels.
USDA lowered its 2008/09 forecast of the US average soybean price by $2.00 this month to $9.60-$11.10 per bushel.
In Canada, excellent yields on record-high acreage are expected to produce 10.9 million tons of canola. Despite a supply increase, 2008/09 canola exports could drop to 5.3 million tons due to import markets saturated with higher supplies from Australia and countries of the former Soviet Union. As a result, Canada’s ending stocks of canola would likely swell to a record 2.6 million tons next year (from 1.5 million in 2007/08).
Source - Central Illinois Soybean Processor report, Agricultural Marketing Service, USDA.
Domestic Outlook
Soybean Market Better Supplied With Higher 2008 Crop and Stock Carryover
In October, USDA's Crop Production indicated a US average soybean yield for 2008 at 39.5 bushels per acre, down from the previous forecast of 40 bushels. For most Midwestern States (except Illinois), soybean yields are forecast below last year, while yields in the South generally improved.
It is becoming clear that the late start for soybeans last spring was detrimental for plant growth. Yet, the absence of killing frosts in September prevented a more serious setback for soybean yields. Through mid-October, parts of the northern Midwest still have not had any freezing weather. Crops were given more time to mature by these fortuitous circumstances. As a result, the premium on soybean prices from the risk of poor yields has narrowed. Although harvesting has now stepped up, it still lags the usual pace in all but a few States. As of October 5, 31 per cent of the country’s soybeans had been harvested, compared to the 5-year average of 41 per cent. Even where soybean crops are mature, farmers have been kept out of fields by excessive wetness following heavy rains over the past several weeks.
Despite lower yields, nearly every State is anticipated to produce more soybeans this year because of an unprecedented acreage expansion. In 2008, US sown acreage for soybeans soared to a record high 77 million acres, which is 2.2 million acres higher than last month’s estimate and a 19-per cent increase from last year.
On that basis, soybean production was forecast 49 million bushels higher than last month's forecast to 2.983 billion bushels. A majority of this month’s increase was for Illinois, with a combined gain of 200,000 acres and a yield hike of 3 bushels per acre.
US soybean stocks for 2007/08 culminated at 205 million bushels (65 million above the prior forecast), according to USDA’s latest Grain Stocks report. The September 1 stocks data imply that the 2007 soybean crop had been underestimated.
US soybean production for 2007 was revised up by 91 million bushels to 2.676 billion, with a 1.3-million-acre increase for harvested acreage (to 64.1 million) and an increase in yield (to 41.7 bushels per acre from 41.2 bushels previously).
Summing the higher stocks with the increase in new-crop production raises the total supply for 2008/09 by 111 million bushels from last month’s estimate.
Soft Demand Seen for Soybean Meal and Soybean Oil
In August, soybean crushing fell to 128.7 million bushels (17.6 million below the year-earlier level) due to unavailability of old-crop stocks and minimal early harvesting of the new crop. Through July, the soybean crush had been running ahead of the 2006/07 pace. But the weak finish let the 2007/08 domestic soybean crush slip to 1.801 billion bushels from 1.808 billion in 2006/07. In 2008/09, a further contraction in soybean crush to 1.76 billion bushels is expected. The factors responsible for the lackluster soybean demand are dim prospects for both the export and domestic use of soybean meal. A combination of higher supplies and lower domestic use raises the forecast of 2008/09 ending stocks to 220 million bushels.
Falling feed costs will help buoy the poultry and livestock industries, but modest increases in breeding animals constrains the outlook for soybean meal consumption.
Domestic disappearance of soybean meal in 2008/09 is forecast rising just 0.6 per cent to 33.4 million short tons. US exports of soybean meal will also be curbed by a stronger dollar and an amply supplied foreign market.
Consumption of soybean oil in 2008/09 will be limited by larger supplies of canola oil and an expanding use of animal fats for biodiesel.
Consumption of soybean oil for all uses is expected to decline 300 million pounds to 18.1 billion. While the demand for soybean oil in foods is seen declining the most, consumption for methyl esters (biodiesel) is forecast to increase by a mere 50 million pounds to 3.1 billion.
The potential of US soybean oil exports in the global market will be dampened by stiffer competition from other vegetable oils.
Macroeconomic Factors Pull Commodity Prices Back From Record High
With economic growth starting to falter across the world, recent petroleum values have plunged below $90 per barrel. Investment funds liquidated positions not only in the markets for equities and energy, but likewise precipitated a major market collapse for agricultural commodities.
Domestic commodity prices are also being dragged down by a strengthening of the US dollar in foreign exchange markets.
Since climbing above $16 per bushel in July, central Illinois cash soybean prices tumbled to $9.25 by mid-October--a 12-month low. The report of larger-than expected soybean stocks also contributed to the slump in prices. Further slippage could arise as harvesting of the new crop advances. As a consequence, USDA lowered its 2008/09 forecast of the US average soybean price by $2.00 this month to $9.60-$11.10 per bushel. Although current prices have fallen well below this range, the season average received by farmers will be supported by deliveries forward-priced last summer at much higher values.
Similarly, soybean meal prices that peaked in July at a monthly average of $412 per short ton have daily values in mid-October as low as $245 per ton. USDA’s price forecast for 2008/09 was revised sharply lower to $260-$320 per ton versus last month's forecast at $330-$390 per ton.
For soybean oil, lower output for August accelerated the decline in stocks to 2.599 billion pounds, and another expected reduction for September would drop year-end stocks to 2.375 billion pounds. By the end of 2008/09, a further decline in soybean oil stocks to 2.04 billion pounds is anticipated. Despite the tightening supply, soybean oil prices were swept along with a broader downturn in commodity markets. The September average of central Illinois cash prices fell to 46.1 cents per pound from 50.8 cents in August. Daily prices for mid-October have plummeted below 38 cents per pound, a level not seen since October 2007. The sudden shift in the soybean oil market led USDA to revise its forecast range of the 2008/09 price down to 44-48 cents per pound from 52-56 cents a month ago.
US Sunflower and Canola Crops Rebound on Acreage and Yield Gains
US production of sunflower seed for 2008 was forecast at a 3-year high of 3.485 billion pounds. An earlier estimate of sunflower acreage at 2.16 million acres was too conservative. High springtime prices were actually more successful in encouraging an expansion of acreage than first indicated. Sown acreage rose by 22 per cent to 2.5 million acres. The current forecast of sunflower seed yield (at 1,449 pounds per acre) is also moderately above average. Oil-type sunflower seed might account for all of the supply increase. But because of bountiful foreign crops, demand for US sunflower seed may not keep up with the supply increase. A steep rise in year-end stocks for 2008/09 (to nearly 600 million pounds from 265 million in 2007/08) is considered likely. A wet September has delayed the start of harvesting this fall.
Like prices for other crops, sunflower seed has declined sharply in value since the summer. In June, oil-type seed prices at Enderlin, North Dakota topped $30 per hundredweight, but more recent bids are near $18. Providing some support for sunflower seed prices is the value of sunflower seed oil, which continues to carry a huge price premium relative to other oils.
US production of canola seed in 2008 is forecast at 1.52 billion pounds, only slightly below the 2005 record of 1.58 billion. Although the acreage sown to canola in 2008 is 13 per cent below last year, expected yields are the largest since the 2004 record. US imports of canola seed should be trimmed by the larger domestic harvest. Imports are forecast down nearly 300 million pounds to 1.63 billion, but if realized would rank second only to last year’s record. The domestic crush of canola seed is expected to remain steady near 2.3 billion pounds.
US prices for canola seed are burdened not only by a large domestic harvest but also from big crops in Canada and Europe. North Dakota prices for canola seed topped $26 per hundredweight in July, but at present are near $13.75. Over the same period, impending surpluses of canola meal have reduced its market price by nearly half. A brightening supply outlook is also beginning to erode the price premium for canola oil.
International Outlook
Source - PS&D Online, Foreign Agricultural Service, USDA.
Global Soybean Stocks Rising As Demand Prospects Dim
Weaker-than-expected crush rates in 2007/08 for the United States, Argentina, and Brazil have buoyed global soybean stocks. Although still well below the 2006/07 record of 62.6 million metric tons, 2007/08 ending stocks are estimated at 50.9 million tons versus 50.1 million a month ago.
Likewise, 2008/09 soybean stocks are expected to edge up to 52.1 million tons.
While soybean crush and soybean meal exports from Argentina are expected to moderate in 2008/09, the country’s exports of soybeans could remain brisk.
Soybean shipments from Argentina (which are forecast up to 14.4 million tons in 2008/09 from 13.5 million the previous year) will help offset a gap from a likely reduction in US trade. Global soybean exports, though, are projected to decline 1 per cent to 78.3 million tons. Larger global harvests of rapeseed and sunflower seed will provide numerous opportunities for substitution. Soybean import demand by China, the EU-27, Mexico, and many other countries is expected to decline slightly or stagnate. This month, 2008/09 imports for the EU-27 are forecast 200,000 tons lower to 14.15 million, compared to 2007/08 trade of 15.0 million tons.
Neither is the outlook very robust for 2008/09 trade in soybean oil, which will be tempered by bigger production gains for palm oil, rapeseed oil, and sunflower seed oil. Global exports of soybean oil are seen declining 3 per cent to 10.5 million tons.
Argentina—the world's top soybean oil exporting country—is forecast to ship 5.9 million tons. This is down 100,000 tons from last month's forecast and only moderately above 2007/08 exports at 5.7 million tons. The difference in export tax rates between Argentine soybean oil (32 per cent) and biodiesel (25 per cent), means that exports of the latter are likely to grow more rapidly. China is projected to import 2.5 million tons of soybean oil in 2008/09, down from 2.75 million the previous year. In contrast, China’s imports of palm oil are expected to increase to 5.9 million tons from 5.4 million in 2007/08.
Further Reading
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