Oil Crops Outlook June 2009

The 2009/10 soybean price was forecast higher to $9.00-$11.00 per bushel versus last month’s forecast of $8.45-$10.45, reflecting the tightening of next year’s supply from smaller carryover stocks. Soybean meal prices in 2009/10 were also forecast up to $275-$335 per ton versus $260-$320 last month.

On the basis of recent record high soybean imports by China, USDA raised its 2008/09 import forecast for the country from 37.5 million to 38.8 million metric tons. The main outcome from the surge in soybean imports to China will be a larger stock carryout in 2008/09, which could rise to a record 7.3 million tons in 2008/09. In Argentina, the drought-reduced 2008/09 soybean harvest was lowered again this month by 2 million tons to 32 million. As a consequence, Argentine soybean exports are seen plunging from 13.8 million tons last year to 5.4 million tons in 2008/09.

DOMESTIC OUTLOOK

Historically Tight U.S. Stocks of Soybeans Are Expected

Ending stocks of soybeans are expected to fall in 2008/09 to 110 million bushels. If realized, it would be the smallest carryout since 1976/77. In relative terms, the ratio of soybean stocks to total use would be a record low 3.6 percent. Next fall’s low U.S. carryover may only be viable because of abundant stocks held in China, the world’s top buyer of soybeans.

Rising prices have not yet succeeded in slowing down the use of soybeans, particularly the export demand. U.S. soybean exports for 2008/09 were forecast 10 million bushels higher this month to a record 1.25 billion. Even with the sudden rally in soybean prices, the moderate seasonal decline in foreign trade has shown few signs of weakening. The lack of soybean exports originating from Argentina provides U.S. suppliers with market opportunities not ordinarily seen at this time of year. However, the increase in 2009/10 exports may be very modest (to 1.26 billion bushels) because of China’s large stocks and a recovery in foreign soybean production next spring (particularly for Argentina).

Current business for domestic soybean processors has picked up moderately, too, due to improved export sales for soybean meal and soybean oil. The rise in price for both products has bolstered soybean crush margins. Although the 2008/09 soybean crush will still be well below last year’s total of 1.801 billion bushels, the forecast was raised 10 million bushels this month to 1.65 billion.

Since last fall, soybean prices have strengthened considerably as steady demand in 2008/09 quickly diminished a smaller supply. By early June, central Illinois soybean prices topped $12 per bushel, up from the March 2009 average of $9.17 reaching their highest level since September 2008. Also supporting soybean prices are escalating corn prices, the weakening of the U.S. dollar relative to foreign currencies, and a higher value for petroleum. Despite the high percentage of soybeans already marketed by farmers for the season to date, the increase in current prices was large enough to raise the forecast 2008/09 average price this month (up 15 cents to $10.00 per bushel). The 2009/10 soybean price was also forecast higher to $9.00-$11.00 per bushel versus last month’s forecast of $8.45-$10.45, reflecting the tightening of next year’s supply from smaller carryover stocks.

The 2009 soybean crop has been delayed by many weeks of wet weather. As of June 7, 78 percent of intended U.S. soybean acreage had been planted, compared to the 5-year average of 87 percent. Spring fieldwork is furthest behind in Illinois and Indiana, particularly in their southern halves. It may now be too late to successfully plant corn in the region, which could boost the acres of soybeans sown. Significant planting delays are occurring in Kentucky, Tennessee, Missouri, and Arkansas, as well. USDA’s June 30 Acreage report should shed light on the extent of any changes from March crop intentions. Crop emergence is also delayed throughout the Midwest because of late planting and cooler-than-average temperatures.

Export Sales of Soybean Meal and Soybean Oil Accelerate While Domestic Uses Lag

Recent export sales of U.S. soybean meal have been brisk, and have benefited from low shipment levels out of Argentina and India. New sales opportunities in Latin America have shown the most vigor. Thus, USDA raised its 2008/09 forecast of soybean meal exports by 200,000 tons this month to 8.8 million. The higher demand for soybean meal and a dwindling soybean supply is having an acute impact on prices. Soybean meal values in central Illinois, which averaged $292 per short ton in March, surged to $380 in May. The higher price outlook prompted a $15 increase in the season-average price forecast to $320 per ton. Soybean meal prices should ease somewhat in 2009/10, but the June forecast was raised to $275-$335 per ton, versus $260-$320 last month.

Soybean oil exports were also very strong in April and May. Argentina and India also factor into the current picture for U.S. soybean oil exports, with a slowdown in the former’s exports and an acceleration of the latter’s imports. For 2008/09, U.S. exports of soybean oil were expected 100 million pounds higher this month to 2.1 billion pounds. However, the domestic use of soybean oil, in both edible and biodiesel uses, has been quite weak lately. Overall, the consumption of fats and oils for biodiesel rebounded modestly in April. But, the share of soybean oil in biodiesel continues to decline and 2008/09 consumption was forecast 150 million pounds lower to 1.75 billion. March-April 2009 exports of biodiesel were down 87 percent from the same period last year. Total domestic use of soybean oil is estimated 300 million pounds lower this month (to 16.2 billion pounds) as an ongoing decline in edible use compounds the lower demand for biodiesel.

As a result of slow domestic consumption, soybean oil stocks have stayed stubbornly high. U.S. April-ending stocks totaled 3.159 billion pounds, up from 3.101 billion in March and 2.917 billion in April 2008. Over the next 5 months, soybean oil stocks may decline very little. The season-ending inventory is now forecast at 3.013 billion pounds--310 million pounds above the previous forecast. But, due to stronger export demand next year, 2009/10 ending stocks of soybean oil are projected to shrink to 2.648 billion pounds. Robust U.S. export sales of soybean oil should continue into next spring. Shipments of soybean oil abroad in 2009/10 are seen 200 million pounds higher to 2.95 billion pounds, and rank behind only the 1997/98 record.

The current rise in soybean oil stocks is not pressuring prices. In fact, between March and May, monthly average soybean oil prices in central Illinois strengthened from 28.2 cents to 36.1 cents per pound. The anticipated decline in global soybean stocks is equally affecting the supply outlook for soybean oil. This month, USDA raised the 2008/09 average price forecast by 1 cent to 33.5 cents per pound, while the price range for 2009/10 was raised a half-cent to 33-37 cents per pound.

INTERNATIONAL OUTLOOK

Events in China and Argentina Fundamentally Alter World Soybean Trade

In China, a torrent of soybean imports has either arrived or will arrive soon. On this basis, USDA raised its forecast of China’s 2008/09 soybean imports this month from 37.5 million to 38.8 million metric tons. Additional crushing will account for some of the higher supply of soybeans, although that will only add to a growing domestic surplus of soybean meal. China’s exports of soybean meal may grow to 800,000 tons, aided this year by low exports out of India. Nearby countries (Japan, South Korea, and Vietnam) are the primary importers of soybean meal from China. But the main outcome from the surge in soybean imports will be a larger stock carryout in 2008/09, which could rise to a record 7.3 million tons. Stocks could stay high throughout 2009/10 and are projected to end the year at 7.1 million tons. China’s soybean inventory would even exceed U.S. stocks, which total 3 million in 2008/09 and 5.7 million tons for 2009/10.

The Argentine soybean harvest for 2008/09 was lowered again this month by 2 million tons to 32 million, making it the country’s smallest in 7 years. Abysmal yields in some regions have prompted a higher abandonment of soybean area. Indications are that farmers may harvest only 16 million hectares this year—down from the previous estimate of 16.5 million. Absorbing all of the likely impact from a smaller harvest, 2008/09 exports are seen plunging to 5.4 million tons—a staggering 61-percent reduction from 2007/08 (13.8 million). October-March 2009 soybean exports have already declined 2.4 million tons (43 percent) from a year earlier. Due to a less severe reduction in the soybean crush, Argentine exports of soybean meal and soybean oil may not fall as steeply. Even so, Argentine soybean meal exports in 2008/09 are seen dropping to 24.6 million tons, versus 26.8 million in 2007/08. Similarly, soybean oil exports could fall to 5.1 million tons from 5.8 million the previous year.

Argentina is now a smaller force within the international market for soybean exports, so China’s processors are increasingly focused on trade with Brazil. May soybean exports from Brazil were at a record high and should continue strongly into the summer. The brisk China demand and lack of Argentine competition led the forecast of Brazil’s 2008/09 soybean exports up by nearly 1 million tons this month to 27.2 million, versus 25.4 million tons in 2007/08. The additional export demand for soybeans can only be accommodated, however, by further pressure on Brazil’s own carryout stocks and domestic use.

In contrast, 2008/09 exports of soybean oil from Brazil declined by 20 percent for the year to date (October-March). Although soybean oil output in Brazil may be down only slightly this year, its expanding use for domestic biodiesel production constrains the supply available for the export market. As of July 1, the Government of Brazil is accelerating a requirement to use biodiesel from 3 percent to 4 percent of the domestic fuel supply. Expected lower availability of soybean oil in Brazil led to a reduction of the export forecasts for 2008/09 and 2009/10 to 1.9 million and 1.85 million tons, respectively.

EU-27 Rapeseed Imports Expected Higher for 2009/10 Due to Weather-Damaged Crop

The forecast of EU-27 rapeseed production for 2009/10 is lowered 600,000 tons this month to 18.5 million, primarily due to lower yields. Gains in Western Europe (France) were more than offset by losses in Eastern Europe, especially areas of Romania, Hungary, and Poland where rapeseed is not widely irrigated. Eastern Europe had below-normal rainfall in April that depleted topsoil moisture. In May, rainfall across Eastern Europe remained light, and hot temperatures during the flowering stage reduced yield potential for rapeseed. With less domestic production, EU-27 rapeseed imports for 2009/10 are forecast 100,000 tons higher to 2.35 million. Rapeseed imports for 2008/09 are also increased 300,000 tons this month to 3.1 million, as significant quantities have arrived from Australia. A steady increase in EU rapeseed oil demand is seen because its stable price (compared to crude petroleum prices that have doubled since early 2009) has improved the profitability of biodiesel production there.

Further Reading

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June 2009