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Oil Crops Year in Review: U.S. Soybean Demand Powered by Record 2006/07 Supply
Oil Crops Year in Review: U.S. Soybean Demand Powered by Record 2006/07 Supply
Summary
Record Soybean Acreage, Beginning Stocks Pushed 2006/07 Supply to All- Time High
In 2006, favorably high prices and comparatively low production costs for soybeans led U.S. farmers to plant a record-high 75.5 million acres. Farmers shifted back toward soybeans due to crop rotation considerations, although a sharp increase in corn production costs was a major factor, as well. Growing-season weather in 2006 was favorable throughout the country, with the exception of the Western Plains and the South. The U.S. average soybean yield in 2006 was 42.7 bushels per acre, just shy of the 2005 record. With peak acreage in 2006, U.S. soybean output climbed to a record 3.188 billion bushels. Combined with the larger crop, a huge carryover helped expand 2006/07 soybean supply by 325 million bushels from the prior season’s record.
Record U.S. Soybean Supply Buoyed 2006/07 Demand
Aided by ample supplies and a weakening dollar, soybean exports expanded in 2006/07 to a record 1.118 billion bushels, exceeding the prior record in 2004/05 of 1.097 billion. U.S. soybean shipments recovered a greater share of the global export market, mostly at the expense of exports originating from Brazil. Aboveaverage processing margins led domestic crushers to use a record 1.806 billion bushels of soybeans, well above the 1.739 billion used in 2005/06. Even a robust increase in soybean use could not prevent a rise in 2006/07 end-of-year inventories to the largest ever--totaling 574 million bushels. Despite this, the 2006/07 average price for soybeans increased to $6.43 per bushel from $5.66 in 2005/06 following bullish price gains for corn and wheat.
Robust demand for biodiesel accounted for the entire 2006/07 increase in domestic use of soybean oil. With a tripling of biodiesel production capacity, the consumption of soybean oil for methyl esters climbed to 2.8 billion pounds in 2006/07 from 1.56 billion in 2005/06. Soybean oil exports revived to a 4-year high of 1.888 billion pounds due to the re-emergence of China as a strong U.S. market. Strengthening global demand for vegetable oils helped lift the season-average price for soybean oil to 31 cents per pound, from a 2005/06 average of 23.4 cents.
Soybean meal prices in 2006/07 averaged $205 per short ton, versus $174 for 2005/06. Even at a 3-year high, soybean meal prices were unusually cheap compared with corn and wheat, the main ingredients of most feed rations. U.S. soybean meal exports rose to a 9-year high of 8.8 million short tons. The growth of domestic soybean meal use resumed in 2006/07 with a 3.5-percent increase to 34.4 million short tons. Strong pork demand supported a high price for hogs in 2007, allowing hog producers to bear the high feed costs and raise the animals to greater weights.
Gains in World Soybean Production for 2006/07 Drive Oilseed Markets
Global output for soybeans in 2006/07 totaled 237.2 million metric tons, up 16.7 million tons from the previous season. The U.S. share of the export market for soybeans expanded from 40 percent to 43 percent, while the Argentine share grew from 11 percent to 13.5 percent. Soybean exports from Brazil declined 10 percent in 2006/07 to 23.5 million tons. In Brazil, burdensome farm debt lowered the 2006/07 soybean area 7 percent to 20.7 million hectares. Despite the area reduction, favorable weather improved soybean yields in Brazil to a record 2.85 metric tons per hectare, raising production of the crop to an all-time high 59 million tons. Exports of soybean meal from Brazil in 2006/07 registered a small decrease, but feed use of soybean meal in Brazil swelled 19 percent to 11 million tons. Argentine farmers responded to superior production incentives for soybeans by harvesting a record 16.3 million hectares in 2006/07. Combined with excellent weather, soybean production in Argentina swelled 20 percent to 48.8 million tons.
A moderate 4.4-percent increase in global soybean consumption in 2006/07 lagged the expansion of supplies. Thus, world ending stocks of soybeans rose by 10.4 million tons to 63.3 million. For China, the world’s top soybean importer, the rising cost of imports and outbreaks of animal diseases constrained feed demand for soybean meal. China’s processors imported just 28.7 million tons of soybeans in 2006/07 versus 28.3 million in 2005/06.
Based on a record-high worldwide area sown to sunflowers, global sunflowerseed output increased slightly to 30.2 million metric tons in 2006/07. Bigger sunflowerseed crops in Russia, Ukraine, and the EU-27 compensated for reductions in the United States and Argentina. World cottonseed output climbed 1.9 million tons in 2006/07 to a record 45.8 million tons. World rapeseed production, however, fell to 46.8 million metric tons from 48.7 million the prior season. Smaller crops in China, India, Canada, and Australia countered larger harvests in Europe, Ukraine, and Russia. Global peanut production decreased 2 percent in 2006/07 to 32.4 million metric tons, largely due to a smaller harvest in India.
In 2006/07, global palm oil production expanded 3 percent to 37 million tons. Output by Indonesia, now the world’s leading palm oil producer, increased to 16.6 million tons from 15.6 million in 2005/06. International trade in palm oil increased only 0.5 percent for 2006/07--to 26.8 million tons--as Indonesia raised its domestic consumption. In contrast, world soybean oil trade grew 9 percent in 2006/07 to 10.7 million tons, with market gains by Argentina and the United States.
Global vegetable oil stocks tightened by 11 percent in 2006/07 to 8.9 million tons as consumption outpaced new supplies. By September 2007, export prices for Malaysian palm oil had soared toward $800 per metric ton, nearly double their value of a year earlier. Import costs for rapeseed oil and soybean oil were surging upward as well. India countered rising international costs by reducing import tariffs on vegetable oils. Indian imports of palm oil in 2006/07 expanded to 3.8 million tons from 2.9 million in 2005/06. To compensate for slower domestic production of vegetable oil, China’s palm oil imports increased 14 percent in 2006/07 to 5.1 million metric tons and its soybean oil imports swelled by 59 percent to 2.4 million..
Further Reading
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June 2008
