• Soybean Complex Futures React to Latest Reports

    August 30, 2017 7:57 PM

    On August 10, the United States Department of Agriculture (USDA) forecast soybean production at 4.38 billion bushels, up two percent from last year.1 Based on August 1 conditions, yields are expected to average 49.4 bushels per acre, down 2.7 bushels from 2016, but up 1.4 bushels from the most recent USDA World Agricultural Supply Demand Estimate (WASDE) report.2 Area for harvest in the United States is forecast at a record high 88.7 million acres, unchanged from the June forecast but up 7 percent from last year.1 Planted area for the nation is estimated at a record high 89.5 million acres, also unchanged from June.1  

    Upon release of this report, soybean futures on the CBOT immediately dropped a whopping 40 cents per bushel (4%). Soybean oil futures dropped 1.2 cents per pound (3.5%) in sympathy with the soybean price collapse. The trade had expected a slight decrease in yield per acre and in soybean production, so this was a major surprise.

    However, the long-range prospects for these markets, especially soybean oil, look rather different.

    In the WASDE report, published in conjunction with the crop report, USDA decreased domestic soybean crush for next year due to a lower forecast for soybean meal exports. As a result of this and, of leaving demand for soybean oil unchanged, the soybean oil forecast stocks for September 30, 2018 fell by 260 million lbs. USDA forecasts that soybean oil demand for the next year will remain unchanged from the last two years and demand for biodiesel feedstock will be 450 million pounds higher than this year. Consequently, USDA increased the forecast price range for soybean oil to be one cent per pound higher than its last report, 31-35 cents per pound for crude soybean oil, FOB central Illinois for 2017-18.

    It appears that for the foreseeable future there will be a tug of war in the markets between lower trending soybean meal and soybean futures, and support for soybean oil futures.

    References
    1“World Agricultural Supply and Demand Estimates.” https://www.usda.gov/oce/commodity/wasde/latest.pdf. United States Department of Agriculture. August 10, 2017.
    2“Crop Production.” https://www.usda.gov/nass/PUBS/TODAYRPT/crop0817.pdf. United States Department of Agriculture. August 10, 2017.

  • Amid Dubious Prognosis, Soybean Production Projected to Increase

    July 28, 2017 9:33 PM

    As marketers and users of soybeans oils, why should we be concerned with soybean prices? While soybean prices are determined by the demand for the two primary coproducts, soybean oil and soybean meal, the supply side of the price equation is determined by current soybean supplies and the prospects for the next crop. By volume, 19% of the soybean crop is converted into oil. The remaining balance is used as meal for animal feed. The oil value and the balance from the feed products contribute 30-40% of the value of soybeans.

    The past two weeks have brought fresh news to the complex soybean markets. On June 30, the USDA reported soybean stocks as of June 1. The trade received a fairly bullish shock as soybean futures rallied a full dollar a bushel (11%) to over $10.00 per bushel for the first time since March.1 During this time, soybean oil futures rose by almost 2 cents/lb. to over 33.5 cents/lb.(6%).1

    Soybean Oil Futures2



    During this same period, the condition of the 2017 U.S. soybean crop gradually deteriorated due largely to hot and dry weather. At the end of June, the USDA reported the condition of the U.S. soybean crop as 66% good to excellent.3 The latest report from July 9 estimated the condition had declined to only 62% good to excellent.3 In comparison, the report from July 2016 rated the crop 71% good to excellent.

    The weekly World Agricultural Supply Demand Estimate (WASDE) report issued July 12 by the USDA provided insight into the implications of somewhat lower 2016 crop supplies and declining prospects for the 2017 crop. Despite the challenging soybean crop conditions, the USDA actually increased their projected production of soybeans in the report.4 Even so, it decreased the projected September 2018 soybean carryover by 35 million bushels.4 Consequently, the USDA has raised its projected average farm price of soybeans for the 2017 crop from $8.30-10.30 to $8.40-10.40.4

    The WASDE report made minor changes to the 2016 crop and 2017 crop soybean oil fundamentals, and resulted in no change to the June soybean oil price projections.4 The USDA currently projects 2017 crop average crude soybean oil prices, FOB Central Illinois at $.030-.034 per lb.4 This implies delivered RBD soybean oil at 39 cents/lb. on average for next year – about the same as this year so far.

    References
    1“Grain Stocks.” http://usda.mannlib.cornell.edu/usda/current/GraiStoc/GraiStoc-06-30-2017.pdf. United States Department of Agriculture. March 31, 2017.
    2“Soybean Oils Futures Quotes.” http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil.html. CME Group. July 1, 2017.
    3“Crop Progress.” http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1048. National Agriculture Statistics Service. July 10, 2017.
    4“World Agricultural Supply and Demand Estimates.” https://www.usda.gov/oce/commodity/wasde/latest.pdf. United States Department of Agriculture. July 12, 2017.

  • 2017 Soybean Planting Intentions

    May 04, 2017 6:28 PM

    In our last report issued in January, we surmised that U.S. farmers could plant upwards of 90 million acres of soybeans this year. On March 31, the USDA issued its annual planting intentions report with a projection of 89.5 million acres for soybeans.1 This figure was above the average prediction and even above the highest trade estimate offered in a trader poll. This is a market surprise and is expected to put downward pressure on prices for soybeans and soybean oil. In 2016, soybean planting totaled 83.4 million acres.1

    In addition to planned acreage, the USDA reported soybean stocks as of March 1, providing another bearish surprise. Stocks of U.S. soybeans on March 1 are estimated at 1.735 billion bu., compared to 1.530 billion bu. in March 2016.2 The average trade prediction was 1.684 billion bu. Under the pressure of both of these figures, soybean futures would seem to have the potential to trade between the May futures’ low made last August at $9.35 and the May futures’ contract low at $8.70.2

    Soybean Oil Futures3

    The immediate reaction could be that soybean oil futures will also bow to this price pressure, yet the drop in soybean oil futures, after the report went public on March 1, 12 p.m. EST, has been more moderate than the immediate price reaction of soybean futures. Soybean oil futures had declined for four consecutive months through March, so we should conclude that it had already priced in a bearish scenario.3

    Soybean Oil Futures3
    Soybean Oil Futures

    In its latest supply demand forecast issued April 11, 2017, the USDA projected cash on-farm soybean prices to average $9.40-9.70 per bushel, a narrowing of the range projected in March and a reduction of just 5 cents per bushel when comparing the means of each projection.4 The USDA projected cash crude soybean oil prices to average 31-33 cents per pound, a reduction of 1.5 cents per pound when compared to the March projection.4

    References
    “Prospective Planting.” https://www.usda.gov/nass/PUBS/TODAYRPT/pspl0317.pdf United States Department of Agriculture. March 31, 2017.
    2 “Grain Stocks.” https://www.usda.gov/nass/PUBS/TODAYRPT/grst0317.pdf United States Department of Agriculture. March 31, 2017.
    3 “Soybean Oils Futures Quotes.” http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil.html. CME Group. March 1, 2017.
    4 “World Agricultural Supply and Demand Estimates.” https://www.usda.gov/oce/commodity/wasde/latest.pdf. United States Department of Agriculture. March 9, 2017.

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Richard GallowayAbout the Expert

Richard Galloway is president of Galloway and Associates, LLC, a business consulting firm serving domestic and foreign agricultural processing, vegetable oil refining, biodiesel and grain handling industries. Galloway is a consultant to the QUALISOY Board, a collaborative effort among the soybean industry to help market the development and availability of trait-enhanced soybean oils, including high oleic soybean oil. Read More...