• 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.

  • New EPA Mandate Boosts Soybean Oil Demand

    January 03, 2017 10:45 PM

    After a number of months in which petroleum prices were so soft that the edible oil markets all but ignored them, on November 23, 2016 the U.S. Environmental Protection Agency (EPA) set the renewable volume obligation (RVO) that commits the petroleum industry to minimums for biodiesel (specifically “Biomass-based Diesel”) usage at 2.12 billion gallons.1 This represents a 6 percent increase over 2017 and is higher than the industry expected. The primary feedstock for producing biodiesel is soybean oil. Other feedstocks include other vegetable oils, animal fat and corn oil from ethanol production.

    In reaction to the mandated minimum biodiesel volume, on December 9 the United States Department of Agriculture (USDA) increased its projection of soybean oil usage in biodiesel production for the 2016-17 marketing year by 250 million pounds from its November World Agricultural Supply Demand Estimate (WASDE) report. The December 9 WASDE report further projected a crude soybean oil price range of $0.3450 to $0.3750 per pound. This is 2 cents per pound higher than the November projection and 4.64 to 7.64 cents higher than the price experienced in the 2015-16 marketing year which ended on September 30.2

    Note the price reaction of January soybean oil futures since November 23.

    Soybean Oil Futures3

    Market Updates Blog Graph

    The long green line in late November depicts the immediate reaction to the EPA announcement. After gradually drifting lower from late October to the low to mid 34 cent range, prices have since shot up above 37 cents.

    Recall from previous Market Updates that we have been observing a gradual tightening of soybean oil stocks for several consecutive WASDE reports. The December 9 WASDE report projected soybean oil stocks on September 30, 2017 at a very tight 1,552 million pounds. This is a mere 25-day supply. We routinely tolerate a 30 to 40-day supply at year’s end, but a 25-day supply will be logistically challenging.

    A remedy for soybean oil stocks’ tightness is to increase the domestic crush of soybeans; the supply of soybeans is more than adequate to do that. The challenge is that global soybean meal demand is not adequate to absorb both the crush from the latest vast U.S. soybean crop and the large 2016 and impending 2017 Argentine soybean crush. Argentina has a differential export tax policy that taxes exports of raw soybeans at a higher rate than exports of both soybean meal and soybean oil. Effectively, this is a subsidy for the Argentine soybean crushing industry, and it allows Argentine crushers to have an unfair advantage in competing with U.S. crushers for international soybean product demand.4 Consequently, we cannot expect to be rescued by a higher domestic crush, unless the Argentine crop experiences significant weather problems at the end of their growing and harvest seasons. In Argentina, most soybeans are harvested in February and March.

    Last month’s Market Update concluded with the expectation that fully refined soybean oil is likely to trade at 40 to 45 cents per pound this year. Given the November increase in the biodiesel RVO and the December 9 WASDE report, we should modify expectations to the mid to upper 40 cent range for fully refined soybean oil. Since virtually all other vegetable oils base their prices off of soybean oil, expect other oils to experience a similar price increase. Generally, expect all vegetable oils to trade 5 to 10 cents per pound higher than last year.

    References
    1 “Final Renewable Fuel Standards for 2017, and the Biomass-Based Diesel Volume for 2018.” https://www.epa.gov/renewable-fuel-standard-program/final-renewable-fuel-standards-2017-and-biomass-based-diesel-volume. U.S. Environmental Protection Agency. December 2016.
    2 “World Agricultural Supply and Demand Estimates.” http://www.usda.gov/oce/commodity/wasde/latest.pdf. United States Department of Agriculture. December 2016.
    3 “Soybean Oils Futures Quotes.” http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil.html. CME Group. December 2016.
    4 “Export Taxes on Agricultural Products: Recent History and Economic Modeling of Soybean Export Taxes in Argentina.” https://www.usitc.gov/publications/332/journals/export_taxes_model_soybeans.pdf. United States International Trade Commission. September 2007.

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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...