• Potential impact of china’s retaliatory soybean tariff on the soybean oil market

    August 17, 2018 10:15 PM

    To some extent, soybean oil is a residual commodity, secondary to soybean meal, in driving processing rates and influencing complex prices. Crush rates are driven primarily by immediate soybean meal demand, and soybean oil inventories at crushing plants vary based on the balance of demand between soybean oil and soybean meal at any given time.

    Roughly half the soybeans grown in the U.S. are exported as whole beans. On average, China buys half of the total soybeans exported from the U.S.1 The balance between the demand for exported soybeans and soybean meal greatly impacts the crushing margin, which in turn, impacts the crush rate and production of soybean oil. The production rate impacts the buildup or draw down of soybean oil stocks and subsequently, the price of soybean oil.

    The trade war involving soybean exports from the U.S. to China has a dual impact on the price prospects for soybean oil. Since the escalation of the trade war, the price for soybeans has dropped approximately 20 percent, the price for soybean oil futures has dropped 10 percent and the crushing margin has widened by about 15 percent. 2 While part of this decline in soybean price can be attributed to the excellent condition of the current U.S. crop, the trade war is certainly the primary driver.

    The USDA reports issued on July 12 showed an undeniable influence of the trade war on the projections for marketing year 2018-19, with the following major highlights:

    • Total projected soybean imports to China are estimated to decline by 8 percent.3
    • Total U.S. exports of soybeans are estimated to decline by 5 percent.3
    • U.S. domestic crush is forecasted at a record 2.045 billion bushels (bu.), up 15 million bu. from this year and 45 million bu. above the June projection.3

    Soybean oil stocks are now forecast to grow from 1.71 billion pounds in December 2017 to 2.32 billion pounds this September, and remain somewhat heavy at 2.24 billion pounds the following September. As a result, USDA projects crude soybean oil to cost $0.2950-0.3350 this year and $0.2800-0.3200 next year.3 This implies soybean oil will be delivered to the East Coast and Midwest at less than 35 cents per pound this summer, and another one to two cents lower the following marketing year.

    References:

    1. Foreign Agriculture Service, https://apps.fas.usda.gov/gats/default.asp
    2.
    CME Soybean Futures Quotes, http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean_quotes_globex.html
    3. USDA World Agricultural Supple Demand Estimates, http://usda.mannlib.cornell.edu/usda/waob/wasde//2010s/2018/wasde-07-12-2018.pdf
  • Price Volatility Returns To The Soybean Complex

    May 04, 2018 5:02 PM

    On April 4, 2018, soybean futures quotes suffered a highly volatile day upon China’s announcement of import tariffs on U.S. soybeans. Soybean futures dropped over five percent in value before recovering about half that loss on the market.1 However, subsequent to the announcement, soybean futures recovered all of the immediate loss.

    This positive turn can be explained by three factors: the recent dialogue between Chinese and American officials, the demand of U.S. soy regardless to any trade war, and the weather-related reduction in the Argentine soybean crop.

    In the April USDA World Agricultural Supply and Demand Estimates (WASDE) update, USDA projected global soybean imports to be up five percent at more than 150 million metric tons.The U.S. is projected to produce 37 percent of soybeans supplied to the world. Brazil is expected to produce 48 percent, while the remaining 15 percent will be sourced from other origins. Tariffs on U.S. soybeans will not significantly affect the ultimate export number for domestic soybeans.

    Any negative impact on soybean values would tend to weigh most heavily on soybean oil values, since global soybean meal demand remains extremely robust in the developing world. As more soybean meal is used to feed livestock and poultry, oil surpluses develop.3 The latest WASDE update forecasted U.S. soybean oil stocks to be at a near 2 billion pounds in September 2018. 2 This would be the densest level in six years. USDA is forecasting 2017-18 soybean oil prices to average about 1 cent per pound, which is similar to its current level.

    References

    1. “CME Soybean Futures Quotes.” http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean_quotes_globex.html CME Group. April 11, 2018.
    2. “World Agricultural Supple Demand Estimates.” http://usda.mannlib.cornell.edu/usda/current/wasde/wasde-04-10-2018.pdf United States Department of Agriculture. April 10, 2018.
    3. “CME Soybean Oil Futures Quotes.” http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil_quotes_globex.html CME Group. April 11, 2018.

  • USDA Sees Record Demand For Soybean Oil As Biodiesel Feedstock

    February 07, 2018 7:13 PM

    In late October, the U.S. Environmental Protection Agency’s (EPA) decided not to move forward with reducing the biomass-based diesel and advanced biofuel requirements after the organization received backlash from corn-state lawmakers who expressed concerns that the moves would undercut ethanol demand. 1 In the USDA’s December supply demand update (WASDE), demand for soybean oil during the current marketing year as biodiesel feedstock was raised from 7 billion pounds to 7.5 billion pounds, a record amount. 2

    The WASDE also showed reduced domestic usage of soybean oil of 300 million pounds, so the net increase in forecast usage is only 200 million pounds. This did not affect future prices subsequent to the report. The USDA’s forecast cash price for soybean oil during the marketing year is an unchanged 34.5c/lb., which is a 2c/lb. increase from 2016’s average price. There were no significant changes to the soybean and soybean meal supply and demand projections in this report.

    Expect the soybean oil price to display a soft tendency in the near term and to follow petroleum prices, longer term.

    References

    1. Jarrett Renshaw. “EPA Abandons Changes to U.S. Biofuel Program after Lawmaker Pressure.” Reuters. October 20, 2017. https://www.reuters.com/article/us-usa-biofuels/epa-abandons-changes-to-u-s-biofuel-program-after-lawmaker-pressure-idUSKBN1CP1IL
    2. “World Agricultural Supply Demand Estimates.” https://www.usda.gov/oce/commodity/wasde/latest.pdf United States Department of Agriculture. December 12, 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...