• 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.

    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.

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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...