• 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

    “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.

    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.

  • Projected Soybean Yield Reaches Record Bushel per Acre

    November 30, 2016 5:56 PM

    According to the November supply and demand forecast issued by the U.S. Department of Agriculture (USDA)1, harvested acreage of soybeans remains unchanged from the October report, and projected soybean yield increased to a new record of 52.5 bushels per acre. To add a bit of perspective for those primarily interested in soybean oil, that’s approximately 578 pounds of refined oil from every acre of soybeans harvested. The report forecast a carryover inventory of 480 million bushels of soybeans, the largest carryover since September 2007. Since the report’s release on November 9, January soybean futures are off 31 cents per bushel, about 3 percent, as of this writing.

    Soybean Futures2

    November_Market Updates Graph

    One factor that may turn out to be supportive to soybean prices is Argentina’s soybean planting delays. It is currently planting season there, and the planting weather has been less than ideal with excessive rain in the major growing regions. In addition, the Argentine government realigned its long-standing export tax program. Previously, all agricultural products were subject to taxes applied to exports of commodities. Several months ago, these export taxes were removed from virtually all commodities other than soybeans and soybean products. This seems to have resulted in increased acres of crops such as corn and wheat, and fewer acres of soybeans. These two factors would seem to result in less competition for the U.S. relating to export markets in the upcoming 18 months.

    Further supporting soybean oil prices, the USDA report forecast a lower soybean oil carryover—1,658 million pounds—versus the October report; a mere 27-day supply at the forecast usage rate, despite reducing both the forecast domestic usage and exports. Consequently, the report forecast the average year’s crude soybean oil price to be 32.5 to 35.5 cents per pound, 2 cents higher than the October forecast. Soybean oil refiners report robust business with strong demand for both edible supplies and biodiesel feedstock. Recent cash prices for fully refined soybean oil have been around 42 cents per pound. If USDA’s forecast bears out, expect fully refined soybean oil to trade at 40 to 45 cents per pound this year.

    1 U.S. Department of Agriculture. "World Agricultural Supply and Demand Estimates Report."
    http://www.usda.gov/oce/commodity/wasde/index.htm. November 2016.
    2 CME Group. "Soybean Futures Quotes." http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean.html. November 2016.

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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...