• Excellent U.S. Soybean Crop With Strong Demand Prospects

    August 03, 2016 5:15 PM

    In its June 30, 2016 Acreage Report, the U.S. Department of Agriculture (USDA) increased estimated soybean acreage to 83.7 million, which would be a new record eclipsing the 83.3 million acres planted in 2014.1 The current yield projection by USDA is 46.7 bushels per acre, which compares to 48 bushels per acre last year and 47.5 the year before. Bottom line: we have a big crop on the horizon, assuming that favorable weather continues. The last crop condition report called the U.S. soybean crop at 71 percent good to excellent, which compares to 62 percent of the U.S. soybean crop called good to excellent one year ago.2 Last year saw a record yield per acre.

    The primary driver of the domestic crush rate is soybean meal demand. Soybean oil can be stored for long periods, but soybean meal generally must be shipped out as produced. The current demand for soybean meal is good, both domestically and for export. The export demand is being aided by a short Argentine crop that was harvested during the past spring in North America (South America’s fall). The USDA forecasts a record domestic crush for the 2016-17 year3; 7 percent greater than its forecast for our current year.

    In spite of the greater soybean oil production forecast for the coming year resulting from the crush to meet good meal demand, September 30, 2017 soybean oil stocks are forecast to be a very manageable 1.91 billion lbs. That’s 16 percent below the stocks expected this coming September 30. This relative tightness is the result of an increase in the projected use of soybean oil for biodiesel feedstock by 600 million lbs. over the usage expected this year. Food use and soybean oil exports are projected to be about flat with the 2015-16 year. This biodiesel usage is logical, as the renewable fuel volume requirements established by the U.S. Environmental Protection Agency annually are higher in keeping with the soybean oil usage projections.

    Excellent demand for both soybean products seems relatively solid through the coming year, so the next market marker is U.S. growing, and later harvest, weather. We are on track for a big crop, but with excellent demand.

    USDA. National Agricultural Statistics Service. http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1000. June 30, 2016.

    USDA. Crop Progress. http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1048. July 11, 2016.

    3.USDA. World Agricultural Supply and Demand Estimates Report. http://www.usda.gov/oce/commodity/wasde/index.htm. 2016.

  • Soybean Oil: Pricing Opportunity?

    June 27, 2016 5:17 PM

    A number of factors are pushing food prices upward. The fundamental situation with global soybeans includes a reduced South American crop due to flooding, primarily in Argentina, the number three soybean producing country. Add to this a slightly reduced crop in Brazil and the U.S., and suddenly global supplies don’t look nearly as comfortable as they did a few months ago. According to the USDA’s report issued on May 10, 2016, that’s an 8 percent reduction (6 million metric tons) from the previous year end.

    Since vegetable oils are somewhat interchangeable, depending on the country and the exact food usage, the market fundamentals of other oils also come into play. Globally, the most consumed vegetable oil is palm oil (just ahead of soybean oil), and palm fruit production is lower due to last year’s El Nino. Reuters reported on May 10 that, “Malaysia's palm oil stocks declined to its lowest in 14 months in April because of smaller production gains due to dry weather from the El Nino weather pattern that lowered yields.”

    In its May Oilseeds bulletin, the USDA observed that “Global oil ending stocks are forecast to decline 5 percent” to their lowest level in five years.

    Global Oil Ending Stocks1
    Global Oil Ending Stocks

    In spite of the oilseed stocks reduction and the palm oil production decrease, futures markets have been focusing on the implications to soybean meal prices to the exclusion of the implications to soybean oil prices until late May. Still, the gain in soybean oil futures is lagging the increase experienced in soybean meal futures. The following depicts the soybean meal futures price trend in recent weeks.

    Soybean Meal Futures2
    Soybean Meal Futures

    Compare that price reaction to that of soybean oil futures.

    Soybean Oil Futures3
    June Market Updates Graph_Soybean Oil Futures

    Besides the bullish situation in oilseeds and palm oil, the overall price direction of all commodities as measured by the Bloomberg Commodity Index is greatly supportive, displaying steady price increases since January.

    Bloomberg Commodity Index4

    June Market Updates Graph_Commodity Index

    Yet another factor is petroleum prices. A significant element of the global demand for vegetable oils, including soybean oil and palm oil, is for biofuel feedstock. Notice how petroleum prices have mirrored the above price trends, that of soybean oil being the notable exception.

    Crude Oil Futures5June Market Updates Graph_Crude Oil Futures

    Assuming that no bearish surprises occur, the reduction in available palm oil and soybean oil for global trade seems bound to positively impact soybean oil prices in similar fashion as the likely oilseed shortage has impacted soybean meal prices. Now might be an opportune time to lock in the price of some of your vegetable oil needs.

    1 Foreign Agricultural Service/USDA. "China on the Path to Become Major Peanut mporter." https://apps.fas.usda.gov/psdonline/circulars/oilseeds.pdf June 2016.
    2 CME Group. "Soybean Meal Futures Quotes." http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-meal.html June 2016.
    3 CME Group. "Soybean Oil Futures Quotes." http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil.html June 2016.
    4 The Financial Times. "Bloomberg Commodity Index." http://markets.ft.com/research/Markets/Tearsheets/Summary?s=570179 June 2016.
    5 CME Group. "Crude Oil Futures Quotes." http://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html June 2016.

  • Domestic Industry Crush Lower Than Last Year

    May 04, 2016 9:39 PM

    Spring/summer crush rate expected to fall 3 to 5 percent short of April – September 2015 rate

    Members of the National Oilseed Processors Association reported that 926 million bushels of soybeans were crushed between October 2015 and March 2016.
    1 That is 26 million bushels less than one year ago. The rate of soybean crush is determined in large part by the margin achievable between the value received for oil and meal versus the price processors must pay for soybean supplies. This is referred to as the “crush margin.”

    Soybean plants run most efficiently at about 95 percent of their rated production capacity, but can operate at up to 110 percent of that capacity level. When margins are well above their full production costs (60 to 70 cents per bushel), most plants will push to run at around 110 percent. When margins are around or below full production costs, most plants run closer to 95 percent.

    While crush margins vary considerably from plant to plant, a good barometer of the margin is “board crush.” From October 2014 through March 2015, board crush ran from 95 cents to $1.98 per bushel compared to the range during October 2015 and March 2016 of 54 cents to 96 cents per bushel.

    [Board crush equals the price of soybean oil futures multiplied by the standard oil yield per bushel plus the price of soybean meal futures multiplied by the standard meal yield per bushel minus the price of soybean futures.] 

    Monthly Crush Rate and Board Crush

    Market Updates Chart

    Current margins are running in the mid-50 cent range, so most plants are not profitable. While full production costs are not being covered by margins, the variable cost of production for most processing plants are being achieved – and then some. Most plants have variable costs of just 30 cents per bushel, so if a plant shuts down with margins between 30 cents and 65 cents, they lose more money than if they run at a 55 cent margin.

    The crush rate is seasonal and we expect the monthly industry crush to decline from April through September 2016 from the rate experienced between October and March of each year. A processing plant must take two to four weeks down each year for annual maintenance on equipment in order to maintain efficient production while minimizing operating costs. This maintenance for all plants is always scheduled sometime between early April and late September. Expect the crush rate this spring and summer to be 3 to 5 percent below the rate achieved from April through September 2015.

    National Oilseed Processors Association. “March 2016 Statistical Report.” http://share.thomsonreuters.com/filevista/public/7051/mar-16-crush.pdf. April 15, 2016.
    2 CME Group. “Soybean Futures Quotes.” http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean.html. April 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...