Oil Crops Outlook OCS-0395 United States Department of Agriculture Economic Research Service ------------------------------------------------------------------------------ Approved by the World Agricultural Outlook Board March 13, 1995 ------------------------------------------------------------------------------ WORLD OILSEED PRODUCTION RISES TO NEW RECORD World oilseed production for 1994/95 is projected up 13 percent from last season to 257.5 million metric tons, which is an all-time high. This month, the 1994/95 soybean production forecast for China surged 2.5-million tons higher to 16.3 million metric tons. Farmers in China have raised soybean area at the expense of cotton, coarse grains, and minor oilseeds. Less government intervention in soybeans compared to other crops, high prices for vegetable oil, and strong demand for protein meal support the increase in area. Also, China's peanut production is estimated at a record 8.9 million metric tons, up 700,000 tons from the previous forecast. Another month of better than normal weather in Brazil has again boosted their 1994/95 soybean production forecast to 25.1 million metric tons, up 200,000 tons from last month and 400,000 tons from last year. Good weather should make this the second consecutive record crop in Brazil, where harvesting has begun in some areas. Brazilian soybean exports are forecast down, however, as more production will be crushed at Brazilian mills. The Central Bank of Brazil (CBB) put in place a currency band that prompted a slight devaluation of the Brazilian real. Brazil's devaluation of its currency and a weaker U.S. dollar have improved prospects for the dollar- denominated Brazilian soybean exports. In addition, the CBB's intention to further devaluate the real this year is expected to have a positive effect on Brazil's soybean and product exports by late summer and early fall. U.S. crush plants are still operating at a high level, processing 126.8 million bushels of soybeans in January. While the gross crush margin dipped from December, January 1995 margins were still well above a year earlier. The robust year-to-date export market for soybean oil and meal, and a strong showing for domestic meal demand, have buttressed crushing activity. Without the increase in domestic crush, prices would be much lower than they now are. The strength of the export market has been another factor in sustaining U.S. soybean prices to around $5.40 per bushel. But without further vegetable oil buying by China, U.S. farm prices are likely to drop this spring. Since October, the difference between Rotterdam and central Illinois soybean prices has ranged between $37-$43 per metric ton, compared to the $25-$30 a year earlier. Thus, when South American supplies begin to be shipped abroad in large quantities (around May-June), U.S. export sales should begin their seasonal decline along with U.S. soybean prices. Brazilian farmers regularly sell most of their crop before or soon after harvest because of a shortage of cash and storage. These factors are likely to put pressure on domestic prices, thus relaxing the potential for the Brazilian government to purchase a large quantity of soybeans from farmers. U.S. selling interest may also pick up as planting nears, tax bills become due, and the upper Mississippi River reopens to barge traffic. More stocks should begin moving off farms and toward terminal elevators. If U.S. soybean planting intentions are higher than expected, a lower price band could be precipitated. ECONOMIC POLICIES OF IMPORTING COUNTRIES AFFECT OILSEED TRADE Further devaluation of the Mexican peso is likely to drop imports of oilseed and oilseed products. Price ratios among substitutable commodities and credit availability for importers are expected to be the main factors determining consumption and imports of oilseeds and products in Mexico. Current price ratios support lower imports of rapeseed, cottonseed, and most vegetable oils with the exception of sunflowerseed oil. The GSM credit situation for Mexico remains unclear, with a significant part of the debt due at the new exchange rate. But the potential for additional credit and refinancing of the earlier loans could positively affect imports for the remainder of the 1994/95 marketing year. Lower soybean production in Mexico, continued demand for poultry meat, and smaller soybean oil imports are expected to support soybean imports at current levels. Mexican rapeseed and cottonseed imports are projected lower. India's 1994/95 soybean production is down 0.7 million metric tons from 4 million in 1993/94. Indian rapeseed production is also below last year's level, so that domestic edible oil supplies will lag consumption growth. The Government of India (GOI), in an attempt to curtail inflation and ease pressure from soybean processors, has reduced duty levels and liberalized trade in the vegetable oil market. The GOI is also allowing soybean imports for the first time under a re-export scheme to alleviate a deficit of vegetable oil supplies and provide raw material for soybean processors. Although licenses given by the Ministry of Commerce could allow 500,000 metric tons of soybean imports, India is currently expected to only import 300,000 metric tons. Larger vegetable oil and soybean imports will likely drive down vegetable oil prices, reduce crush margins, and limit additional soybean imports. Palm olein and soybean oil are expected to benefit the most from the reduction of duty levels and opening of the vegetable oil market. GLOBAL VEGETABLE OIL DEMAND IS STRONG, BUT SUPPLIES QUICKLY INCREASE China's growing vegetable oil needs in 1994/95 will be satisfied by greater vegetable oil imports and domestic production and crush of soybeans and peanuts. Consequently, smaller soybean and rapeseed imports are expected. Chinese vegetable oil production is estimated at 5.7 million metric tons, while domestic consumption is projected at 8.6 million metric tons. Despite record supplies of oilseeds in China, vegetable oil imports will reach another record at 3.2 million metric tons. Palm, soybean, and rapeseed oil imports at 1.5, 0.95, and 0.65 million tons, respectively, are expected to account for nearly all imports of vegetable oil in China. The Government of China, in an attempt to slow down inflation and increase supplies and stocks of food (especially vegetable oils), has provided additional import licenses for vegetable oil. This will allow private traders to complement state agency (CEROILS) imports of vegetable oil. However, for the remainder of the year, more of the imports will consist of palm and rapeseed oils than soybean oil. While U.S. soybean oil exports to China are robust, the outlook for other importing countries has deteriorated. Since September 1994, U.S. soybean oil stocks have been less than total monthly use. This signals the unusually severe tightness in this year's soybean oil market. But as monthly production has increased, total use has dipped, resulting in a small rise in U.S. stocks (to 1.1 billion pounds) at the end of January. Swelling sunflowerseed oil supplies from the United States and the new Argentine crop could begin to take foreign markets at the expense of soybean oil, especially in Middle Eastern countries that have a preference for sunflowerseed oil. Projected U.S. sunflowerseed oil exports were raised 30,000 metric tons in March to 320,000 metric tons for 1994/95. Sunflowerseed oil, which generally has a price premium relative to soybean oil, currently has a slight discount. Cottonseed oil and corn oil also are priced below soybean oil. Production of Indonesian palm oil for 1994/95 is forecast higher this month, to 4 million metric tons. Exports are expected to increase 200,000 metric tons. World palm oil output for 1994/95 is projected to reach a record 14.25 million metric tons. COMPETITION IN WORLD SOYBEAN MEAL MARKET FIRMS UP With larger Brazilian soybean production, more crush and soybean meal production are expected. Brazil's projected 1994/95 soybean meal production will increase 700,000 metric tons and exports are anticipated 200,000 metric tons higher than the previous year (Oct.-Sep.). While India imports soybeans to satisfy its expanding crushing capacity, most of the additional soybean meal production will be exported. By contrast, China's higher meal outturn will be mostly consumed domestically, with a modest increase in exports. The likelihood of stiffer competition from Brazil, India, and China has dimmed the U.S. export outlook in the world oilseed meal market for 1994/95. Projected U.S. soybean meal exports are down 150,000 short tons from last month, to 5.85 million. Greater U.S. domestic disappearance should partially offset the lower exports. Domestic meal disappearance for 1994/95 is forecast at 26.5 million short tons. Not all of the disappearance will be immediately consumed, though. Low U.S. soybean meal prices should encourage larger pipeline stocks carried into next season by domestic meal buyers. OUTLOOK FOR 1995 U.S. SOYBEAN ACREAGE February's Oil Crops Outlook overstated how much the diammonium phosphate fertilizer price has increased since last year. The correct figure is closer to a 20-percent jump, as opposed to the 100 percent reported last month. Nevertheless, this does not change the implication that higher fertilizer prices would curb corn plantings relative to soybeans and other crops for farmers who have not yet purchased fertilizer supplies. Currently, booming cotton prices also favor planting more cotton acres, which could switch acres away from soybeans and feed grains in the South. Table 1--Soybeans: U.S. supply and disappearance ------------------------------------------------------------------------------ Supply Disappearance -------------------------------- ------------------------------------ Year Seed, begin. Beg. Im- Produc- Total Crush Ex- feed, Total End. Sept. 1 stocks ports tion ports & resid. stocks ------------------------------------------------------------------------------ -------------------------- Million bushels--------------------------- 1992/93 278 2 2,190 2,471 1,279 770 130 2,179 292 1993/94 1/ 292 6 1,871 2,170 1,272 589 100 1,961 209 1994/95 2/ 209 8 2,558 2,775 1,365 785 115 2,265 510 ------------------------------------------------------------------------------ 1/ Estimated. 2/ Forecast. Table 2--Soybean meal: U.S. supply and disappearance ------------------------------------------------------------------------------ Supply Disappearance ---------------------------- ------------------------------------ Year begin. Beg. Produc- Total Domestic Ex- Total End. Oct. 1 stocks tion ports stocks ------------------------------------------------------------------------------ ------------------------------1,000 tons----------------------------- 1992/93 230 30,364 30,687 24,251 6,232 30,483 204 1993/94 1/ 204 30,417 30,691 25,185 5,356 30,541 150 1994/95 2/ 150 32,340 32,550 26,500 5,800 32,300 250 ------------------------------------------------------------------------------ 1/ Estimated. 2/ Forecast. Table 3--Soybean oil: U.S. supply and disappearance ------------------------------------------------------------------------------ Supply Disappearance ---------------------------- ------------------------------------ Year begin. Beg. Produc- Total Domestic Ex- Total End. Oct. 1 stocks tion ports stocks ------------------------------------------------------------------------------ -------------------------- Million pounds--------------------------- 1992/93 2,239 13,778 16,027 13,054 1,419 14,473 1,555 1993/94 1/ 1,555 13,906 15,528 12,896 1,529 14,425 1,103 1994/95 2/ 1,103 15,162 16,280 13,000 2,050 15,050 1,230 ------------------------------------------------------------------------------ 1/ Estimated. 2/ Forecast. Table 4--Oilseeds prices -------------------------------------------------------- Marketing Soy- Cotton- Sun- year beans seed flowers Peanuts Flaxseed -------------------------------------------------------- $/bu. $/ton $/cwt Cents/lb. $/bu. 1990/91 5.74 121.00 10.80 34.70 5.27 1991/92 5.58 71.00 8.69 28.30 3.52 1992/93 5.56 97.50 9.74 30.00 4.12 1993/94 6.40 113.00 12.90 30.40 4.20 1992/93: October 5.26 94.00 9.12 29.80 4.09 November 5.36 105.00 8.73 28.10 4.08 December 5.46 105.00 9.37 27.20 4.24 January 5.58 111.00 10.00 29.50 4.11 February 5.56 115.00 10.50 NA 4.46 March 5.65 NA 11.00 NA 4.52 April 5.73 NA 10.80 NA 4.40 May 5.81 NA 11.10 NA 4.42 June 5.90 NA 10.80 NA 4.45 July 6.56 NA 12.00 NA 4.29 August 6.56 111.00 13.30 NA 3.79 September 6.21 104.00 14.20 32.00 4.24 1993/94: October 6.01 112.00 11.20 30.00 4.09 November 6.32 122.00 11.60 29.50 4.05 December 6.64 123.00 13.00 29.70 4.18 January 6.72 126.00 13.60 36.10 4.38 February 6.71 97.00 1/ 15.10 NA 4.61 March 6.73 NA 15.00 NA 4.64 April 6.57 NA 15.00 NA 4.60 May 6.77 NA 15.60 NA 4.43 June 6.72 NA 14.20 NA 4.25 July 5.92 NA 12.40 NA 4.28 August 5.58 86.00 12.60 NA 4.52 September 5.47 101.00 10.70 30.30 4.54 1994/95 October 5.30 96.00 10.80 28.80 4.49 November 5.36 106.00 10.60 25.60 4.51 December 5.41 119.00 10.30 25.40 4.71 January 5.47 120.00 10.60 25.70 4.75 February 1/ 5.40 103.00 10.20 NA 4.90 -------------------------------------------------------- 1/ Preliminary. Table 5--Vegetable oil prices --------------------------------------------------- Cotton- Sun- Marketing Soybean seed flower Peanut Corn year oil oil oil oil oil --------------------------------------------------- Cents/lb. 1990/91 21.00 22.30 23.60 45.50 27.50 1991/92 19.10 20.10 21.60 27.30 25.82 1992/93 21.40 25.00 25.30 27.40 20.90 1993/94 27.09 27.78 31.00 43.20 26.38 1992/93: October 18.36 22.17 22.03 23.63 20.43 November 20.10 22.96 23.47 25.58 20.60 December 20.52 23.91 24.33 30.30 20.75 January 21.23 24.09 24.58 31.00 20.75 February 20.72 22.03 24.47 27.17 20.87 March 21.00 22.24 24.69 26.00 20.79 April 21.24 22.55 24.94 27.40 20.80 May 21.15 22.70 24.84 30.00 20.75 June 21.30 26.76 25.50 30.13 20.60 July 24.13 30.74 28.72 31.70 20.67 August 23.46 30.45 28.83 39.50 21.50 September 23.61 28.98 28.00 39.63 22.23 1993/94: October 22.96 24.79 26.33 40.20 22.25 November 25.43 26.69 28.20 43.33 23.06 December 28.27 30.39 32.11 43.17 26.93 January 29.91 33.16 35.08 46.10 28.00 February 28.85 29.96 33.68 46.12 29.89 March 29.03 29.60 33.48 44.50 30.30 April 27.90 29.06 33.00 43.40 29.63 May 29.10 29.66 33.50 44.25 29.48 June 27.60 27.55 31.34 43.75 29.43 July 24.53 24.20 28.89 44.00 27.20 August 25.38 23.71 28.13 45.00 25.02 September 26.12 24.51 29.28 43.10 24.87 1994/95 October 27.06 23.64 28.90 46.00 24.73 November 29.84 24.85 29.40 50.88 24.75 December 30.61 25.50 30.63 53.80 24.75 January 29.07 26.41 29.25 50.25 28.01 February 1/ 28.15 25.63 27.82 41.83 27.26 --------------------------------------------------- Table 6--Oilseed meal prices --------------------------------------------------- Soy- Cotton Sun- Marketing bean seed flower Peanut Linseed year meal meal meal meal meal --------------------------------------------------- $/short ton 1990/91 181.40 130.75 88.00 193.00 130.10 1991/92 189.20 140.50 76.80 154.50 125.25 1992/93 193.75 161.78 89.00 172.90 133.60 1993/94 192.86 164.30 94.00 194.91 139.55 1992/93: October 180.60 154.40 86.25 163.33 141.25 November 181.90 157.50 95.00 170.00 152.50 December 187.60 174.50 86.25 173.13 137.40 January 188.75 164.40 87.50 180.00 136.70 February 179.90 149.40 90.00 175.83 142.50 March 183.60 153.50 89.00 165.00 135.40 April 187.40 149.00 82.50 161.50 126.25 May 193.25 143.10 83.50 165.63 126.25 June 193.10 153.00 91.00 171.25 123.20 July 229.90 170.30 97.50 200.00 133.75 August 219.10 178.50 97.00 213.75 150.00 September 199.90 193.75 95.00 210.63 148.75 1993/94: October 194.50 173.10 90.00 196.00 147.50 November 209.40 181.00 90.00 197.00 161.80 December 206.00 180.00 89.40 200.00 155.25 January 198.30 170.30 97.00 209.00 140.25 February 198.40 173.10 98.75 207.50 136.25 March 195.40 174.00 N/Q 198.75 127.20 April 188.90 166.25 N/Q 191.00 125.50 May 193.75 157.75 105.00 187.50 125.00 June 195.50 154.10 102.50 163.75 111.90 July 181.10 152.50 97.50 164.00 114.90 August 178.60 144.50 90.75 153.75 111.60 September 174.50 145.00 85.00 114.80 NA 1994/95 October 168.50 134.40 75.00 151.25 122.50 November 161.00 120.50 69.50 147.50 110.00 December 156.90 114.20 52.50 127.00 95.60 January 156.40 106.75 50.00 105.00 82.40 February 1/ 151.96 NA NA 107.50 NA --------------------------------------------------- ****************************************************************************** Information Contacts: Mark Ash Soybeans, Minor Oilseeds, Fats and Oils (202) 219-0838 Jaime Casteneda World Oilseeds (202) 219-0826 Scott Sanford Peanuts, Cottonseed (202) 219-0835 ****************************************************************************** The next release of the OIL CROPS OUTLOOK is scheduled for 4:00 p.m. ET Wednesday, April 12.