OIL CROPS OUTLOOK February 12, 1996 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- OIL CROPS OUTLOOK is published monthly by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. OCS-0296. ----------------------------------------------------------------------------- UPWARD MARCH IN SOYBEAN PRICE STALLS Ample rainfall in formerly parched soybean areas in southern Brazil has arrested the ascent in soybean prices. The central Illinois cash price has fallen about 20 cents per bushel from early January. Yet, this relative calm is unlikely to last long. The short term trend for prices may become better known after March 29 when USDA's Prospective Plantings and Grain Stocks reports are issued. The latter will indicate whether current prices are high enough to ration feed use through the rest of the crop year, while the former will suggest how large crop supplies will be in 1996/97. But farm prices in the first 5 months (which typically account for about 60 percent of marketings) of 1995/96 warrant a reduction of 5 cents per bushel in the season average, to $6.50-$7.50. USDA lowered its projected 1995/96 U.S. soybean crush this month to 1,380 million bushels, down 10 million from January. While the year-to-date crush is only slightly below last year, crushings in recent weeks have declined from last winter's torrid pace. Gross crush margins have dramatically slumped from a year ago. Because of the unusually high carryover from Brazil's previous soybean crop, a proportionately larger share of U.S. crushing activity likely will be sandwiched between the spring and summer months before the new South American crop becomes available. A pickup in the export market for soybean products (particularly soybean oil) would be necessary to revive domestic crushing. On the other hand, current U.S. soybean export commitments are running just below a year earlier. Based on the better than expected pace and a projected cut in Argentine production, 1995/96 exports were forecast 10 million bushels higher this month to 810 million. FRIGID WEATHER AFFECTS U.S. FEED MARKET Domestic disappearance of soybean meal during October-November 1995 was nearly 8 percent above a year earlier, helped by a strong October. This vigorous start may reflect some feedlot inventory building. Extremely cold temperatures in the Midwest this winter may further exacerbate the tight feed supply situation. Much of the U.S. winter wheat crop was poorly established before becoming dormant and an inadequate snowcover exposed it to a serious winterkill threat. Not only would the cold potentially reduce feed wheat supplies (which could increase soybean meal demand next summer), but it may require greater feed consumption, including soybean meal, to maintain animal weights. Many livestock producers also slowed their marketings for slaughter during the cold spell. Ice has also frozen over parts of the Illinois River and the upper Mississippi River, temporarily blocking barge traffic on these important passageways for soybean and soybean product exports. This has helped raise export prices for soybeans at the Gulf to about $7.85 per bushel in early February, the highest since 1988/89. And, stocks of soybean oil and meal began to accumulate at the mills, partly because of weather-related shipping delays. This season, the average price for soybean meal is expected to exceed the 1993/94 average by more than $20 per ton, even though meal production is projected 2.3 million short tons higher. The explanation for this phenomenon is that total soybean meal disappearance is expected to increase by an equivalent amount. The average price in central Illinois for January reached $232 per ton, near the top of the forecast range of $210-$235. Soybean exports are now expected slightly higher than last month's forecast, and are offset by smaller exports of soybean meal. U.S. meal trade for 1995/96 was reduced to 5.8 million tons, from 6.0 million last month. A corresponding cutback in projected crush would reduce soybean meal production 200,000 tons from last month, to 32.8 million tons. CONFRONTED WITH MOUNTING OIL SUPPLIES, SOYBEAN OIL PRICE SLIPS Soybean oil prices remain under pressure from ample supplies of European rapeseed and sunflowerseed oil and South American sunflowerseed and soybean oil. The robust demand for soybean meal also buttresses crush and weighs down oil prices. The average monthly soybean oil price slid from 24.7 cents per pound in December to 23.5 cents in January, sagging to its lowest level in more than 2 years. USDA reduced its projected 1995/96 price range 0.5 cent per pound to 23.0-26.0 cents. There is some hope on the horizon, however, that the price slide may be bottoming out. A seasonal downswing in palm oil production and South American soybean oil output is expected soon. This should steer China to import more U.S. soybean oil, as previously thought. But U.S. oil exports were forecast marginally lower in February to 1.8 billion pounds, based on reduced prospects for shipments to North Africa. This month's reduction in 1995/96 crush cuts soybean oil production to 15.5 billion pounds. This forecast, combined with lower exports, lowers projected ending stocks from 1,915 million pounds to 1,825 million. After disappointing demand in December, end-of-month oil stocks posted a large gain toward that season-ending total. The buildup in December ending stocks to 1,411 million pounds made them the largest since July 1994. ADVERSE WEATHER CLOUDS ARGENTINE OILSEED PRODUCTION Argentine oilseed production is expected down 500,000 metric tons this month, as unfavorable weather and late planting of first-crop soybeans clouds the outlook for soybeans and sunflowerseed. On the other hand, recent heavy rainfall in Brazil's leading producing states of Rio Grande do Sul and Parana has been beneficial for crop prospects. Projected soybean production for Brazil remains at 23 million tons, while Argentine soybean and sunflowerseed output drop to 12.3 and 5.5 million tons, respectively. Nevertheless, the South American oilseed outlook remains blurry due to the dramatic changes in weather patterns, and uncertainty over total oilseed area planted in the region. Despite expected declines in Argentine oilseed output, foreign oilseed supplies are projected to rise 1 million tons this month to 203 million. Increases in sunflowerseed production in Ukraine and the Republic of South Africa account for most of the expansion. World soybean supplies and stocks are also expected to increase this month, reflecting larger soybean production in Paraguay and an upward revision of Brazil's 1994/95 soybean crop. Global soybean trade is projected slightly higher this month as increases in the United States, Brazil, and Paraguay more than offset lower exports in Argentina. U.S. soybean exports are projected up this month to 810 million bushels in response to stronger than anticipated buying from Western Europe, Korea, Japan, China, and Mexico. Despite thin global crush margins, risk- averse soybean importers are increasing demand for U.S. soybeans on expectations that the smaller South American crop is likely to limit export availabilities. Besides limited soybean exports from Brazil and Argentina, uncertainties over China's total soybean imports add pressure to an already tight soybean market. Soybean prices reached a 7-year high in response to the tight market. International prices are projected steady to slightly higher from current levels. Factors supporting prices are the current tight world soybean supplies, China's large potential for imports of soybean and soybean products, and uncertainty over the South American crop. On the other hand, factors putting pressure on world prices are prospects for higher than expected production in Paraguay and Bolivia, weaker demand for protein meal (as high feed prices begin rationing), and rising U.S. soybean oil stocks. World prices are heavily influenced by the overall level of U.S. prices. About 40 percent of U.S. soybeans are exported and the United States has a large share (more than 65 percent) of world soybean trade. However, U.S. prices are increasingly reflecting conditions beyond the U.S. market due to a greater substitutability among vegetable oils, a larger impact to world trade from China, and a greater role played by South American production in price determination. GLOBAL SOYBEAN OIL TRADE DOWN Despite lower soybean oil prices, 1995/96 U.S. soybean oil exports are expected to decline to 816,000 tons. Foreign demand for U.S. soybean oil is projected to slow down, primarily in response to keen competition from other vegetable oils. Additional pressure also comes from a sharp expansion in the production of high-oil content seed in several countries, and larger than anticipated soybean oil exports from South America. U.S. soybean oil prices (fob Gulf) were selling at a premium of nearly $20 per metric ton over South American soybean oil. Also, Brazilian and U.S. soybean oil were sold at a premium to sunflower oil from Argentina. Likewise, Dutch rapeseed oil in January was sold on average about $6 per metric ton less than soybean oil. Additional discouragement to buyers comes from current market conditions of unsubsidized soybean oil trade. Although there have been significant soybean oil imports from South America, China's soybean oil imports are expected to slow considerably and remain unchanged from last month at 1.15 million tons. China is expected to wind down over built stocks in the next few months and resume heavy buying late in the marketing year. Factors affecting China's soybean oil import outlook include relative vegetable oil prices, trade policies (such as licenses and import duties), and prospects for soybean imports. Although expectations for U.S. soybean oil exports to China are significantly below last year's level, the window of opportunity for U.S. exports will remain viable during the next few months as South American supplies are at their lowest. The next Oil Crops Outlook is scheduled for 4:00 pm ET Wednesday, March 13. ****************************************************************************** Information Contacts: Mark Ash Soybeans, Minor Oilseeds, Fats and Oils (202) 219-0712 Scott Sanford Peanuts, Cottonseed (202) 219-0835 Jaime Castaneda World Oilseeds (202) 219-0826 ****************************************************************************** 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--------------------------- 1993/94 292 6 1,871 2,170 1,276 589 96 1,961 209 1994/95 1/ 209 6 2,517 2,731 1,405 838 153 2,396 335 1995/96 2/ 335 5 2,152 2,492 1,380 810 112 2,302 190 ------------------------------------------------------------------------------ 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----------------------------- 1993/94 204 30,514 30,788 25,283 5,356 30,638 150 1994/95 1/ 150 33,265 33,479 26,538 6,717 33,256 223 1995/96 2/ 223 32,867 33,150 27,150 5,800 32,950 200 ------------------------------------------------------------------------------ 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------------------------ 1993/94 1,555 13,951 15,574 12,941 1,529 14,471 1,103 1994/95 1/ 1,103 15,613 16,733 12,916 2,680 15,596 1,137 1995/96 2/ 1,137 15,525 16,675 13,050 1,800 14,850 1,825 -------------------------------------------------------------------------- 1/ Estimated. 2/ Forecast. Table 4--Oilseeds prices received by farmers, U.S. -------------------------------------------------------- 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 4.25 1994/95 5.45 101.00 10.60 29.00 4.65 1993/94: September 6.21 104.00 14.20 32.00 4.24 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 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 89.00 12.60 NA 4.52 1994/95 September 5.47 101.00 10.70 30.60 4.54 October 5.30 96.00 10.50 28.60 4.49 November 5.36 107.00 10.60 25.90 4.51 December 5.41 103.00 10.30 25.80 4.71 January 5.47 95.00 10.60 25.70 4.76 February 5.40 70.00 10.80 NA 4.94 March 5.51 NA 10.40 NA 5.15 April 5.55 NA 10.70 NA 5.10 May 5.56 NA 10.50 NA 4.93 June 5.68 NA 10.50 NA 5.13 July 5.90 NA 11.50 NA 5.10 August 5.84 100.00 11.70 30.70 5.16 1995/96 September 5.99 100.00 11.00 29.70 5.11 October 6.15 99.00 11.00 28.80 5.11 November 6.39 114.00 10.80 29.50 5.13 December 6.76 116.00 10.90 28.30 5.03 January 1 6.95 98.00 10.70 29.30 5.20 ---------------------------------------------------- 1 Preliminary. Table 5--Vegetable oil prices --------------------------------------------------- Cotton- Sun- Marketing Soybean seed flower Peanut Corn year oil2 oil3 oil4 oil5 oil6 --------------------------------------------------- Cents/lb. 1990/91 21.00 24.10 23.67 45.50 27.50 1991/92 19.10 22.83 21.63 27.30 25.82 1992/93 21.40 30.07 25.37 27.40 20.90 1993/94 27.09 30.30 31.08 43.20 26.38 1994/95 27.55 29.23 28.10 44.30 26.47 1993/94: October 22.96 27.94 26.33 40.20 22.25 November 25.43 31.86 28.20 43.33 23.06 December 28.27 36.00 32.11 43.17 26.93 January 29.91 34.75 35.08 46.10 28.00 February 28.85 31.91 33.68 46.12 29.89 March 29.03 32.27 33.48 44.50 30.30 April 27.90 31.69 33.00 43.40 29.63 May 29.10 31.07 33.50 44.25 29.48 June 27.60 28.56 31.34 43.75 29.43 July 24.53 25.54 28.89 44.00 27.20 August 25.38 26.23 28.13 45.00 25.02 September 26.12 25.81 29.28 43.10 24.87 1994/95 October 27.06 27.81 28.90 46.00 24.73 November 29.84 30.72 29.40 50.88 24.75 December 30.61 31.83 30.63 53.80 24.75 January 29.04 28.70 29.25 50.25 28.01 February 28.15 29.95 27.66 41.83 27.26 March 28.33 27.14 27.97 41.00 28.17 April 27.16 27.61 26.89 41.25 27.30 May 26.00 27.51 26.34 40.25 26.42 June 26.78 30.04 27.30 39.00 26.61 July 27.60 30.63 28.69 39.13 27.38 August 26.56 30.26 27.47 41.50 26.35 September 26.21 28.61 27.41 41.30 25.93 1995/96 October 26.57 27.61 27.49 42.50 26.05 November 25.41 26.27 26.25 41.63 25.54 December 24.76 26.10 25.98 39.20 24.99 January 1 23.69 24.45 24.65 37.25 24.52 --------------------------------------------------- 1 Preliminary 2 Decatur 3 PBS Greenwood MS 4 Minneapolis 5 Southeast mills 6 Chicago Table 6--Oilseed meal prices --------------------------------------------------- Soy- Cotton Sun- Marketing bean seed flower Peanut Linseed year meal2 meal3 meal4 meal5 meal4 --------------------------------------------------- $/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 1994/95 162.55 112.02 62.70 128.94 95.85 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 151.30 97.50 46.88 107.50 85.25 March 156.90 100.30 52.50 119.00 90.00 April 161.90 98.10 62.50 125.00 94.40 May 159.10 92.75 60.90 123.75 85.00 June 160.40 108.75 62.38 134.00 85.00 July 170.45 116.90 73.75 138.75 92.50 August 166.70 116.50 83.75 136.25 95.00 September 180.99 137.60 NA 142.00 112.50 October 193.90 153.25 82.88 132.50 131.00 November 204.10 165.00 99.00 175.00 151.67 December 223.60 185.80 122.50 204.00 143.75 January1 232.00 208.80 135.00 220.00 142.00 ---------------------------------------------------- 1 Preliminary 2 Hi-pro Decatur 3 41% Memphis 4 Minneapolis 5 50% SE mills END-END-END