OIL CROPS OUTLOOK January 13, 1997 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-0197. ----------------------------------------------------------------------------- SWELLING MEAL EXPORTS TO FUEL NEAR RECORD DOMESTIC SOYBEAN CRUSH The final U.S. soybean production estimate for 1996 was 2,382 million bushels, down 20 million from the previous forecast. USDA revised soybean planted area to 64.2 million acres in its Crop Production--1996 Summary report, down 110,000 acres (mostly for Arkansas). However, a higher proportion was harvested in other States, which dropped harvested total area only 31,000 acres to 63.4 million. Smaller final yields in Missouri, Indiana, and Illinois accounted for most of the downward revision from the November production report. The final U.S. average yield settled to 37.6 bushels per acre, tieing 1992 as the second highest yield. Thriving meal exports are anticipated to boost domestic crushing in 1996/97. Firm meal prices and lower soybean prices have pushed the monthly gross crush margin to the highest level since early 1995. Projected U.S. soybean crush was raised this month to 1,400 million bushels, up 10 million from last month. The forecast for this year would nearly equal the record quantity crushed in 1994/95. Based on the Grain Stocks report, the rapid first quarter disappearance has drawn down December 1 soybean stocks to 1,823 million bushels, about 11 million bushels below a year earlier. Greater crush and the production revision would cut 1996/97 soybean ending stocks to 155 million bushels, which represents the lowest stocks-to-use ratio since 1972/73. U.S. export inspections this fall and winter have been very strong, running about 76 million bushels ahead of the pace a year ago. However, there should be an unusually abrupt shift in seasonal exports as competing foreign supplies surge from a very slim amount. In spite of the recent dry spell in Brazil and Argentina, the large planted area and still favorable soil moisture will sharply curtail U.S. soybean export potential in the last half of 1996/97. Also, new Brazilian legislation exempts exports of raw materials and semi- manufactured products from state sales taxes. Previously, the taxes--which included maximum taxes of 13 percent on soybeans, 11.1 percent on soybean meal, and 8 percent on soybean oil--provided Brazilian farmers a great incentive to sell soybeans to crushers rather than for export. These reforms now make Brazil more competitive against the United States in the world soybean market, instead of favoring Brazilian exports of the soybean products. The heavy domestic and foreign demand for soybeans and soybean products has kept prices firm this fall, despite the large U.S. harvest. USDA forecasts a 1996/97 season average farm price range of $6.60-$7.10 per bushel, up from the December forecast of $6.30-$7.00. Current prices should persist as long as meal demand and anticipated oil demand from China holds up. However, prices may soften somewhat by next spring. A later than usual harvest and withheld sales for tax deferment slowed farm marketings last fall. One sign of this retention is that more than half of the December 1 soybean stocks were held on farms, the highest proportion in a decade. Farm sales should soon accelerate and weaken prices. Also, within weeks, importers will begin to cover their near-term requirements and start switching to South American origins. Some slippage in corn prices may yet occur, which would add to pressure on soybean prices. Rising expectations for large U.S. plantings and improving yields again in 1997 could also put pressure on marketing the remainder of the 1996 crop. Although a higher domestic crush is expected, forecast 1996/97 soybean oil production fell 135 million pounds this month because of a lower oil extraction rate. A below trend rate, averaging 10.93 pounds per bushel, is now forecast. This helps to reduce the year ending oil stocks to 2,015 million pounds, the same as the 1995/96 carryout. U.S. soybean oil imports were slightly raised to reflect increasing Canadian supplies. Current prices for soybean oil, at 21.6 cents per pound in December, are very competitive, which should soon attract substantial export trade. The projected average price range of 22.5-24.0 cents per pound suggests that significantly higher prices are anticipated in coming months. Futures prices also indicate that a stronger soybean oil market is imminent. There are good reasons for this optimism. This year's smaller supplies of competing Northern Hemisphere vegetable oils are quickly disappearing. Chinese vegetable oil imports are forecast to climb from 2.8 million metric tons last year to 3.8 million in 1996/97. Robust world demand has drawn down palm oil inventories faster than they can be replaced, creating an opportunity for soybean oil. This season's projected soybean meal extraction rate also dropped to 47.4 pounds per bushel, down from the December forecast of 47.6 pounds. But, the larger U.S. crush was enough to produce a net increase in expected 1996/97 meal production to 33.2 million short tons. This would result in a record domestic supply, slightly exceeding the 1994/95 volume. The export market will absorb most of the additional U.S. meal supply, although a slight increase in domestic use is also projected. The U.S. soybean meal export forecast was raised 200,000 short tons this month to 6.5 million. China is the major source of new soybean meal demand in the world this year. Total Chinese production of oilseeds is down more than 4 million metric tons from a year ago. China's 1996/97 soybean meal imports were increased 100,000 metric tons to 1.9 million this month, up from 0.9 million in 1995/96. A half-million-ton reduction in EU oilseed harvests and firmer wheat prices compared to corn are also encouraging the EU to import more soybean meal this winter. To date, U.S. export commitments of soybean meal to the EU are 123 percent above a year earlier. This rapid U.S. pace is likely to decline dramatically, however, once the South American harvest commences. Despite larger supplies, the strong export trade is supporting year-to-date prices for soybean meal. Consequently, USDA forecast a higher average price range this month, from $215-$235 per short ton to $220-$240. This season's price pattern should differ from the steadily rising 1995/96 pattern, by gradually declining from this fall's $250 per ton level. The recent Hogs and Pigs report indicated a 4-percent drop in hog numbers from a year earlier and the smallest December 1 swine herd since 1990. Despite a dramatic reduction in sow slaughter in recent months, USDA reported the smallest U.S. breeding herd ever. In spite of a much improved price-to-feed cost ratio and rising litter sizes, this limited capacity for an expansion in production has cut December-May farrowing intentions 1 percent below farrowings a year earlier. These factors will restrain 1996/97 disappearance of soybean meal to only 1 percent more than last season's level. EXCELLENT SUNFLOWER YIELDS CUSHION PLUNGE IN ACREAGE Although sunflower acreage dropped, larger seed yields (chiefly in North and South Dakota) generated a net increase in 1996 production from the previous forecast to 3.6 billion pounds. Despite a late start, nearly ideal weather conditions improved the national average yield to 1,435 pounds per acre, or 21 percent above the 1995 average. U.S. production of confection sunflowers actually increased to a record volume because of the superb yields. Despite this year's smaller sunflowerseed output, very large carryin stocks have maintained the total supply near its 1995/96 level. This has moderated the projected declines in 1996/97 crush and exports, each down 7 percent from last season. Non-oil uses (such as birdfood) appear to be less price sensitive and are expected to rise to 1.4 billion pounds. Consumption from rapidly expanding non-oil sources may equal domestic crush demand within a decade. Although still above the 1995/96 volume, U.S. sunflowerseed oil exports were cut this month to 683 million pounds. Expected oil carryout stocks for 1996/97 fell to 74 million pounds, which is half the size of 1995/96 ending stocks. Stiff competition from soybean oil has narrowed the price premium for sunflowerseed oil to just 0.7 cents per pound. International highlights this month for the sunflowerseed sector include a 300,000-metric-ton increase in estimated 1996/97 Russian sunflowerseed production, although it is still more than 1.4 million tons below the bumper 1995/96 harvest. India's sunflower oil imports have recently increased. Reasons for this uncommon shift include a shortfall in domestic rapeseed, soybean, and cottonseed oil production and rising prices for palm oil imports. But U.S. export demand from Algeria is likely to weaken, continuing the declining trend in U.S. market share there. Like sunflowers, U.S. canola acreage fell in 1996 as relative prices favored a shift to wheat and feed grains. Total canola plantings fell 18 percent to 366,000 acres, although a rebound in yield to 1,384 pounds per acre helped blunt the loss of supplies. Higher seed prices and lower U.S. vegetable oil prices will restrict the volume of Canadian seed imports to nearly a half billion pounds. The next Oil Crops Outlook is scheduled for release at 4:00 pm ET Thursday, Febuary 13. 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--------------------------- 1994/95 209 5 2,517 2,731 1,405 838 153 2,396 335 1995/96 335 4 2,177 2,516 1,370 851 112 2,333 183 1996/97 1/ 183 4 2,382 2,570 1,400 900 116 2,416 155 ------------------------------------------------------------------------------ 1/ 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 1/ ports stocks ------------------------------------------------------------------------------ ---------------------------1,000 short tons-------------------------- 1994/95 150 33,265 33,479 26,538 6,717 33,256 223 1995/96 223 32,514 32,813 26,581 6,002 32,584 229 1996/97 3/ 229 33,191 33,500 26,800 6,500 33,300 200 ------------------------------------------------------------------------------ 1/ Includes imports. 2/ Estimated. 3/ 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 1/ ports stocks ------------------------------------------------------------------------------ -------------------------- Million pounds--------------------------- 1994/95 1,103 15,613 16,733 12,916 2,680 15,596 1,137 1995/96 1,137 15,234 16,466 13,459 992 14,451 2,015 1996/97 3/ 2,015 15,295 17,415 13,650 1,750 15,400 2,015 ------------------------------------------------------------------------------ 1/ Includes imports. 2/ Estimated. 3/ 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 5.48 101.00 10.70 28.90 4.63 1995/961 6.77 106.00 11.35 29.30 5.25 1995/96 September 5.98 100.00 11.00 29.70 5.11 October 6.15 99.00 11.00 28.60 5.11 November 6.40 114.00 10.80 29.50 5.17 December 6.76 116.00 10.70 28.60 5.03 January 6.77 107.00 11.00 29.80 5.27 February 7.01 117.00 11.50 NA 5.18 March 7.00 NA 11.90 NA 5.28 April 7.43 NA 12.50 NA 5.31 May 7.69 NA 13.60 NA 6.03 June 7.41 NA 14.30 NA 5.88 July 7.62 NA 13.60 NA 6.19 August 7.82 118.00 12.70 NA 6.15 1996/97 September 7.79 134.00 12.00 27.70 5.89 October 6.95 127.00 11.70 25.80 6.49 November 6.90 114.00 11.90 25.00 6.50 December1 6.92 133.00 11.50 26.60 6.68 ------------------------------------------------------- 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 27.00 30.30 31.08 43.20 26.38 1994/95 27.51 29.23 28.10 44.30 26.47 1995/961 24.70 26.53 25.40 40.00 25.55 1995/96 October 26.57 27.61 27.49 42.50 26.05 November 25.42 26.27 26.25 41.63 25.54 December 24.76 26.10 25.98 39.20 24.99 January 23.52 24.45 24.65 37.25 24.52 February 23.49 24.35 24.23 36.00 24.30 March 23.60 24.25 24.28 36.60 24.34 April 25.70 26.77 25.63 39.25 26.60 May 26.50 28.46 26.38 42.80 27.98 June 24.95 27.94 25.72 43.00 25.66 July 24.10 28.25 24.58 43.00 25.46 August 23.99 27.81 24.90 42.60 24.33 September 23.92 26.13 24.90 40.80 24.14 1996/97 October 21.95 24.55 22.80 41.50 22.67 November 21.80 24.28 22.50 39.20 22.96 December1 21.60 24.29 22.30 40.75 22.27 ------------------------------------------------------- Preliminary 2 Decatur 3 PBSY Greenwood MS 4 Minneapoli 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 1995/961 235.90 190.74 123.75 202.70 159.05 1995/96 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 January 232.00 208.80 135.00 220.00 142.00 February 228.30 202.80 130.00 215.00 143.75 March 226.57 195.60 123.50 210.00 155.00 April 249.30 220.00 133.00 210.00 174.00 May 244.30 191.25 137.00 212.00 177.00 June 238.80 192.20 135.00 210.00 178.75 July 252.50 201.56 135.00 224.25 174.00 August 261.20 193.10 126.25 227.00 170.00 September 276.40 193.10 125.60 192.80 167.50 1996/97 October 248.50 183.25 116.00 170.00 175.00 November 251.50 196.60 105.00 146.13 166.25 December1 250.60 224.50 113.35 172.67 171.65 ---------------------------------------------------------------------------- 1 Preliminary 2 Hi-pro Decatur 3 41% Memphis 4 Minneapolis 5 50% SE mills ****************************************************************************** Information Contacts: Mark Ash Soybeans, Minor Oilseeds, Fats and Oils (202) 219-0712 Scott Sanford Peanuts, Cottonseed (202) 219-0835 ****************************************************************************** END_OF_FILE