OIL CROPS OUTLOOK February 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-0297. ----------------------------------------------------------------------------- SOUTH AMERICAN COMPETITION FOR WORLD SOYBEAN TRADE SHAPING UP A very dry December in the southern Brazilian state of Rio Grande do Sul (Brazil's second-largest producing region) added a weather premium to soybean prices in January. The market has been particularly sensitive to threats to South American production considering the projected reduction of U.S. ending stocks. But rains finally arrived in the last half of January, alleviating dryness before the critical reproductive stage for most soybean fields. Now based on a near record expected yield, USDA raised its projection of 1996/97 Brazilian soybean production to 26.5 million metric tons, up from 26.0 million previously. Chicago futures prices have fallen from recent highs to reflect the change in weather. Farther north, the states of central Brazil have experienced generous moisture. In fact, some farmers in the center-west region are already harvesting short season soybeans, but have been delayed by excessive rain. Ships at the port of Paranagua are waiting for new crop supplies to arrive. The longer these delays continue, the greater the benefit to U.S. exports in February and March. With larger supplies and robust world demand, Brazil's 1996/97 projected crush and exports were raised to 21.3 million tons and 5.3 million tons, respectively. The tight September stocks situation should ease slightly from 5.0 million tons in 1995/96 to 5.3 million this year. Soybean planting in Argentina was completed by the end of January, with most principal growing regions receiving ample rains. Warm weather is now needed to accelerate crop development. Argentine production is antipated to be 13.5 million tons, up 0.5 million from the previous forecast. This is a record harvest on record area of 6.2 million hectares. Average yields will be down slightly because of a greater proportion of double cropped soybeans this year. The increased supply is expected to raise Argentine crush and exports to 10.5 million and 2.5 million tons, respectively. End of September stocks were forecast higher to 4.7 million tons. Also, Argentine sunflowerseed area harvested is expected higher, although even with last year's level. Some early season dryness motivated farmers to shift some intended planting for corn and sorghum into sunflowers, which are more tolerant of dry conditions. With subsequent rains relieving the dryness, excellent sunflowerseed yields are likely, which may boost sunflowerseed production to 5.4 million tons, the third-largest Argentine harvest on record. Argentina, which is the world's largest processor and exporter of sunflowerseed, is anticipated to crush and export 4.6 million tons and 700,000 tons, respectively, in 1996/97. Argentina will have an even more dominant presence in world trade this year given smaller crops in Russia, Ukraine, and the United States. India's 1996/97 soybean production was forecast down this month to 3.8 million tons from 4.5 million in 1995/96. Despite a record harvested area, Indian soybean yields are expected to be at a 10-year low. A late monsoon that delayed planting and damaging harvesttime rains in Madhya Pradesh (India's major soybean producing state) were chief reasons for the yield losses. Short supplies have driven up soybean prices and may idle many Indian crushing plants until April, when the rapeseed harvest begins. Unless the government allows imports of soybeans, the supply shortfall will raise prices, curtailing Indian soybean meal consumption and accelerating imports of vegetable oils. The Indian government has historically resisted importing soybeans to prevent introduction of foreign soybean diseases and pests and to support prices for the nation's farmers. This year's tightness in the world oilseeds market has generally not developed because of soybeans, but from production shortfalls of other oilseeds. World production of soybeans in 1996/97 is expected to be the second largest in history. The proportion of soybeans to world oilseed production has increased from 49 percent to 52 percent. Production of other oilseeds (particularly rapeseed, cottonseed, sunflowerseed) has fallen 6 percent, keeping global oilseed production relatively static. United Kingdom farmers produced a record rapeseed crop for 1996/97 of 1.45 million tons. Ideal growing conditions compensated for a lower area harvested. Germany and Poland, which had poor rapeseed harvests in 1996, are likely to take more U.K. exports. A larger area and tree population is the reason for raising 1996/97 production of Indonesian palm and palm kernel oil to 4.95 million tons and 670,000 tons, respectively. New palm plantations on the islands in eastern Indonesia are rapidly emerging. Favorable weather in 1996 was beneficial to copra in Indonesia, which permitted a higher forecast for coconut oil production. But effects of typhoons in the Philippines in late 1995 are still reverberating, resulting in an offsetting cut in Philippine coconut oil output and limiting export growth. World olive oil production will rise about one-fourth to 2.0 million metric tons in 1996/97, largely because of a rebound in Spanish output to 655,000 tons. Heavy rains during harvest blemished what had been ideal growing conditions, but Spanish production will still rank among the best ever. This has offset a mediocre Italian output, which was forecast up from a month ago to 490,000 tons, but still below the 1995/96 output of 620,000 tons. RECORD U.S. SOYBEAN CRUSHING, BOOMING EXPORTS RAPIDLY DRAW DOWN SUPPLIES Thanks to surging meal exports, domestic soybean demand continued its hot pace, with a record monthly crush of 138.2 million bushels in December. The 1996/97 domestic crush was forecast 10 million bushels higher this month to 1,410 million. However, monthly crush margins are beginning to show some weakness and recent weekly crush volumes have drifted lower. Diminishing soybean supplies, peaking meal prices, static oil prices, and below average extraction rates are starting to pressure crush profitability. The oil extraction rate in December was a very low 10.66 pounds per bushel. While soybean oil content may be below average this year, maximum extraction rates are probably being sacrificed because of the large throughput and may recover later in the season. The soybean price spread between Illinois processors and the Gulf widened in January, which portends a greater emphasis on foreign versus domestic demand. However, freezing of the Illinois River, which stopped southbound barges, could have contributed to this effect. U.S. soybean exports in November were 152 million bushels, the largest volume ever for a single month. Current crop year exports were forecast up 5 million bushels to 905 million. However, climbing U.S. soybean prices, a large impending South American crop, and a strengthening dollar should soon moderate U.S. exports. In one key market, China, U.S. export commitments of soybeans and soybean meal have stagnated since late December. Chinese ports have had trouble moving out the glut of December imports and shipments have accumulated there. Buying may resume soon after the Chinese New Year but the imports will likely be sourced from South America, whose prices for March-April delivery are significantly lower than comparable U.S. quotes. Total imports by China were forecast up this month to 1.7 million tons for soybeans, 2.1 million tons for soybean meal, and 1.55 million for soybean oil. The increase in forecast soybean use reduces 1996/97 expected carryout to a very tight 140 million bushels, down from 183 million the previous year. USDA's forecast of U.S. season average farm price for soybeans was raised this month to $6.75-$7.25 per bushel. The unique combination of a large harvest and strong prices will generate a record value of soybean production (over $16 billion) in 1996/97 for U.S. farmers. The downgraded Indian soybean harvest provides additional support for U.S. soybean meal exports in 1996/97, which were again forecast higher to 6.65 million short tons. November U.S. exports of soybean oil were 304 million pounds, also one of the largest monthly shipments on record. Projected 1996/97 exports were lifted to 1,850 million pounds this month. Cumulative sales to China to date are more than double those of a year earlier. Yet, given the heavy output from crushing plants, oil demand hasn't been strong enough yet to lift prices much. Soybean oil stocks were above 2 billion pounds again by the end of the year. U.S. 1996/97 sunflowerseed exports are forecast much lower this month, to 360 million pounds, down from 494 million last season. Even assuming a similar export pace for December-August as in 1995/96, the very small shipments last fall point toward a larger year-to-year reduction. Despite lower area, excellent yields are expected to soon deliver another large crop out of Argentina, constraining U.S. export potential. Domestic sunflowerseed crush also has been hard to maintain. This year's sunflowerseed prices are slightly higher, oil prices are considerably lower, and recent additions to Canadian crushing capacity have heightened the competition. The absence of the Sunflower Oil Assistance Program (SOAP) has also allowed domestic sunflowerseed crush margins to remain tight compared to recent years. Ending stocks of sunflowerseed are forecast to rise to 485 million pounds, the highest since 1991/92. U.S. sunflowerseed oil exports in 1996/97 are also rated no higher than last year's volume of 628 million pounds. The next Oil Crops Outlook is scheduled for 4:00 pm ET Wednesday, March 12. ****************************************************************************** Information Contacts: Mark Ash Soybeans, Minor Oilseeds, Fats and Oils (202) 219-0712 Scott Sanford Peanuts, Cottonseed (202) 219-0835 ****************************************************************************** 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 1,410 905 116 2,431 140 ------------------------------------------------------------------------------ 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 33,341 33,650 26,800 6,650 33,450 200 ------------------------------------------------------------------------------ 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 15,350 17,465 13,650 1,850 15,500 1,965 ------------------------------------------------------------------------------ 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 5.98 101.00 11.00 29.70 5.11 October 6.16 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 6.78 106.00 11.10 29.80 5.27 February 7.00 117.00 11.50 NA 5.18 March 7.00 NA 12.10 NA 5.28 April 7.43 NA 12.70 NA 5.31 May 7.69 NA 13.50 NA 6.03 June 7.41 NA 14.30 NA 5.88 July 7.62 NA 13.70 NA 6.19 August 7.82 118.00 12.70 NA 6.15 1996/97 September 7.79 129.00 12.00 27.70 5.89 October 6.95 123.00 11.70 25.80 6.49 November 6.90 117.00 11.90 25.00 6.50 December 6.91 136.00 11.60 25.60 6.79 January1 7.16 132.00 11.60 28.60 6.50 -------------------------------------------------------- 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 December 21.60 24.29 22.30 40.75 22.27 January1 22.45 25.21 22.65 43.50 23.39 ------------------------------------------------------------------------- 1 Preliminary 2 Decatur 3 PBSY 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 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 December 250.60 224.50 113.35 172.67 171.65 January1 249.20 207.19 125.00 221.00 165.00 ---------------------------------------------------------------------------- 1 Preliminary 2 Hi-pro Decatur 3 41% Memphis 4 Minneapolis 5 50% SE mills END_OF_FILE