OIL CROPS OUTLOOK April 10, 1998 April 1998, OCS-0298 Approved by the World Agricultural Outlook Board ------------------------------------------------------------------------------ OIL CROPS OUTLOOK is issued six times a year by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. Electronic release only; no printed copies are available. ------------------------------------------------------------------------------ U.S Farmers To Plant Record Soybean Acreage This Year On March 31, the Prospective Plantings report indicated that U.S. farmers intend to plant a record 72.0 million acres of soybeans in 1998, up from 70.85 million last year. In spite of declining prices, soybeans have remained relatively attractive compared with other crops. For the second consecutive year, U.S. soybean area will exceed wheat. If grain prices decline more or if wet weather delays planting, soybean acreage may still increase from the March intentions, as it has in 8 out of the last 10 years. There may be room for more oilseeds expansion, particularly in the Northern Plains, if farmers plant as much total area to field crops as they did in 1997. It appears that much of the additional area to be planted to soybeans will be shifted from wheat, with smaller amounts coming from corn or sorghum. Some of the acreage disenrolled from the Conservation Reserve Program this year may also be raising soybean acreage. Record soybean planting is expected in 1998 for all of the top five producing States as well as several others that have markedly expanded soybean area in recent years. The regions that are increasing acreage also tend to have the highest average yields per acre, while the lower yielding regions are reducing acreage. Surge in Minor Oilseed Acreage Expected World wheat production reached a record in 1997/98 and is expected to increase again, which has cut U.S. wheat prices again this spring. With the elimination of planting requirements for grains in 1996, many Northern Plains farmers have since sought to add oilseeds to their rotations. This would help them break the cycle of wheat diseases that have plagued them for several years. Spring wheat planting this year in North Dakota and Minnesota would decline 1.1 million and 0.6 million acres, respectively. Consequently, these farmers are intending to expand plantings of sunflowers, flax, and canola. This spring, escalating vegetable oil prices have especially favored producing these high oil content oilseeds. Intended sunflower area in 1998 is 3.1 million acres, up 200,000 acres from 1997. North Dakota (the top producing State) acreage would increase 280,000 acres, with nearly all of the increase coming from oil-type varieties. A resurgence in flaxseed production is also expected. U.S. flax acres in 1998 will jump to 280,000 acres. This is almost double last year's area and is the largest since 1991. Slowdown in U.S. Soybean Demand Underway Last year's sharp seasonal descent occurred when U.S. soybean supplies became very short. This year, stocks are more abundant, but competitor supplies will be much greater. After 6 months of robust growth, the impending wave of South American soybean supplies is showing its effects on the U.S. market. Based on strong year to date crushings, the 1997/98 domestic soybean crush forecast was raised 5 million bushels this month to 1,525 million bushels. However, weekly crush rates have recently slipped as declining soybean meal prices have weakened crush margins. Weekly export shipments for soybeans have also fallen, and current outstanding sales are only 60 percent of their year-earlier level. Soybean trade is being overshadowed by strong exports of soybean meal and oil. The U.S. Department of Agriculture (USDA) forecast U.S. 1997/98 soybean exports down to 945 million bushels this month from the March forecast of 950 million. Current outstanding U.S. export sales are just 56 percent of a year earlier, with Japan, Mexico, and South Korea accounting for more than half of the remaining sales. USDA's Grain Stocks report indicated that total soybean stocks on hand as of March 1 were 1,203 million bushels. This quantity is 147 million bushels higher than a year earlier, despite a record soybean offtake in the first half of the marketing year. Based on this stocks level and year to date use data, a larger residual demand for 1997/98 was implied, which was forecast up this month to 79 million bushels. Forecast use of soybeans for seed, based on large intended plantings this spring, was raised slightly to 81 million bushels. By increasing these uses, 1997/98 ending stocks are anticipated to decline to 235 million bushels. USDA's forecast of the 1997/98 average soybean farm price is $6.35-$6.65 per bushel. Record U.S. Soybean Oil Exports Forecast Responding to a global shortfall in vegetable oil, U.S. crushers will produce a record 17.1 billion pounds of soybean oil. Exporters are projected to ship 2.9 billion pounds of soybean oil abroad, surpassing the previous high of 2.7 billion set in 1979/80. As of April 2, exports to the major markets of China and Hong Kong were 75 percent above a year earlier. Exports of other U.S. vegetable oils are also faring well this season. Shipments of sunflowerseed oil, corn oil, and cottonseed oil are up 70, 46, and 17 percent, respectively, from a year ago. Despite no increase in soybean oil consumption for oil products, cumulative domestic disappearance is currently about 6 percent higher than a year ago. This implies that end users may be increasing their own storage of vegetable oil supplies to insulate themselves from higher anticipated prices. Domestic disappearance is projected higher to 14.6 billion pounds, which is up from 14.5 billion last month and 14.2 billion last season. This expected spike in demand would cut 1997/98 U.S. soybean oil ending stocks to 1,170 million pounds, which stood at 1,719 million at the end of February. The decline in U.S. soybean oil stocks would depress 1997/98 global stocks to the lowest level since 1994. In March, the soybean oil price averaged 27.1 cents per pound, exceeding the year earlier price by more than 4 cents. The average price for soybean oil is forecast higher to 26.5-27.5 cents per pound. Brisk Crush Sends Soybean Meal Prices Down When demand for vegetable oils is stronger than protein meal demand, prices for soybean oil and soybean meal go in opposite directions. Soybeans are comparatively inefficient at producing oil, so the more that are crushed to satisfy the world oil market, proportionately greater supplies of soybean meal are created. Unlike oil, meal cannot be stored very long, so meal prices must fall to clear the market of excess supplies. This is the situation that applies for the current marketing year. Quite ample stocks of corn and wheat are also keeping a lid on feed prices. Cash soybean meal prices in central Illinois dropped to a March average of $174 per short ton and have continued to fall below $165 in early April. This month, USDA again reduced its 1997/98 average price forecast, to $185-$195 per ton. U.S. exports of soybean meal have been a very bright spot this year. Total 1997/98 meal exports are forecast to 7.9 million short tons, rivalling the 1979/80 record. But this U.S. predominance should last only for a few more weeks until South American crushers make new crop production available. Asian meal imports are also being rationed by a serious economic recession. While the March Hogs and Pigs report confirmed a still large U.S. swine herd, actual winter farrowings were less than December intentions. The expansion in hog numbers is slowing down, with more moderate increases in the breeding herd and farrowing intentions for this spring and summer. A mild winter also curbed soybean meal consumption. USDA projected 1997/98 domestic disappearance of soybean meal down 200,000 tons from the March estimate to 28.15 million short tons. Advancing South American Soybean Harvest Pressures Market A principal reason for the sharp slide in soybean meal prices is the development of new crop supplies from South America. Continuing a weather pattern that has largely prevailed over the last 6 months, frequent showers have hampered early harvest progress. As of April 9, the Brazilian soybean harvest was 57 percent finished, compared with 70 percent last year. After ideal harvest conditions in early April, the pace has picked up. Despite the delays, the ample moisture will enable Brazilian soybean farmers to harvest an expected record 30.0 million metric tons in 1998. Likewise, Argentine soybeans are in excellent condition but will need drier weather to aid the harvest. Yields are better because of a greater proportion of first crop soybeans, but ample late season moisture is also benefitting double-cropped yields. USDA projects an impressive rebound from the drought stricken 1997 soybean harvest, with a bumper 1998 crop of 16.0 million tons. Argentine peanut production is also expected to reach a record output of 0.75 million tons. This will enable Argentina to export about three-fourths of the crop and become the world's leading peanut exporter this year. However, excessive rain has damaged the country's production and quality of sunflowerseed, forcing farmers to abandon 0.2 million hectares this year. The optimistic early season forecast for record sunflowerseed output has given way to a less exceptional forecast of 5.2 million tons. Consequently, Argentine exports will suffer, especially to European Union countries, where high quality oil-type sunflowerseed has been in great demand recently. Late plantings and weather problems have also plagued the Argentine cotton crop, which will scale back cottonseed production and domestic crush. After years of pressure from Indian oilseed processors, India's Government has approved the import of 1 million tons of soybeans. To address phytosanitary concerns, importers are mandated to split the beans upon arrival so that the seed cannot be planted by farmers. Allowing such imports will utilize more idle crushing capacity, reduce oil imports, and expand meal exports. While current crush margins for imported soybeans may not favor significant imports this year, the precedent may be quite meaningful for international trade in the future. Tight Global Vegetable Oil Supplies Boost Prices While world production of vegetable oils will slow this year, world consumption is steadily growing. This is largely because 1997/98 world palm oil production is projected to grow just 0.7 percent, compared with 8 percent last year. A prolonged drought has reduced yields throughout the major Southeast Asian producing countries. Assuming the same 8 percent growth this year, the loss in palm oil would be about 1.3 million metric tons. In terms of soybean oil, this would be equivalent to losing 7 million acres of soybeans, or one-tenth of U.S. acreage. Competing oilseeds and vegetable oils have had to pick up the slack, reflected by escalating world trade and prices. Indonesia, the world's second largest producer of crude palm oil, also tightened the world oil market by instituting a ban on exports that was to last through the end of March. The government extended the export ban indefinitely, however. Malaysia became the focal point for world demand, and the steady depletion of palm oil stocks hiked prices to $645 per ton in March from less than $500 last year. Since January, palm oil prices for domestic Indonesian consumption have stabilized. The government has now indicated that the ban may be lifted April 22. When the ban ends, international palm oil prices may temporarily ease, but persistence of the drought or another collapse of the currency could further unsettle the situation. Any price decline would be moderated by an increase in Indonesia's export tax on crude palm oil from 5 to 40 percent, as well as higher tax rates on refined palm oil and palm kernel oil. The government may also implement an export quota to prevent a flood of exports that would drive up domestic oil prices. Indonesia is expected to produce 5.5 million tons of palm oil in 1997/98 and export 2.2 million tons, compared with 5.3 million and 2.4 million, respectively, the previous year. Current world supplies of rapeseed and sunflowerseed oil are in short supply as well, as a brisk crushing pace has depleted seed stocks. While the Indian rapeseed harvest will soon commence, new crop production from Europe, Canada, and China is several months away. Global 1997/98 sunflowerseed production is estimated down nearly 0.3 million tons. Exports of U.S. sunflowerseed and oil have been uncommonly strong as a result. Argentina's disappointing sunflowerseed harvest will not ease the situation much. On the demand side, declining stocks and widening vegetable oil deficits in China, India, and Pakistan are raising import needs. U.S. 1997/98 Cottonseed Crush Pace Weakens, Forecast Lowered After a torrid January cottonseed crush of 428,447 short tons, U.S. cottonseed crush in February declined to a seasonally-weak 352,278 tons. Despite a total crush for the first 5 months of the season that exceeds same period year-ago crush by 83,000 tons, the crush through February is well short of the pace needed to attain a 4-million-ton crush forecast this season. Consequently, USDA this month reduces the 1997/98 U.S. cottonseed crush forecast by 100,000 short tons to 3.9 million tons. For the first 3 months of the October-September season, the price of cottonseed meal held very steady at $189-$190 per month. In January, the monthly average price fell to $153.10 per ton and in February to $139.10 per ton. A building of stocks of meal has accompanied the weaker prices. Even with higher cottonseed oil prices thus far this season versus last season, the weaker meal prices have dropped the oil-and-meal value of products in January and February well below their levels of a year ago. Continued weak meal prices will likely reduce crushing incentives in the remainder of the season. U.S. 1997/98 Peanut Food Use Estimate Edges Higher USDA's 1997/98 peanut supply and use estimates for April indicate minor adjustments from last month. U.S. peanut food use is estimated slightly higher at 2.095 billion pounds, in-shell, up 5 million from last month's estimate and 66 million above last season. For the season through January, U.S. peanut food use is 1.106 billion pounds, in-shell, up 56 million from the same period a year ago. The strength reflects strong growth in primary product use and a slight rise in roasting stock use. Among individual categories of primary product use, peanut butter use is up about 6.5 percent for the season through February. Use in peanut butter production this season has benefitted from larger government purchases, up 29 percent for the first half of the season, and 2.7-percent growth in commercial purchases of peanut butter. Monthly peanut butter prices thus far in calendar 1998 are little changed from prices in early 1997. The expected bumper Argentine harvest will curtail U.S. peanut exports. U.S. peanut farmers indicated that they would plant 1.47 million acres of peanuts in 1998, up 3 percent from 1997. Georgia and Texas, the top 2 peanut producing States, account for 79 percent of the acreage gain. The next release of the Oil Crops Outlook is scheduled for 4:00 p.m. ET Wednesday May 13, 1998. Information Contact: Mark Ash Soybeans, minor oilseeds, oils (202) 694-5289 This report is also available electronically at the ERS website http://www.econ.ag.gov 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 residual stocks ------------------------------------------------------------------------------ -------------------------- Million bushels--------------------------- 1995/96 335 4 2,177 2,516 1,370 851 112 2,333 183 1996/97 1/ 183 9 2,382 2,575 1,436 882 125 2,443 132 1997/98 2/ 132 6 2,727 2,865 1,525 945 160 2,630 235 ------------------------------------------------------------------------------ 1/ Estimated. 2/ Forecast. Table 2--Soybean meal: U.S. supply and disappearance ------------------------------------------------------------------------------ Supply Disappearance -------------------------------- ------------------------------------ Year begin. Beg. Im- Produc- Total Domestic Ex- Total End. Oct. 1 stocks ports tion ports stocks ------------------------------------------------------------------------------ ---------------------------1,000 short tons-------------------------- 1995/96 223 75 32,527 32,825 26,611 6,002 32,613 212 1996/97 1/ 212 102 34,209 34,523 27,322 6,994 34,316 207 1997/98 2/ 207 75 36,018 36,300 28,150 7,900 36,050 250 ------------------------------------------------------------------------------ 1/ Estimated. 2/ Forecast. Table 3--Soybean oil: U.S. supply and disappearance ------------------------------------------------------------------------------ Supply Disappearance ----------------------------- -------------------------------- Year begin. Beg. Im- Produc- Total Domestic Ex- Total End. Oct. 1 stocks ports tion ports stocks ------------------------------------------------------------------------------ -------------------------- Million pounds--------------------------- 1995/96 1,137 95 15,240 16,472 13,465 992 14,457 2,015 1996/97 1/ 2,015 53 15,743 17,811 14,247 2,045 16,291 1,520 1997/98 2/ 1,520 65 17,085 18,670 14,600 2,900 17,500 1,170 ------------------------------------------------------------------------------ 1/ Estimated. 2/ Forecast. Table 4--Cottonseed: U.S. supply and disappearance ------------------------------------------------------------------------------ Supply Disappearance -------------------------------- ------------------------------------ Year begin. Beg. Im- Produc- Total Crush Ex- Other Total End. Sept. 1 stocks ports tion ports stocks ------------------------------------------------------------------------------ -------------------------- 1,000 Short tons-------------------------- 1995/96 551 0 6,849 7,399 3,882 114 2,886 6,882 517 1996/97 517 0 7,144 7,661 3,860 116 3,162 7,138 523 1997/98 2/ 523 0 7,278 7,801 3,900 200 3,201 7,301 500 ------------------------------------------------------------------------------ 1/ Estimated. 2/ Forecast. Table 5--Cottonseed meal: U.S. supply and disappearance ------------------------------------------------------------------------------ Supply Disappearance -------------------------------- ------------------------------------ Year begin. Beg. Im- Produc- Total Domestic Ex- Total End. Oct. 1 stocks ports tion ports stocks ------------------------------------------------------------------------------ ------------------------------Short tons--------------------------- 1995/96 47 0 1,748 1,795 1,632 111 1,744 51 1996/97 1/ 51 4 1,752 1,807 1,649 132 1,781 26 1997/98 2/ 26 0 1,755 1,781 1,595 150 1,745 36 ------------------------------------------------------------------------------ 1/ Estimated. 2/ Forecast. Table 6--Cottonseed oil: U.S. supply and disappearance ------------------------------------------------------------------------------ Supply Disappearance ----------------------------- -------------------------------- Year begin. Beg. Im- Produc- Total Domestic Ex- Total End. Oct. 1 stocks ports tion ports stocks ------------------------------------------------------------------------------ -------------------------- Million pounds--------------------------- 1995/96 82 0.3 1,229 1,311 996 221 1,217 94 1996/97 1/ 94 0.3 1,216 1,310 1,012 232 1,244 66 1997/98 2/ 66 0.3 1,250 1,317 1,000 250 1,250 67 ------------------------------------------------------------------------------ 1/ Estimated. 2/ Forecast. Table 7--Peanuts: U.S. supply and disappearance ------------------------------------------------------------------------------ Supply Disappearance ------------------------- ---------------------------------------- Year begin. Beg. Im- Produc- Total Domest. Crush Seed& Ex- Total End. Oct. 1 stocks ports tion Food resid. ports stocks ------------------------------------------------------------------------------ -------------------------- Million pounds--------------------------- 1995/96 1,198 153 3,461 4,812 1,993 999 238 824 4,054 758 1996/97 1/ 758 127 3,661 4,545 2,029 692 363 666 3,751 795 1997/98 2/ 795 139 3,537 4,470 2,095 599 311 700 3,705 765 ------------------------------------------------------------------------------ 1/ Estimated. 2/ Forecast. Table 8--Oilseeds prices received by farmers, U.S. -------------------------------------------------------- Marketing Soy- Cotton- Sun- year beans seed flowers Peanuts Flaxseed -------------------------------------------------------- $/bu. $/ton $/cwt Cents/lb $/bu. 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 1995/96 6.72 106.00 11.50 29.30 5.19 1996/97 1/ 7.35 126.00 11.70 28.50 6.37 1996/97 September 7.79 129.00 12.00 27.70 5.89 October 6.94 123.00 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 January 7.13 132.00 11.80 24.30 6.42 February 7.38 128.00 12.20 NA 6.30 March 7.97 NA 12.20 NA 6.66 April 8.23 NA 12.40 NA 6.49 May 8.40 NA 12.10 NA 6.50 June 8.16 NA 11.90 NA 6.03 July 7.52 NA 10.70 NA 6.07 August 7.25 112.00 10.70 NA 5.53 1997/98 September 6.72 113.00 11.30 27.10 5.72 October 6.50 119.00 10.60 25.40 5.81 November 6.85 124.00 11.00 23.60 5.71 December 6.71 122.00 11.00 26.90 5.72 January 6.69 122.00 11.10 28.40 5.86 February 6.57 108.00 11.90 NA 6.27 March 1/ 6.42 NA 11.90 NA 5.64 -------------------------------------------------------- 1/ Preliminary. NA = Not available. Table 9--Vegetable oil prices --------------------------------------------------- Cotton- Sun- Marketing Soybean seed flower Peanut Corn year oil 2/ oil 3/ oil 4 oil 5/ oil 6/ --------------------------------------------------- Cents/lb. 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 1995/96 24.70 26.53 25.40 40.30 25.24 1996/97 1/ 22.50 25.58 22.64 43.70 24.05 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 January 22.45 25.21 22.65 43.50 23.39 February 22.41 25.44 23.07 43.88 23.97 March 23.29 26.18 22.70 44.75 24.38 April 23.17 25.10 23.50 45.00 24.60 May 23.68 25.19 23.20 46.20 24.66 June 22.97 25.01 22.33 47.88 24.82 July 21.89 26.53 21.73 48.06 25.34 August 22.06 27.11 22.02 48.00 25.36 September 22.88 28.03 22.90 47.25 25.15 1997/98 October 24.31 28.47 24.51 49.63 25.20 November 25.73 29.11 26.41 51.00 26.25 December 25.08 26.78 26.36 51.25 26.28 January 25.09 27.69 25.75 51.60 26.04 February 26.51 29.37 25.91 51.00 27.31 March 1/ 27.09 30.46 26.51 51.00 28.50 ------------------------------------------------------ 1/ Preliminary 2/ Decatur 3/ PBSY Greenwood MS 4/ Minneapolis 5/ Southeast mills 6/ Chicago Table 10--Oilseed meal prices --------------------------------------------------- Soy- Cotton Sun- Marketing bean seed flower Peanut Linseed year meal 2/ meal 3/ meal 4/ meal 5/ meal 4/ --------------------------------------------------- $/Short ton 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 1995/96 235.90 190.74 123.75 202.70 159.00 1996/971 262.00 192.00 110.60 232.00 158.75 1996/97 October 248.50 183.25 116.00 170.00 167.50 November 251.50 196.60 105.00 146.13 168.30 December 250.60 224.50 113.35 172.67 170.00 January 249.20 207.20 125.00 221.00 165.00 February 262.40 183.75 137.50 228.13 156.25 March 280.50 189.10 121.70 225.00 163.30 April 288.60 197.25 124.00 233.75 168.00 May 306.40 193.75 120.00 222.00 188.30 June 287.90 188.44 106.25 235.00 171.25 July 273.60 170.75 84.00 220.00 124.00 August 273.30 176.25 85.00 213.00 126.25 September 278.30 192.00 89.20 210.00 136.70 1997/98 October 229.30 189.10 96.90 210.00 140.60 November 245.30 189.10 88.10 210.00 161.25 December 222.50 190.50 100.00 210.00 150.50 January 202.85 153.10 90.00 210.00 130.00 February 192.75 139.10 76.40 210.00 121.25 March 1/ 174.20 128.65 73.25 210.00 118.35 ----------------------------------------------------------------------- 1/ Preliminary 2/ Hi-pro Decatur 3/ 41% Memphis 4/ Minneapolis 5/ 50% SE mills END_OF_FILE