OIL CROPS OUTLOOK July 13, 1998 July 1998, OCS-0498 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. --------------------------------------------------------------------------- Growth in 1998/99 World Soybean Supplies To Overwhelm Consumption U.S. farmers planted a record high 72.7 million acres of soybeans in 1998. Data from USDA's Acreage report indicated plantings were 0.7 million acres higher than March intentions and 1.9 million acres above last year. Farmers in Illinois, North and South Dakota, and Missouri added most of the increase in soybeans from March intentions by planting less corn, spring wheat, and barley. Louisiana, Tennessee, Ohio, and Nebraska producers planted fewer soybeans than intended. Larger winter wheat acreage permitted soybean double cropping to expand in Missouri, Kentucky, and Arkansas. But a net decline in U.S. double-cropped soybeans occurred as less winter wheat, poor soil moisture, and weaker prices discouraged the practice in other States. Timely May plantings followed by a warm, wet June have advanced soybean progress, setting the stage for good yields. As of July 5, 59 percent of soybeans were rated in good to excellent condition, compared to 68 percent a year ago. Hot and dry weather is hurting yield potential in the Delta and Southeast regions, but most of the Nation's soybeans head into the summer reproductive stage supplied with ample soil moisture. In fact, some drying would be welcome in parts of the eastern Corn Belt after recent heavy rainstorms. U.S. soybean production is expected to reach 2,830 million bushels, more than 100 million bushels above last year's record harvest. Despite very low crushing margins, U.S. processors continue to battle for world soybean meal and oil markets. U.S. crushers have set a record monthly crush every month so far in 1997/98. The usual seasonal decline has begun and processors' soybean stocks have sharply declined. But, the still strong pace warranted an increase in the 1997/98 crush forecast to 1,580 million bushels. Greater competitor supplies will make it difficult to repeat the same rate of growth in 1998/99, however, which USDA projected at 1,600 million bushels. The recent Grain Stocks report indicated a lower than expected June 1 soybean inventory of 593 million bushels. Based on these stocks and year-to-date crush and trade data, the current estimate for the 1997/98 residual was raised to 107 million bushels. Year ending stocks are now forecast at 215 million bushels, down from 240 million last month. Soybean farm prices were forecast slightly higher this month to $4.85-$5.85 per bushel based on the smaller carryin forecast that will help support prices next fall. Nonetheless, soybean prices will be much lower (compared to $6.45 per bushel in 1997/98) after bumper harvests from the United States, Brazil, and Argentina. Lower prices are anticipated to support the volume of U.S. soybean trade next year. U.S. 1998/99 soybean exports are projected to reach 875 million bushels, down slightly from the revised 1997/98 forecast of 880 million. Greater foreign competition will scale back projected U.S. exports of soybean meal from 9.05 million short tons in 1997/98 to 8.6 million. The considerably lower total value of these exports will be felt at the farm level. U.S. soybean farm income in 1998/99 may be cut about $2.5 billion from this season's record earnings. Prices this season for soybean meal have been a bargain for livestock producers, averaging about $185 per short ton. Yet, the price range for 1998/99 will be even less at $143-$157 per short ton. Summer and fall farrowing intentions indicate that the expansion in hog production will continue, although at a more moderate pace than in 1997/98. Domestic disappearance of soybean meal for 1998/99 is forecast nearly 1 million short tons higher from 28.4 million this year. South American farmers will consider this lower price environment when making planting decisions later this year. They will likely suspend the great expansion in soybean area they have made since the early 1990s. While declining transportation costs should maintain Brazilian soybean area near this year's level, Argentine producers may raise more sunflowers instead. Soybean yields (beneficiaries of the generous rains that fell in early 1998) are also expected to moderate from current peaks. Brazilian 1999 soybean output is projected to decline to 29.5 million metric tons from this year's 30.7 million. Next year's Argentine crop, projected at 15.0 million tons, should be much exceeded by the recently completed 1998 harvest, which was estimated higher again this month to 17.9 million tons. Export growth for both countries in 1998/99 will moderate. Argentina will continue to emphasize crushing and meal and oil exports at the expense of soybean exports. Recent rains in India have created excellent soil moisture conditions for planting soybeans. Indian 1998/99 soybean output is expected to increase to 5.2 million tons. If the quality problems of 1997/98 don't return, Indian soybean meal exports are projected to increase to 2.85 million tons in 1998/99. Competition with other commodities and market inefficiencies continue to stifle price incentives for an increase in China's soybean area. Policies discouraging provincial trade make it less costly for southern crushers to import from abroad than to obtain lower-quality soybeans from northern producers, who raise the bulk of China's output. Misallocation of supplies and a lack of proper storage also create excessive waste in China. Early growing conditions in the northeastern provinces have been reported better than average this year. Nonetheless, another decline in soybean area is projected to drop China's harvest from 14.7 million tons in 1997 to 14.0 million in 1998. China will need to import an estimated 6.9 million tons of soybean meal equivalent in 1997/98 to meet domestic demand. Imports are expected to grow to 7.6 million tons next year, although the gain is less than in recent years. The absence of quantitative import restrictions and a low tariff have aided this trend. Global trade for soybeans is projected down 3 percent in 1998/99, while soybean meal trade is up 4 percent. Western European crushers will face poor crushing margins for soybeans in 1998/99. Soybean oil needs will be minimized by crushing larger domestic supplies of rapeseed and sunflowerseed. Abundant feed wheat supplies and vigorous competition from U.S. and South American crushers will make soybean meal imports relatively more attractive than soybean imports. Prices Encourage Greater Rapeseed and Sunflowerseed Production Global protein meal supplies will be overly abundant next year, but vegetable oil supplies will still be comparatively tight. A situation like this favors production of high oil content oilseeds, such as rapeseed and sunflowerseed. Global rapeseed production in 1998/99 is projected to rise to 36.1 million tons, up 6 percent from 1997/98. This figure includes U.S. production, as U.S. farmers have also discovered the advantages of raising canola and have planted a record high 1.1 million acres this year. Very tight rapeseed stocks have encouraged EU farmers to expand plantings this year. Record area is expected in France, Germany, and the United Kingdom. Growing weather has been generally favorable throughout Europe except in the Balkan nations. Based on larger area and normal yields, EU rapeseed production is projected to increase from 8.6 million tons last year to 9.5 million in 1998. After the first winter in 3 years without substantial winterkill, 1998 rapeseed yields in Poland are expected to rebound strongly. Poland's production is forecast one-third higher than 1997 to 0.9 million tons. Domestic shortages forced Polish mills to import around 0.3 million tons of rapeseed over the last several years, so the better crop will reverse that trend. Expected relative returns this spring have favored greater Canadian oilseed plantings and reduced wheat and barley area. Canadian harvested rapeseed area in 1998 is estimated at 5.4 million hectares, which would rank second only to the record 1994/95 season. Despite wider adoption of herbicide-tolerant varieties that have aided Canadian yields in recent years, weather events are likely to hold yields in check. While planting and emergence were ahead of normal, a late spring frost required reseeding in some Prairie regions. In Saskatchewan and Alberta, topsoil moisture became quite short in June but has since improved. Nationwide production will probably be relatively large at 7.0 million tons. A modest growth in crush should somewhat ease 1998/99 Canadian ending stocks of seed from the very tight 1997/98 carryover. Canadian rapeseed exports may also moderate with stiff competition from Australian rapeseed and Japan's economic recession. Similarly, 1998/99 grains area dropped in Australia to the benefit of oilseeds. The popularity of rapeseed continues to grow among Australian farmers, who have planted almost 50 percent more of the crop than last year. Although it is still early in the growing season, moisture conditions have improved from the very dry 1997/98 season. Another record harvest, near 1.4 million tons, is anticipated in 1998. Rapeseed would surpass cottonseed for the first time as the largest source of Australian oilseeds. Given larger supplies and a weaker currency, Australia will be able to expand its export market share for seed and rapeseed oil, particularly to Japan and China. Cold and wet weather has cut the 1998 Chinese rapeseed harvest to 8.3 million tons, down from 9.5 million in 1997. In March, frost in the main producing provinces caused extensive damage during the vulnerable blooming phase. Heavy rains in May exacerbated the damage. Imports of seed and oil from Europe, Canada, and Australia will increase to cover the shortfall. Tighter balances of sunflowerseed this year is urging producers around the world to raise 1998/99 production to a projected 25.9 million tons. Farmers in the United States have expanded sunflower plantings to 3.4 million acres, 0.5 million more than in 1997 and 0.3 million above March intentions. After a decline in world sunflowerseed trade this year, the outlook for 1998/99 is for a small increase. Sunflower plantings in Russia and the Ukraine were also up sharply this year. Rising finance costs have rationed inputs and soils have become drier, but are expected to be adequate to produce 3.0 million and 2.4 million tons in Russia and the Ukraine, respectively. Similarly, higher area and yields are anticipated in Hungary, Romania, Yugoslavia, and Bulgaria. Turkey's 1998 sunflowerseed crop should be little changed from a year ago as higher plantings are offset by a return to trend yields. Turkey, which has considerably more crushing capacity than domestic oilseed production, will continue to crush seed imported largely from Russia and the Ukraine. Turkey returns much of the oil produced to Russia and the Ukraine, as well as many Middle Eastern countries. Greater competition from rapeseed will lower EU sunflowerseed plantings (except in Spain) and trim 1998/99 production. Favorable weather is expected to produce a bumper Spanish sunflowerseed harvest of 1.4 million tons. Late this year, the relative strength of vegetable oil prices will encourage Argentine producers to substitute sunflower acreage for grains and soybeans. Argentine sunseed area is forecast at 3.5 million hectares for a harvest of 6.0 million tons. Larger area and improved yields are projected to increase 1998/99 global peanut production to 27.7 million tons. This forecast is based on modest increases in China and India, the leading world producers. Last year's drought will encourage Chinese farmers to increase plantings, raising expected production to 9.8 million tons. In Gujarat, the major peanut growing region of western India, abundant rainfall ahead of the monsoon has provided a good start to the growing season. Indian 1998/99 peanut production is projected at 8.3 million tons, up from 8.0 million in 1997/98. U.S. production is currently forecast at 3,755 million pounds. Despite irrigation on many peanut farms, yield potential has deteriorated from a serious southern drought. As of July 5, only 37 percent of U.S. peanuts were in good to excellent condition, compared to 72 percent last year at this time. Global cottonseed production has been stagnant for several years and is not expected to change much again in 1998/99. Total output is forecast to slip from 34.3 million tons this year to 34.0 million tons. Production gains in India, Pakistan, and the New Independent States of the former Soviet Union will be offset by lower yields in China and the United States. A sharp decline in U.S. output to 5.2 million tons would price some cottonseed out of feed and oil markets, cutting crush and product demand. Global cottonseed stocks will tighten as world crush is forecast 2 percent higher to 26.6 million tons. Vegetable Oil Suppliers Still Struggle To Meet Demand Global edible oil production is projected 2.5 million tons higher in 1998/99 to 79.8 million tons. The source of this gain will be evenly distributed among the various oils. Such growth is an improvement over 1997/98, but global consumption is forecast to rise 2.7 million tons to 79.9 million. World ending stocks of vegetable oils would tighten further, keeping prices firm. By virtue of a much larger crop, Argentina will experience the greatest improvement in 1998/99 soybean oil exports. Larger soybean supplies and robust world oil demand will edge U.S. soybean crush and oil production to new peaks. However, U.S. soybean oil exports for 1998/99, at 2,850 million pounds, are projected only 50 million pounds higher than the current year forecast. U.S. soybean oil prices in 1998/99 are expected to average 26.0-28.0 cents per pound, compared to the 1997/98 average of 26.25 cents. Prospects for larger soybean crops and an accumulation of soybean oil stocks pressured oil prices in June down to 25.8 cents per pound. USDA projects an increase in Chinese vegetable oil imports to 4.5 million tons, which includes 2.2 million tons of soybean oil and 1.6 million tons of palm oil. However, excluding China, there will be few other markets where soybean oil trade is expected to gain in the coming year. Rains have returned to Malaysian and Indonesian palm plantations, but it will take months to see the benefits. Larger area and increased tree maturity are largely responsible for a modest projected increase in world production, from 17.4 million tons in 1997/98 to 17.8 million in 1998/99. World palm oil trade will grow slowly from 10.9 million to 11.1 million tons. Similarly, the drought will have lasting effects on 1998/99 world production of coconut oil, which is projected down 1 percent to 3.4 million tons. The next release of the Oil Crops Outlook is scheduled for 4:00 p.m. ET Thursday August 13, 1998. This report is also available electronically at the ERS website http://www.econ.ag.gov Information Contacts: Mark Ash Soybeans, minor oilseeds, oils (202) 694-5289 Scott Sanford Cottonseed, peanuts (202) 694-5309 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--------------------------- 1996/97 183 9 2,382 2,575 1,436 882 125 2,443 132 1997/98 2/ 132 6 2,727 2,865 1,580 880 188 2,648 215 1998/99 2/ 215 6 2,830 3,050 1,600 875 140 2,615 435 ------------------------------------------------------------------------------ 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-------------------------- 1996/97 212 102 34,209 34,523 27,322 6,994 34,316 210 1997/98 2/ 210 60 37,445 37,715 28,400 9,050 37,450 265 1998/99 2/ 265 50 37,910 38,225 29,375 8,600 37,975 250 ------------------------------------------------------------------------------ 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--------------------------- 1996/97 2,015 53 15,743 17,811 14,247 2,045 16,291 1,520 1997/98 2/ 1,520 55 17,785 19,360 15,100 2,800 17,900 1,460 1998/99 2/ 1,460 60 18,000 19,520 15,250 2,850 18,100 1,420 ------------------------------------------------------------------------------ 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-------------------------- 1996/97 517 20 7,144 7,681 3,860 116 3,182 7,158 523 1997/98 2/ 523 20 6,935 7,477 3,850 140 3,012 7,002 475 1998/99 2/ 475 50 5,700 6,225 3,400 25 2,650 6,075 150 ------------------------------------------------------------------------------ 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 ------------------------------------------------------------------------------ -------------------------1,000 Short tons--------------------------- 1996/97 51 4 1,752 1,807 1,649 132 1,781 26 1997/98 2/ 26 0 1,750 1,776 1,615 125 1,740 36 1998/99 2/ 36 0 1,530 1,566 1,485 50 1,535 31 ------------------------------------------------------------------------------ 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--------------------------- 1996/97 94 0.3 1,216 1,310 1,012 232 1,244 66 1997/98 2/ 66 0.3 1,220 1,287 990 215 1,205 82 1998/99 2/ 82 0.3 1,090 1,172 945 170 1,115 57 ------------------------------------------------------------------------------ 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--------------------------- 1996/97 758 127 3,661 4,545 2,029 692 363 666 3,751 795 1997/98 2/ 795 139 3,537 4,470 2,120 576 314 700 3,710 760 1998/99 2/ 760 152 3,755 4,667 2,160 717 315 700 3,892 775 ------------------------------------------------------------------------------ 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 7.35 126.00 11.70 28.10 6.37 1997/981 6.45 120.00 11.35 26.40 5.80 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 5.99 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 6.40 NA 12.00 NA 6.24 April 6.26 NA 12.60 NA 6.22 May 6.26 NA 13.80 NA 6.34 June 1/ 6.01 NA 14.30 NA 6.29 -------------------------------------------------------- 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 22.50 25.58 22.64 43.70 24.05 1997/1981 27.25 30.00 27.50 52.25 28.80 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 23.21 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 27.09 30.46 26.51 51.00 28.50 April 28.10 32.47 28.50 50.00 30.93 May 28.28 33.13 31.06 47.20 33.20 June 1/ 25.83 30.02 28.40 45.50 32.82 ------------------------------------------------------ 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 1996/97 262.00 192.00 110.60 232.00 158.75 1997/981 185.00 142.00 68.00 145.00 110.00 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 75.87 210.00 121.25 March 174.20 128.70 72.60 210.00 116.25 April 162.50 116.25 64.90 210.00 102.50 May 160.00 105.00 66.90 210.00 96.25 June 1/ 168.55 129.40 88.35 210.00 100.00 ----------------------------------------------------------------------- 1/ Preliminary 2/ Hi-pro Decatur 3/ 41% Memphis 4/ Minneapolis 5/ 50% SE mills END_OF_FILE