OIL CROPS OUTLOOK August 13, 1998 August 1998, OCS-0598 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 published copies are available. --------------------------------------------------------------------------- Improved U.S. Yield Expectations Undermine Soybean Prices USDA's first 1998 field survey indicated a national average soybean yield of 39.5 bushels per acre. Only Kansas, Missouri, and Ohio set or tied record yields, but many Midwestern States are near their best ever soybean yields. Slightly fewer acres (71.6 million) are expected to be harvested, resulting in a U.S. harvest of 2,825 million bushels. Moisture conditions for soybeans stabilized in July, with stressed crops in the South receiving some much needed relief. In the major producing States of the Corn Belt, crop conditions continued to be quite favorable. As of August 9, 66 percent of U.S. soybean fields were rated in good to excellent condition. This was slightly better than a year earlier, but less than 1994's 79 percent, which ended up producing a record per-acre yield. More of this year's crop had advanced into the pod filling stage (68 percent compared to a 5-year average of 50 percent). With ample soil moisture reserves to draw on, it is quite likely that the majority of soybeans will avoid problems even if precipitation falls off in the remainder of August. The improved outlook for yields is pressuring cash prices for soybeans, meal, and oil. The central Illinois soybean price has dropped below $6 per bushel for the first time in 3 years. A dry weather rally pushed prices for soybean meal as high as $200 per short ton in July, but prices have since collapsed to about $145 after widespread precipitation in the Corn Belt. In recent weeks, domestic soybean crushing has been able to remain strong because soybean exports have been so weak. Despite the lowest monthly U.S. gross crush margins in years, demand from foreign crushers has nearly vanished, as evidenced by the narrowed differential of the Gulf export price over the price paid by Illinois processors. Current season crush was forecast higher this month to 1,590 million bushels. The trend should continue into 1998/99, when the crush is expected to reach 1,615 million bushels, up 15 million from the previous forecast. Also, a series revision raised 1997/98 and 1998/99 demand for seed to 86 million and 84 million bushels, respectively. The export outlook for soybeans will continue to be eclipsed by the dominant domestic crush market. Despite ample soybean supplies, heightened foreign competition may trim 1998/99 U.S. exports to 850 million bushels. Sinking prices for soybean meal imports and the bumper oilseed crops now being harvested in Europe have diminished soybean crush margins. The slowing Chinese economy will moderate import growth compared to recent years. And, unlike 1997/98, when U.S. soybean exports to Brazil totaled 30 million bushels, shipments this fall will be negligible. Compared to the brisk 1997/98 U.S. export sales a year ago, 1998/99 soybean sales so far are only 30 percent as much. For the current season through May, Census export data indicated U.S. soybean exports of 791.6 million bushels. Based on this and the recent export pace, USDA reduced its 1997/98 export forecast to 870 million bushels. Yearending soybean stocks on August 31 are expected to be 210 million bushels. Yet, the huge fall harvest will more than double the 1998/99 carryout to 430 million bushels, which would be the largest since 1986/87. Such a large expected supply-to- use balance is having a dramatic effect on soybean prices. The 1998/99 season average price is anticipated to fall to $4.85- $5.85 per bushel, from $6.45 this season. World Soybean Stocks To Accumulate After Excellent Harvests, Weakening Demand World beginning stocks for 1998/99 are projected higher based on old crop production revisions for Brazil (to 31.0 million metric tons) and Argentina (18.5 million tons). As with the United States, 1998/99 soybean exports from Brazil and Argentina are likely to wane. Brazilian exports may drop from 9.0 million tons this season to 8.5 million. Likewise, Argentine exports may be down from 2.6 million tons in 1997/98 to 2.1 million next year. Even with moderately lower soybean production, 1998/99 global ending stocks are projected to reach a record 24.8 million tons. World soybean imports are projected to drop from 39.0 million tons this year to 37.6 million in 1998/99 as demand slows from some of the largest import markets. EU soybean crush is expected to rise just 200,000 tons to 15.5 million in 1998/99 and EU soybean imports will not rise at all due to a larger Italian crop. USDA now forecasts a smaller increase in Chinese soybean imports from 3.1 million in 1997/98 to 3.3 million. Projected 1998/99 Japanese soybean imports are 4.7 million tons, down from 5.0 million this season. Taiwan's imports are also expected to plateau at 2.2 million tons, compared to 2.6 million in 1996/97. U.S. soybean meal exports should decline from this year's spectacular 8.4 million metric tons to 8.2 million. A more temperate outlook for soybean meal imports by China and greater U.S. competition will moderate meal export growth in Brazil and Argentina. Brazil is projected to export 10.3 million tons, up from a revised 1997/98 forecast of 10.0 million. A proportionately greater increase in Argentine soybean production and crush will raise 1998/99 expected Argentine meal exports from 9.7 million to 10.6 million tons. Greater external trade will boost EU 1998/99 meal imports to 16.8 million tons from 16.1 million this season. Higher Supplies, Slower Exports Soften Soybean Oil Prices In anticipation of a larger crop from the United States, foreign soybean oil buyers have held off recent purchases and drawn down stocks. Also, China's campaign to improve domestic crush margins by strictly enforcing import licenses for vegetable oil appears to have had some impact. In recent years, as much as half of China's vegetable oil imports have been smuggled into the country. Current oil import quotas have been exhausted, creating a great incentive to evade official channels. The government permits crushers to import crude oils without paying substantial duties and value added taxes, provided they re-export the refined oil. But many of these imports have eventually wound up on the domestic market. The successful crackdown has helped subdue current U.S. soybean oil prices, which have dropped from around 28 cents per pound in May to a July average of 24.8 cents. USDA forecasts a slight increase in Chinese soybean oil imports from 1.9 million tons in 1997/98 to 2.0 million tons next season. China will likely import a greater volume of rapeseed to bridge the deficit in vegetable oil supplies, which would not add as much to the country's current glut of protein meal. Yet, soybean oil imports by other regions should soon pick up as the new U.S. crop nears the market. U.S. prices have been very competitive against South American soybean oil. And palm oil prices are currently at a premium to soybean oil, boosting U.S. sales to the Middle East. The 1997/98 forecast for U.S. exports was raised to 2,950 million pounds this month. However, increasing competition from South American crushers and improved Indonesian palm oil production are expected to shave 1998/99 soybean oil exports to 2,800 million pounds. Expanding oil supplies will enable Argentina to increase its market share of world soybean oil exports. A record domestic supply of soybean oil will reverse the decline in oil stocks from the previous 2 years. USDA projects a 1998/99 soybean oil prices will average 25.5-27.5 cents per pound, down from the previous forecast of 26-28 cents. Southern Drought Withers Cottonseed and Peanut Output In the Southern Plains, searing heat and extreme drought have sharply cut prospective cottonseed production. USDA estimated 1998 cottonseed output this month at 5.4 million short tons, down nearly one-fourth from 1997. Ample domestic supplies of other oilseeds should limit cottonseed imports from Australia and elsewhere, but the shortage will sharply cut cottonseed crush, direct feeding, exports, and ending stocks. Consequently, prices for cottonseed oil and cottonseed meal will become more expensive compared to their substitutes. Despite a 1-percent increase in peanut acreage from last year, 1998 production is forecast down 2 percent to 3.48 billion pounds. The average yield is down to 2,442 pounds per acre versus 2,507 pounds in 1997. In the southeastern United States, scattered rains during July were very timely for peanuts, which have now nearly completed the pegging stage. However, soil conditions are still very dry in the Southeast and continue to deteriorate in the Southern Plains. As of August 9, just 49 percent of U.S. peanut fields were rated in good to excellent condition, while 21 percent were rated poor to very poor. Smaller supplies available for export and a large Argentine harvest are expected to curb U.S. peanut exports to about 640 million pounds. The Summary of the Oil Crops Yearbook will be released October 30. The next release of the Oil Crops Outlook is scheduled for 4:00 p.m. ET Thursday November 12, 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 2,443 131 1997/98 2/ 131 5 2,727 2,863 1,590 870 193 2,653 210 1998/99 2/ 210 6 2,825 3,041 1,615 850 146 2,611 430 ------------------------------------------------------------------------------ 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 55 37,710 37,975 28,425 9,300 37,725 250 1998/99 2/ 250 50 38,325 38,625 29,375 9,000 38,375 250 ------------------------------------------------------------------------------ 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 17,930 19,505 15,150 2,950 18,100 1,405 1998/99 2/ 1,405 55 18,170 19,630 15,300 2,800 18,100 1,530 ------------------------------------------------------------------------------ 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 40 6,935 7,497 3,870 145 2,992 7,007 490 1998/99 2/ 490 100 5,353 5,943 3,250 25 2,518 5,793 150 ------------------------------------------------------------------------------ 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 1,755 1,781 1,625 120 1,745 36 1998/99 2/ 36 0 1,465 1,501 1,420 50 1,470 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 1,225 1,292 990 205 1,195 97 1998/99 2/ 97 0.3 1,040 1,137 935 150 1,085 52 ------------------------------------------------------------------------------ 1/ Estimated. 2/ Forecast. Table 7--Peanuts: U.S. supply and disappearance ------------------------------------------------------------------------------ Supply Disappearance ------------------------- ---------------------------------------- Year begin. Beg. Im- Produc- Total Dom. 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 2,105 546 354 700 3,705 765 1998/99 2/ 765 152 3,482 4,399 2,145 612 301 640 3,699 700 ------------------------------------------------------------------------------ 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 6.15 NA 14.40 NA 6.18 July1 6.13 NA 14.00 NA 6.02 -------------------------------------------------------- 1 Preliminary. NA = Not available. Table 9--Vegetable oil prices --------------------------------------------------- Cotton- Sun- Marketing Soybean seed flower Peanut Corn year oil2 oil3 oil4 oil5 oil6 --------------------------------------------------- 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 1997/981 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 25.83 30.22 28.40 45.50 32.82 July1 24.88 29.40 NA 44.00 31.52 ------------------------------------------------------ 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 meal2 meal3 meal4 meal5 meal4 --------------------------------------------------- $/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 168.55 129.40 88.35 210.00 100.00 July1 183.45 146.65 100.00 210.00 111.00 ----------------------------------------------------------------------- 1 Preliminary 2 Hi-pro Decatur 3 41% Memphis 4 Minneapolis 5 50% SE mills END_OF_FILE