OIL CROPS OUTLOOK November 12, 1998 November 1998, OCS-0798 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. --------------------------------------------------------------------------- Advancing Harvest, Sluggish Demand Pressure Soybean Prices To 11-Year Low Although it is 60 million bushels above last year's record, the November forecast for 1998 soybean production dipped 6 million bushels from the October forecast to 2,763 million. Growing conditions were very favorable for soybeans in 1998, resulting in record pod counts in some States. However, a late summer dry spell limited pod filling and trimmed the U.S. average yield to 38.6 bushels per acre. Drought cut 1998 yields in the Delta region nearly 5 bushels per acre from last year. Timely rains prevented even greater stress on Southeastern fields, which dropped nearly 2 bushels per acre from 1997. Tropical storms along the Gulf coast added more damage and delays to the harvest. A late frost, extending an already long growing season, and a dry autumn created very good harvest conditions throughout the United States. As of November 8, 94 percent of U.S. soybeans had been harvested, compared to the 5-year average of 90 percent. The expedited harvest will exert formidable pressure on prices for the near term. The U.S. average farm price fell to $5.18 in October, the lowest since 1987. USDA expects the 1998/99 average price to be $5.15-$5.75 per bushel, higher than last month but still well below last year. The large U.S. grain and oilseed harvests have created challenges for the storage and transportation system, which may also weaken the current price basis. A wide spread between nearby and deferred futures prices suggests that demand for storage will be strong. U.S. grain storage capacity (on-farm plus off-farm) declined 18 percent from December 1, 1987 to December 1, 1997. Over the same time period, grain and oilseed production increased about 18 percent. An acute shortage of storage space in several locations for the glut of new crops will compel handlers to temporarily pile soybeans and corn outdoors, exposing them to quality deterioration from weather if left too long. While grain transportation has become more efficient over the past decade, such a surge would normally intensify the task of allocating enough railcars to the neediest locations in a timely fashion for shipping to processors and ports. However, soybean stocks are backing up at interior locations because of the larger crop and weaker foreign demand from a year ago. As of October 29, U.S. export commitments of soybeans were down 22 percent from the fast pace a year earlier. Shipments for 1998/99 are forecast down 40 million bushels from 1997/98 to 840 million. However, this volume is up 10 million from the October forecast based in part on likely concessional sales to Russia. Crushing this fall has been brisk based on strong fundamentals for soybean oil demand, and is expected to total 1,615 million bushels for the current season. While improved from last summer, current gross crush margins are well below levels of the last 2 years. Within a few months, though, crushing will moderate as foreign soybean meal demand falls and domestic meal use slows. Carryout soybean stocks are forecast 83 percent higher than 1997/98, at 365 million bushels. Low harvesttime prices will induce farmers to scrutinize their best marketing options. Expectations formed about future prices, and the capability for on-farm storage, will determine the method selected. If farmers take out a 9-month Commodity Credit Corporation (CCC) nonrecourse loan, the stocks are held in storage until prices rise above the loan rate or they are forfeited to CCC in repayment of the loan. The 1998/99 U.S. average loan rate is set at $5.26 per bushel, the maximum allowed under the 1996 farm legislation. Producers may also reduce interest charges by selling the crop, even when priced below the loan rate. If the marketing loan is paid off when USDA's posted county price (PCP) is less than the county loan rate, the difference the farmer receives is known as a marketing loan gain. This provides income support to farmers with less accumulation of CCC-owned stocks. Supplies are sold to the market more quickly than under the 9-month loan, with a larger nearby price drop. As of November 12, soybeans from the 1998 crop put under the loan program are a relatively modest 119 million bushels. Alternatively, if the price is not expected to rise enough to cover interest and storage costs, another option allows farmers to sell and receive a direct cash payment (loan deficiency payment), but precludes taking out a CCC loan. Given the premium for off-farm storage this fall, this choice had been popular. However, falling freight rates and the firming of prices following the October crop estimate may limit its future application. To date, approximately $265 million of loan deficiency payments have been made on 600 million bushels of soybeans. The September 25 Hogs and Pigs report indicated that the September 1 breeding herd was slightly below a year earlier. Farrowing intentions this fall and winter are 2 and 3 percent higher, respectively, compared with 10 and 8 percent higher a year earlier. Despite indications from producers, continued expansion of the swine herd later in 1999 looks less likely, with current slaughter rates for sows well above a year ago. Slaughter hog prices have dropped to the lowest in 27 years and 40 percent from a year ago. At $20-$30 per cwt, returns on Midwestern hog production will not cover variable costs. On the other hand, the economics for broiler chicken production are much better, as feed costs have substantially declined and broiler prices have risen. However, prices could slip as economic turmoil in Russia has eroded a major market for U.S. leg quarter exports. Domestic disappearance of soybean meal is expected up 3 percent to 29.6 million tons, compared with 5 percent growth in 1997/98. Projected U.S. soybean meal exports were raised to 8.65 million short tons this month, based on 0.3 million tons of concessional sales offered to Russia. Current soybean meal export commitments are down 25 percent from a year ago, largely because of the dramatic turnabout in Argentina's supplies from last year. A rebound in South American fishmeal production will also add to an already ample world protein meal outlook. The softening of demand relative to record supply will pressure soybean meal prices to $135-$155 per short ton, compared with the 1997/98 average of $186 and the 1996/97 average of $271. Due to a large September crush, carryin stocks of soybean oil on October 1 were slightly higher than expected at 1,384 million pounds. Nevertheless, the 1998/99 beginning oil inventory is the smallest in 3 years. A large buildup of soybean oil stocks will be hampered by a weaker outlook for soybean meal. While warm summer temperatures during pod filling held down soybean yields, the same is anticipated to produce an above average oil extraction rate around 11.3 pounds per bushel. Year ending stocks are projected to rise 15 percent to 1,590 million pounds. Compared to soybeans and soybean meal, a more optimistic picture is seen for soybean oil exports. U.S. export commitments of soybean oil are 16 percent higher than last year at this time. Although 1998/99 shipments are not expected to surpass last season's 3.2-billion-pound record, they should reach a relatively high 2.7 billion pounds. Although down slightly from last month, oil prices for 1998/99 are forecast higher, to 25.5-28.0 cents per pound from 25.8 cents last season. Weaker Protein Meal Prices Narrow Foreign Soybean Crush Margins In Brazil, crushing margins have sunk, forcing several plants to halt processing until new crop supplies arrive. Soybean stocks in southern Brazil, where most of the crushing capacity is located, are nearly 50 percent higher than last year. Consequently, Brazilian imports from the United States under the drawback program will be minimal this year. Recent weather patterns in Brazil have been near normal, with very favorable topsoil moisture conditions for soybean planting that is about one-fifth completed. Although Brazilian farmers will benefit from the recent price rally, it's too late to significantly alter their planting decisions. The still low price environment is forecast to cut Brazilian soybean area 1.5 percent to 12.8 million hectares. While weather in 1999 is not expected to match the superb conditions this year, 1999 yields are still expected to be among the best ever. Brazil would produce its second- largest crop, at 29.0 million metric tons. Improving productivity has also boosted soybean production in Paraguay, which was revised up for 1997/98 and 1998/99 to 2.8 and 3.1 million tons, respectively. Although planting conditions have been dry in Argentina, it is too early to speculate on any lasting yield impact. If normal conditions eventually prevail, Argentina is forecast to harvest 16.5 million tons in 1999. This would be exceeded only by this year's 18.5 million tons. Argentine soybean meal exports are projected 11 percent higher to 11.0 million tons. Argentine soybean exports are expected to rise more modestly from 2.2 million tons in 1997/98 to 2.3 million. The plethora of soybean meal supplies from South America and the United States has narrowed margins for crushers around the world, including the European Union. For 1998/99, EU imports of soybean meal are expected to overshadow soybean imports. Current U.S. soybean export commitments to the EU are down 46 percent from a year ago. For the season, EU soybean imports are forecast down slightly to 15.5 million tons. EU soybean meal production is projected only 0.5 percent higher for 1998/99 to 12.1 million tons, while soybean meal imports are forecast 4 percent higher to 16.95 million tons. Sluggish Palm Oil Growth Provides Trade Opportunities for Competing Oils Global palm oil production is projected to recover in 1998/99, although not sharply enough to quickly ease prices. Currently wide premiums for palm oil will moderate consumption for major importers such as China and India, shifting proportionately more food demand toward substitute oils. World consumption of palm oil is forecast to rise 1 percent for 1998/99, compared with 4 percent for rapeseed, sunflower, and soybean oil. Malaysian 1997/98 palm oil production was estimated lower to 8.5 million tons. For the year ending September 30, Malaysian stocks fell to a very tight 0.7 million tons and are forecast to increase to just 0.8 million in 1998/99. Philippine 1997/98 exports of coconut oil were revised upward based on updated trade data. Philippine producers have gained at the expense of Indonesian exporters of palm kernel oil and coconut oil, who have been deterred by imposition of export taxes. The supply of copra to Indonesian coconut oil producers has dwindled as more copra (which is not subject to an export tax) has been exported. However, damage from last year's drought and several recent typhoons are expected to cut 1998/99 Philippine coconut oil production and exports by more than 10 percent. Given rising vegetable oil prices, crush margins for high oil content oilseeds like sunflowerseed and rapeseed are somewhat better. EU import demand for sunflowerseed is comparatively stronger, as lower area and disappointing yields in France and Spain are projected to cut EU sunflowerseed production 6 percent to 3.8 million tons. A major devaluation of the ruble will spur even more exports of Russian sunflowerseed to the West. Output from the large Argentine sunflowerseed area now being planted is also expected to swell exports of sunflowerseed and sunflowerseed products later this season. The surge in soybean oil imports by the Middle East and North Africa in 1997/98 should decline as greater availabilities of sunflower oil in 1998/99 will allow these countries to better satisfy consumer preferences. Similarly, Japanese oilseed processors are expected to emphasize more rapeseed than soybeans in 1998/99. Japanese soybean imports are forecast down 3.6 percent to 4.7 million tons, while rapeseed imports are anticipated 0.4 percent higher to 2.1 million tons. Canadian rapeseed crushing has proceeded briskly on the heels of a record 7.3-million-ton harvest. Canadian rapeseed trade with China and Japan will be active until competition from the bumper Australian harvest develops next January. Canada will also export growing volumes of rapeseed, rapeseed meal, and rapeseed oil to the United States, filling a gap left by a smaller supplies of cottonseed and cottonseed products. The next release of the Oil Crops Outlook is scheduled for 4:00 p.m. ET Monday December 14, 1998. This report is also available electronically at the ERS website http://www.econ.ag.gov Information Contact: Mark Ash Soybeans, minor oilseeds, oils (202) 694-5289 mash@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--------------------------- 1996/97 183 9 2,382 2,575 1,436 882 125 2,443 131 1997/98 2/ 131 5 2,703 2,839 1,597 870 171 2,639 200 1998/99 2/ 200 6 2,763 2,968 1,615 840 148 2,603 365 ------------------------------------------------------------------------------ 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 38,171 38,436 28,868 9,350 38,218 218 1998/99 2/ 218 50 38,232 38,500 29,600 8,650 38,250 250 ------------------------------------------------------------------------------ 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 58 18,143 19,721 15,159 3,175 18,334 1,384 1998/99 2/ 1,384 56 18,250 19,690 15,400 2,700 18,100 1,590 ------------------------------------------------------------------------------ 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. Aug. 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 65 6,935 7,522 3,885 146 2,929 6,960 563 1998/99 2/ 563 138 4,963 5,664 2,650 25 2,814 5,489 175 ------------------------------------------------------------------------------ 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 1,767 1,793 1,595 110 1,705 88 1998/99 2/ 88 0 1,195 1,283 1,250 10 1,260 23 ------------------------------------------------------------------------------ 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 0.1 1,223 1,289 1,006 205 1,211 79 1998/99 2/ 79 0.3 850 929 784 100 884 45 ------------------------------------------------------------------------------ 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/ 795 141 3,537 4,473 2,099 544 301 681 3,624 848 1998/99 2/ 848 152 3,706 4,707 2,135 700 321 700 3,857 850 ------------------------------------------------------------------------------ 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 6.45 121.00 11.85 26.10 5.75 1997/98 September 6.72 115.00 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 6.69 121.00 11.10 28.40 5.86 February 6.57 107.00 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 July 6.13 NA 15.90 NA 6.17 August 5.43 113.00 14.60 NA 5.45 1998/99 September 5.25 113.00 11.40 26.80 5.09 October1 5.18 120.00 10.80 25.00 4.98 -------------------------------------------------------- 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 1997/98 25.80 28.85 27.00 49.00 28.94 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 July 24.88 29.40 NA 44.00 31.52 August 23.99 30.11 NA 43.75 29.93 September 25.13 33.26 NA 43.88 29.25 1998/99 October1 25.21 33.29 NA 46.00 29.46 ------------------------------------------------------ 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 1997/98 185.30 144.40 84.20 209.60 110.00 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 July 183.40 146.65 97.50 210.00 117.50 August 146.25 130.30 85.00 207.50 101.00 September 135.80 115.60 NA 205.00 90.00 1998/99 October1 135.70 106.20 50.00 202.50 85.00 ----------------------------------------------------------------------- 1 Preliminary 2 Hi-pro Decatur 3 41% Memphis 4 Minneapolis 5 50% SE mills END_OF_FILE