Oil Crops Outlook: Record U.S. Soy Use May Not Keep Pace With Production Gains

In its September Crop Production report, USDA raised its forecast of the U.S. average soybean yield for 2016/17 to a record 50.6 bushels per acre. A higher yield boosts the 2016/17 soybean production forecast by nearly 141 million bushels this month to 4.201 billion. With an increase in supplies, USDA forecast U.S. soybean exports for 2016/17 up 35 million bushels to an all-time high 1.985 billion and the domestic crush up 10 million bushels to a record 1.95 billion. Soybean prices in 2016/17 are forecast to average $8.30-$9.80 per bushel.

Domestic Outlook

Higher 2016/17 Soybean Crop Offsets a Lower Stocks Carryover

In its September Crop Production report, USDA raised its forecast of the U.S. average soybean yield for 2016/17 to a record 50.6 bushels per acre–up from 48.9 bushels last month. A broad swath of the Midwest benefited from June-August rainfall that was much above average. Summer temperatures also were generally above average this year, with no prolonged dry or hot spells to stress crops. Soybean conditions have stayed consistently favorable throughout the summer and 73 percent of the crop has been rated good-to-excellent up through September 11.

Record yields are forecast for each of nine Midwestern States that account for 56 percent of U.S. sown acreage of soybeans. In contrast, a year-to-year decline in yield is forecast for 7 States that account for only 20 percent of the country’s soybean acreage.

A higher yield boosts the 2016/17 soybean production forecast by nearly 141 million bushels this month to 4.201 billion. However, total supplies for 2016/17 may gain less from the increase in new-crop production due to a reduction in the old-crop carryover. This month’s supply increase is constrained to 80 million bushels as beginning stocks are reduced 60 million bushels.

The decline in 2015/16 ending soybean stocks is related to an unprecedented surge in July-August exports. The increase in exports is largely attributable to an atypical revival of summer shipments to China and a waning of trade from South America. USDA forecast 2015/16 exports up to 1.94 billion bushels from last month’s forecast of 1.88 billion.

In light of this year’s much larger increase in U.S. soybean supplies compared to other countries, demand will be supported as well. This month, USDA forecast U.S. soybean exports for 2016/17 up 35 million bushels to an all-time high 1.985 billion.

Similarly, rising demand for soybean products may boost the domestic soybean crush to a record 1.95 billion bushels, up 10 million bushels from last month. Continued moderate costs for soybean meal are likely to support domestic use and exports of the commodity.

USDA expects prices of soybean meal to average $300-$340 per short ton in 2016/17–compared to last month’s forecast at $305-$345 and $322.50 in 2015/16. Domestic use of soybean meal is seen increasing 2.4 percent in 2016/17 to 34.3 million short tons. Even with higher forecast use of soybeans, carryout stocks for 2016/17 may accumulate with the increase in supplies.

USDA forecasts season-ending stocks 35 million bushels higher this month to 365 million. This will maintain pressure on soybean prices in 2016/17, which are forecast averaging $8.30-$9.80 per bushel, slightly below last month’s forecast of $8.35-$9.85.

Shrinking soybean oil inventories and recent strength in palm oil and crude petroleum values are supporting prices. For 2016/17, USDA raised its forecast of the season-average soybean oil price by 1 cent to 30.5-33.5 cents per pound and from the 2015/16 average at 29.75 cents.

A rising price trend for soybean oil may gradually diminish the competitiveness of U.S. exports, which are forecast 100 million pounds lower this month to 2.3 billion. Yet, higher domestic use of soybean oil may squeeze season-ending stocks down 4 percent from 2015/16 to 1.735 billion pounds.

Record U.S. Peanut Production Is Forecast

In contrast to previous USDA forecasts for a decline in U.S. peanut area for 2016/17, planted acreage is estimated at 1.672 million acres–up 7 percent from the previous forecast and nearly 3 percent higher than last year. Texas–where sown peanut acreage swelled by 79 percent this year–accounted for most of this increase.

The combination of higher peanut acreage with this month’s higher expected yield (to 4,044 pounds per acre) raises the 2016/17 production forecast to 6.418 billion pounds. Even with a reduction in Georgia’s peanut acreage this year, the State’s decline in production will be tempered by a record yield.

Despite a higher crop, lower 2016/17 peanut supplies are seen this month due to a reduction in stocks for the 2015/16 crop year. Peanut stocks for 2015/16 ended significantly lower this month at 1.79 billion pounds, in line with revisions in the August 31 Peanut Stocks and Processing report. Food use of peanuts totaled 3.13 billion pounds in 2015/16. U.S. peanut exports reached a record at 1.54 billion pounds with exceptionally strong demand in China and Vietnam.

For 2016/17, peanut demand should stay robust, with food use rising to 3.19 billion pounds and exports at 1.5 billion. Lower beginning stocks are expected to moderate the forecast increase in U.S. season-ending peanut stocks to 2.165 billion pounds.

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