Oil Crops Outlook: Strong U.S. Soy Meal Demand Fuels Record Crush

Brighter market conditions for domestic soybean processors prompted this month’s forecast increase in the 2017/18 crush by 10 million bushels to 1.97 billion. Higher forecasts for domestic use (by 250,000 short tons to 34.55 million) and exports (up 100,000 tons to 12.5 million) of soybean meal prompted the higher crush forecast. Coupled with a lower seed/residual use, season-ending soybean stocks for 2017/18 are forecast down 5 million bushels this month to 550 million.

Based on drought-related yield reductions and abandonment of sown area, USDA expects a decline in 2017/18 Argentine soybean production to a 9-year low of 40 million metric tons. Argentine soybean exports (October-September) are now expected to slump to an 18-year low of 4.2 million tons.

Domestic Outlook

Decline in Soybean Exports Leads to Record March Stocks

On March 1, U.S. soybean stocks totaled 2.11 billion bushels, well above the previous high of 1.79 billion in 2006/07. Larger soybean inventories have accumulated in the first half of 2017/18 not only due to a higher beginning supply but also due to a 169-million-bushel decline in September-February 2018 use—particularly exports.

In contrast, brighter market conditions for domestic soybean processors prompted this month’s forecast increase in the 2017/18 crush by 10 million bushels to 1.97 billion. Contributing to the higher expected crush is an increase in the forecast for domestic use of soybean meal (by 250,000 short tons to 34.55 million).

However, an additional 100,000 tons of soybean meal would also be supplied by imports—primarily from Canada, where crush margins are similarly strong. A 100,000-ton increase for U.S. soybean meal exports—to 12.5 million short tons—is also anticipated. Even with higher supplies, robust demand has kept soybean meal prices elevated.

In March, the monthly average price strengthened to nearly $380 per short ton, compared to $320 in January. USDA revised its forecast of the 2017/18 average price for soybean meal to $340-$360 per short ton from $325-$355 last month.

The higher expected crush rate for soybeans is partly offset this month by lower seed and residual use. Thus, season-ending stocks for 2017/18 are forecast down 5 million bushels this month to 550 million.

So far in 2017/18, U.S. production gains for soybean oil are up 2 percent while use has increased negligibly. Consequently, soybean oil stocks rose again in February. Minimal growth for soybean oil demand by biodiesel producers prompted a lower forecast (by 200 million pounds) of domestic use at 20.8 billion pounds.

Soybean oil prices continue to weaken. At 30.3 cents per pound, the monthly average price in March sank to an 11-month low. The easing price level makes U.S. supplies more competitive in international trade and export sales have picked up. USDA increased its soybean oil export forecast for 2017/18 this month by 100 million pounds to 2 billion.

2018 Acreage Intentions Slip for Soybeans, Other Oilseeds

USDA’s Prospective Plantings report last month indicated that 2018/19 soybean planting intentions are down 1.2 million acres from last year to 89 million acres. Acreage reductions in the western Corn Belt and Central Plains more than offset increases elsewhere. Disappointing prices have dampened corn area intentions, too, so for many States, total crop area could shrink.

In contrast, farmers in Indiana, Kentucky, Wisconsin, and the Mississippi Delta intend to expand the sowing of soybeans this year. In these areas, lower acreage of corn and cotton is likely—extending a longrunning production shift between these crops and soybeans.

In the Northern Plains, an anticipated recovery for spring wheat planting this year tempers farmers’ interest in oilseed crops. For 2018/19, sown canola acreage is expected to be nearly unchanged at 2.1 million acres. An expected 4-percent increase for North Dakota canola acreage is offset by a reduction in Oklahoma, where the fall-sown crop was discouraged by drought conditions.

Also, intended 2018/19 acreage for sunflowerseed is down 18,000 acres to 1.385 million. If realized, it would be the lowest U.S. acreage sown to sunflowerseed since 1976. Non-oil-type sunflowerseed varieties comprise all of the acreage reduction (down 20 percent to 150,000 acres). South Dakota accounts for the largest reduction in acreage from last year.

In contrast, intended sowing of oil-type sunflowerseed acreage is up 19,000 acres to 1.235 million. Similarly, sowing intentions for U.S. flaxseed acreage are down 26 percent to 225,000 acres, primarily in North Dakota.

Intended peanut planted area for 2018/19 is indicated at 1.54 million acres, down 18 percent or 334,000 acres from 2017. Peanut acreage intentions are down or unchanged in all peanut growing States, with the largest declines in Georgia (down 115,000 acres to 720,000) and Texas (down 85,000 to 190,000 acres).

Planted acreage for peanuts had steadily increased from 2013 to 2017. But with high yields, peanut stocks have built up and peanut prices have been declining since December. At the same time, farmers have renewed incentives to plant more cotton. Cotton planting intentions for 2018 are reported at 13.5 million acres, up 7 percent from 2017.

Full report.

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