Oil Crops Outlook: Firming of Soybean Prices Hinges on Demand Prospects

USDA’s first projection of the 2018/19 soybean crop is 4.28 billion bushels based on a trend yield and 1-percent decline in intended sown acreage. Although this projection falls below the previous two soybean crops, much larger beginning stocks could expand the 2018/19 total supply to an all-time high of 4.84 billion bushels.

An abundant supply could boost U.S. soybean exports in 2018/19 to a record 2.29 billion bushels. Only a marginal increase in the 2018/19 crush to 1.995 billion bushels may be necessary to provide a small expected decline for soybean meal demand.

A paring of season-ending stocks (from 530 million to 415 million bushels) would strengthen the U.S. 2018/19 average farm price to $8.75-$11.25 per bushel.

Domestic Outlook

High Soybean Supplies To Persist Despite Lower Crop Outlook

U.S. planting intentions for soybeans in 2018/19 are nearly 89 million acres, or down 1 percent from last year’s sown area of 90.1 million. Total output may be shaved just below the previous two crops by the combination of lower expected harvested area (88.2 million acres) and a trend yield (48.5 bushels per acre)—also below last year’s level.

Based on those assumptions, USDA’s first projection of the 2018/19 soybean crop is 4.28 billion bushels. Nevertheless, much larger beginning stocks could expand the total supply of soybeans to an all-time high of 4.84 billion bushels.

In April, few areas of the Midwest had been too wet for planting, although many had soil temperatures that had not warmed up enough to start. Particularly in the Northern Plains, unseasonably cold weather this spring has generally delayed sowing of grain crops.

That could possibly set back the schedule for soybeans, too, but farmers have more time to complete the crop’s planting. Overall, 15 percent of U.S. soybean acreage had been sown as of May 6, slightly ahead of the 5-year average.

By this fall, U.S. export sales of soybeans may see a global resurgence, provided normal trade relations with other countries. An abundant supply could boost U.S. soybean exports in 2018/19 to a record 2.29 billion bushels. Better crop quality and a tightening of South American stocks may also spark more foreign demand.

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So far in 2017/18, a record for the domestic soybean crush has been set every month. Likely continuation of such gains through the end of the 2017/18 marketing year led USDA to raise its forecast this month by 20 million bushels to 1.99 billion.

In contrast, more modest demand growth by domestic crushers in 2018/19 is likely, as some export markets for U.S. soybean meal are forfeited back to reinvigorated Argentine suppliers. In 2018/19, U.S. soybean meal exports are seen dropping back to 12.4 million short tons from 12.7 million in 2017/18. This season, the rate of domestic soybean meal use has been inflated by a below-average protein level.

By next year, however, the inclusion rate of soybean meal needed within feed rations could be scaled back if its protein reverts to a more typical level. USDA projects a modest increase for 2018/19 domestic disappearance of soybean meal to 35.2 million short tons from a revised 2017/18 forecast of 35.0 million. As a result, only a marginal increase in the 2018/19 crush to 1.995 billion bushels may be necessary.

If realized, the projected record use of soybeans in 2018/19 might pare down U.S. season-ending stocks to 415 million bushels from 530 million in 2017/18. Stronger prices could prevail throughout 2018/19 with a closer balance between soybean supplies and use, which are forecast averaging $8.75-$11.25 per bushel versus this year’s forecast of $9.35 per bushel.

Similarly, the season-average price for soybean meal could stay elevated at $330-$370 per short ton and not far from the expected 2017/18 average of $360.

Total domestic disappearance of soybean oil for 2018/19 is seen rising to 21.3 billion pounds from 20.7 billion in 2017/18. Part of the expected increase would be related to a 1-percent gain for the edible use of soybean oil to 14 billion pounds.

Biodiesel is the other major component of soybean oil use, which is projected up to 7.3 billion pounds for 2018/19. In contrast, USDA lowered its 2017/18 forecast of soybean oil use in biodiesel by 200 million pounds this month to 6.8 billion. A key indicator of the incentive to blend (and produce) biodiesel is the value of Renewable Identification Numbers (RIN), which are tradeable assets used by EPA to monitor compliance with biofuel mandates.

In recent months, RIN values have fallen sharply. In part, the decline can be attributed to EPA waivers of obligations under the Renewable Fuels Standard (RFS) for 2016 and 2017 compliance. Law provides EPA the authority to temporarily exempt from RFS compliance any small refiners facing economic hardship.

Midway into the 2018/19 marketing year, U.S. export sales of soybean oil could continue to benefit from a deficit of Argentine shipments but then wane as that competition returns. USDA projects foreign trade of U.S. soybean oil next year to slip to 2.1 billion pounds from 2.3 billion in 2017/18.

Excess supplies of soybean oil—the byproduct of a brisk crush pace fueled by robust meal demand—have consistently sustained pressure on the 2017/18 price level. The 2018/19 price outlook may be only marginally higher, though, with USDA’s forecast at 29.5-33.5 cents per pound versus 30.5 cents in 2017/18.

High global supplies of competing vegetable oils will also limit the price strength of soybean oil.

Minor Supply Changes Seen for Other U.S. Oilseeds

Compared to last year, planting intentions for canola in 2018/19 are nearly identical at 2.08 million acres. But an expected recovery in yields this year is seen raising 2018/19 production by 6 percent to 3.3 billion pounds.

Last year, severe drought slashed canola yields in major growing regions of Montana and western North Dakota. Higher U.S. imports of canola may be encouraged, as well, by a more ample Canadian supply.

Equipped with a more liberal supply of canola, domestic processors may boost the 2018/19 crush back to 4.4 billion pounds, after it declined 11 percent in 2017/18 to 3.9 billion. With a stable vegetable oil market, 2018/19 prices for canola seed could remain fairly steady.

The U.S. sunflowerseed crop for 2018/19 is forecast at 2.08 billion pounds, down slightly from 2.17 billion in 2017/18. Most of the reduction is anticipated for non-oil type sunflowerseed. Farmers intend to plant 150,000 acres of non-oil-type sunflowerseed this year—down 20 percent from a year ago and the lowest since 1970.

Assuming trend yields, the output of non-oil-type sunflowerseed could be the smallest since 1983. Season-ending stocks may be squeezed lower, and export demand would be curtailed. However, a less dramatic production change is likely for oil-type sunflowerseed, which accounts for 89 percent of total acreage.

Based on a 2-percent increase for intended acreage and a retreat from last year’s slightly above trend yields, oil-type sunflowerseed production may decline by less than 1 percent in 2018/19 to 1.85 billion pounds.

Consequently, at 1.05 billion pounds, domestic crush of sunflowerseed is forecast to undergo little change. The 2018/19 price level for the entire sunflowerseed crop may stay close to this season’s expected average of 17.5 cents per pound.

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