Oil Crops Outlook: Lagging U.S. Exports To Exacerbate Soybean Surplus

USDA’s Crop Production report this month forecasts a decline in U.S. soybean production for 2018/19 of 90 million bushels to 4.6 billion, still 189 million bushels above last year’s former record. The change is based on a reduction in the national average yield from 53.1 bushels to 52.1 bushels per acre.

Even with robust soybean sales to other countries, the current lack of sales to China—the top global import market—prompted USDA to lower its forecast of 2018/19 exports this month by 160 million bushels to 1.9 billion, versus 2.13 billion for 2017/18.

So, despite a lower soybean crop estimate and higher domestic crush, the decline in exports raises the forecast of season-ending stocks to 955 million bushels from 885 million last month.

Domestic Outlook

Soybean Harvest Slowly Approaches a Conclusion

USDA’s Crop Production report this month forecasts a decline in U.S. soybean production for 2018/19 of 90 million bushels to 4.6 billion, still 189 million bushels above last year’s former record. The change is based on a reduction in the national average yield from 53.1 bushels to 52.1 bushels per acre.

Although lower yields are seen this month for 17 States, Iowa, Illinois, and Missouri represent most of the production decline. Persistently wet conditions continue to hamper harvest progress in Arkansas, Kansas, and Missouri. By November 4, farmers had completed 83 percent of the U.S. soybean harvest, compared to the 5-year average of 89 percent.

Soybean Market Burdened With Sluggish Sales to China

Outside of China, foreign soybean importers have capitalized on bargain-priced U.S. supplies. In the European Union this year, a higher soybean crush is being encouraged by a diminished rapeseed supply and a scarcity of soybean meal shipments from Argentina. At the same time, competition from China has also depleted the normal supply of South American soybeans in Europe. Consequently, EU purchases of U.S. soybeans have swelled 150 percent compared to a year ago.

Likewise, U.S. soybean sales to Mexico, Argentina, Egypt, and other Asian markets have surged. As of November 1, the year-to-year increase in U.S. sales to countries other than China is equivalent to 239 million bushels.

Still, robust U.S. soybean sales to these import markets have not fully offset the lack of purchases from China, which alone accounts for nearly 60 percent of global trade. A 25-percent hike in China’s import tariff on U.S. soybeans in July remains intact. By November 1, U.S. export sales commitments of soybeans to China had plummeted 94 percent from a year earlier. Typically by this date, U.S. soybean exporters have booked 50-75 percent of their annual sales to China. The current year-to-year sales deficit to China is equivalent to 593 million bushels.

Outstanding sales generally portend the subsequent pace of shipments. Data on U.S. export inspections of soybeans indicate that cumulative September-October shipments have already fallen over 200 million bushels behind last year’s pace. The U.S. export deficit should widen again this month. November U.S. trade to China will be minimal compared to shipments for November 2017 that totaled 234 million bushels.

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Some of this gap can be made up later in the season with improved trade to other import markets. The lack of overall sales prompted USDA to lower its forecast of 2018/19 exports this month by 160 million bushels to 1.9 billion, compared to 2.13 billion for 2017/18.

In contrast, the outlook for domestic soybean demand is modestly brighter. With a low cost to procure soybeans, processor margins have remained high. The 2018/19 crush is forecast up 10 million bushels this month to 2.08 billion based on robust export sales of soybean meal. Export demand for U.S. soybean meal has benefited from a decline in Argentine shipments and should stay brisk until Argentine processors have access to new-crop soybean supplies.

USDA raised its forecast of 2018/19 soybean meal exports this month by 250,000 short tons to 13.75 million. So, despite a lower soybean crop estimate and higher domestic crush, the decline in exports raises the forecast of season-ending stocks to 955 million bushels from 885 million last month.

Both ends of USDA’s forecast range for the U.S. 2018/19 farm price are narrowed by 25 cents this month to $7.60-$9.60 per bushel. Price forecasts for soybean meal and soybean oil were unchanged at $290-$330 per short ton and 28-32 cents per pound, respectively.

Excessive Rains Curtail Southeast Peanut Area Harvested

USDA lowered its 2018/19 production forecast for peanuts by 298 million pounds, a 5-percent decline from the October forecast. The reduction in the crop was driven by losses in area harvested—lowered by 39,000 acres—to 1.35 million. The harvested area is revised down 3 percent from the October forecast and down 24 percent from 2017/18. The U.S. average yield also declined by 101 pounds per acre to 4,066 pounds.

Hurricane Michael resulted in heavy production losses in Georgia and Florida due to reductions in the area harvested and yields. For Georgia, USDA lowered its 2018/19 forecast production to 2.816 billion pounds from 2.948 billion in October. Following the devastating effects of Hurricane Florence on major commodity producers, Hurricane Michael’s track hit Georgia, the largest producer of peanuts, causing heavy damage midway through the peanut harvesting season.

Hurricane Michael also brought severe flooding across Florida, Alabama, southwest Georgia, and the Carolinas, and hit local buying points and peanut shellers the hardest in south Georgia. As of November 4, 75 percent of the U.S. peanut acreage had been harvested, 6 percentage points behind both last year and the 5-year average.

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