Oil Crops Outlook: Moderate Gains for Soybean Demand Restrain Prices

USDA’s forecast of U.S. soybean exports in 2019/20 is unchanged this month at 1.775 billion bushels. The 2019/20 crush forecast is also unchanged at 2.105 billion bushels. With supplies unchanged, USDA’s forecast of season-ending soybean stocks is steady at 475 million bushels.

Recent declines in cash soybean prices prompted USDA to trim its forecast of the 2019/20 U.S. average farm price by 15 cents this month to $8.85 per bushel. USDA also lowered its season-average price forecast for soybean meal this month by $15 per short ton to $310 based on dimmer export prospects.

Domestic Outlook

Uncertain U.S. Export Outlook Pressures Market Prices

USDA’s forecast of U.S. soybean exports in 2019/20 is unchanged this month at 1.775 billion bushels. Cumulative soybean exports through November 28 are exceeding the year-earlier pace by 23 percent. But total sales commitments (including outstanding sales) are up only 8 percent, which means that current outstanding sales are below a year ago.

Considerably larger purchases by China—which make up 30 percent of current outstanding sales—are principally responsible for the year-to-year gains in soybean sales commitments. Up to now, China’s state-owned companies are the primary forces behind the country’s soybean imports. These importers have been granted exemptions for the higher tariffs on U.S. soybeans for placement into state reserves.

Nevertheless, the expansion in U.S. soybean sales to China in 2019/20 has been partly offset by declines for the EU, Japan, Indonesia, Vietnam, and Thailand. Whether China’s Government continues to provide importers with a new tranche of tariff-free quotas for U.S. soybean purchases next year may hinge on progress in bilateral trade talks this month.

Slowing U.S. soybean sales can also be attributed partly to strengthening Brazilian export prospects. Due to declining old-crop stocks and a depreciating Brazilian exchange rate, soybean prices within the country have surged toward a record high. Since July, the Brazilian real has lost 8 percent of its value against the U.S. dollar—close to an all-time low. The accompanying boost for crop values in the local currency has provided strong encouragement for sales by Brazilian farmers, who have cleared out almost all of their old-crop stocks.

In November, Brazilian soybean exports set an all-time high for the month. U.S. shipments for November, which typically dominate world trade during this period, were only 30 percent higher than the Brazilian exports. Sales of expected new-crop production in Brazil are also robust. Once harvesting begins next month for an anticipated record Brazilian soybean crop, export shipments should accelerate quickly.

The shifting dynamics of global soybean trade are being reflected in U.S. prices. The price discount that U.S. soybean exports formerly held against South American origins has been narrowed by the aforementioned factors. Consequently, the competitiveness of U.S. soybean shipments relative to Brazilian supplies is diminished. U.S. prices are being forced down to stay viable.

Compared with a month ago, early December cash soybean prices for some locations have plunged 30-40 cents per bushel. Such circumstances prompted USDA to trim its forecast of the 2019/20 U.S. average farm price by 15 cents this month to $8.85 per bushel.

Foreign Competition Weakens Soybean Meal Prices

In October, the domestic soybean crush set a record for the month at 187.2 million bushels. Further gains may accrue slowly, though, so the 2019/20 crush forecast is unchanged at 2.105 billion bushels. Without any changes for soybean demand this month, USDA’s forecast of season-ending stocks is steady at 475 million bushels. Despite no supply changes for soybean meal and soybean oil, the composition of demand may shift moderately.

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Easing soybean prices can allow domestic processors to earn equivalent returns while accepting a lower value for their soybean meal production. Cash prices for soybean meal dipped in November to an average of $303 per short ton from the October average of $309. A dimmer 2019/20 soybean meal price outlook spurred USDA to lower its season-average price forecast this month by $15 per short ton to $310.

Less costly soybean meal may promote more domestic use, which is seen 150,000 short tons higher this month to 36.8 million. In particular, protein feed demand should benefit next year from higher production and export demand for broiler chickens.

On the other hand, this month’s expected increase for domestic use of soybean meal is fully offset by a forecast reduction in U.S. exports, which are seen 150,000 tons lower to 13.2 million.

Soybean meal exports for October-November 2019 were roughly on par with a year earlier, but total U.S. export sales commitments (the sum of shipments and outstanding sales) as of November 28 are down by 16 percent compared to a year earlier.

In contrast, foreign export shipments of soybean meal are likely to strengthen and present a competitive challenge to U.S. trade. Argentine exports have become particularly more competitive this year. Since July 1, there has been a sharp (41 percent) depreciation in the Argentine peso against the U.S. dollar. While fewer Argentine soybeans may be shipped abroad (down 10 percent in 2019/20 to 8.2 million tons), more of the country’s supplies could be channeled into crushing plants.

This month, USDA sees Argentine soybean meal exports expanding by an additional 550,000 metric tons in 2019/20 to 30.85 million. Similarly, Brazilian soybean meal shipments for 2019/20 could edge up by 200,000 tons to 15.4 million as less domestic use is anticipated.

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