Oil Crops Outlook: Higher Global Imports Boost U.S. Soybean Export Prospects

USDA raises its forecast of 2019/20 soybean exports this month by 50 million bushels to 1.825 billion. With no other changes for U.S. soybean supply or domestic use, season-ending stocks for 2019/20 are forecast declining to 425 million bushels from 475 million last month. Even so, the rising level of global soybean supplies led USDA to trim its forecast of the 2019/20 average price by 25 cents this month to $8.75 per bushel.

Domestic Outlook

A Summer Revival Could Benefit U.S. Soybean Shipments

Last month, China and the United States concluded a major trade agreement, which becomes effective February 14. The deal does not formally eliminate China’s tariffs on U.S. soybeans, though. China’s Finance Ministry will halve a 5-percent tariff hike imposed on U.S. soybeans last September, although a previous increase is still in place, which only trims the duty from 33 percent to 30.5 percent.

However, among the most meaningful terms of the agreement is China’s commitment to average an additional $40 billion of food and agricultural commodities purchases from the United States for both 2020 and 2021. Purchase levels for these years are expected to exceed the 2017 level by $12.5 billion and $19.5 billion, respectively.

An exact distribution for the commodity purchases is unknown. But soybeans are typically the top U.S. agricultural export to China and could account for a major portion of the increase in overall trade. A commitment to meet this overall target suggests that China’s Government would eventually grant more tariff exemptions to U.S. soybeans sometime this year.

While China has agreed to buy more agricultural products from the United States, the sales are still conditional on market circumstances. This means that any export gains for soybeans might not be immediately apparent.

Moreover, in the next few months, Brazil is set to harvest and export a record volume of competitively priced soybeans. Substantial U.S. sales to China then could be deferred until late in the 2019/20 marketing year. By that time, the disposal of Brazil’s crop and the advance of U.S. new-crop development should start to make U.S. supplies more price-competitive again.

So, despite the current lack of outstanding sales, more U.S. soybean shipments might be forthcoming by the end of the summer. Under these circumstances, USDA raises its forecast of 2019/20 soybean exports this month by 50 million bushels to 1.825 billion.

With no other changes for U.S. soybean supply or domestic use, season-ending stocks for 2019/20 are forecast declining to 425 million bushels from 475 million last month. Despite the moderately tighter outlook for U.S. stocks, current prices are being held back by enhanced prospects for Brazil’s soybean crop. The rising level of global supplies led USDA to trim its forecast of the 2019/20 average price by 25 cents this month to $8.75 per bushel.

Domestic Use of Soybean Oil Starts Slowly for 2019/20

USDA lowered its forecast for domestic disappearance of soybean oil by 400 million pounds this month to 23.1 billion. A January 1 reinstatement of a $1-per-gallon blending credit for biomass-based diesel may significantly improve demand for soybean oil as a feedstock this year.

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Prior to reinstatement of the tax credit, however, biodiesel production margins were poor and underutilization of capacity was substantial. Domestic use of soybean oil during the October–December 2019 period fell by 11 percent from a year earlier.

This early deficit in soybean oil use for biodiesel likely precludes achievement of the prior forecast, prompting USDA to scale back its 2019/20 consumption forecast this month by 300 million pounds to 8.2 billion. Similar conditions apply to the use of soybean oil for renewable diesel, which is another biofuel.

In contrast, U.S. exports of soybean oil this year are doing better than first anticipated. USDA raised the forecast of 2019/20 exports by 200 million pounds to 1.9 billion. In particular, sales commitments to South Korea, Colombia, Dominican Republic, and Mexico are doing well.

The additional export shipments—coupled with reduced production from a lower oil extraction rate—would partly offset the reduction in domestic use. Thus, season-ending stocks of soybean oil are not seen tightening quite as much in 2019/20 as first thought.

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