Oil Crops Outlook: Brighter U.S. Exports May Trim Stocks Surplus

    U.S. soybean production for 2020/21 is projected at 4.125 billion bushels, up 568 million from last year’s crop. The increase is largely based on farmers following through on intentions to plant 83.5 million acres of soybeans, although the projected trend yield of 49.8 bushels per acre is also above last year’s level.

    U.S. soybean exports in 2020/21 may see a recovery to 2.05 billion bushels compared with a revised 2019/20 forecast of 1.675 billion. Coupled with a minimal increase for the domestic crush, season-ending stocks for 2020/21 may decline to 405 million bushels from 580 million in 2019/20.

    Domestic Outlook

    Soybean Supplies and Exports May Both Rebound in 2020/21

    U.S. soybean production for 2020/21 is projected at 4.125 billion bushels, up 568 million from last year’s crop. The increase is largely based on farmers following through on their intentions to plant 83.5 million acres of soybeans for an expected harvested area of 82.8 million acres.

    It would be a sharp increase from the 76.1 million acres sown in 2019/20. Soybean planting this spring is advancing well in some Midwestern areas, with 38 percent of intended U.S. acreage sown by May 10. In other northern regions, however, cold weather has either stalled the start of planting or could require some re-planting.

    The projected 2020/21 crop is also based on a projected trend yield of 49.8 bushels per acre and would be above the 2019/20 yield of 47.4 bushels. The bigger crop and large carryover stocks would boost total supplies in 2020/21 by 5 percent to 4.7 billion bushels.

    U.S. soybean exports in 2020/21 may see a recovery to 2.05 billion bushels compared with a revised 2019/20 forecast of 1.675 billion. Considerable gains are likely for soybean shipments to China next year as they benefit under the terms of a January 2020 trade agreement to purchase more U.S. agricultural products. Yet, the market conditions to initiate any big sales to China by the end of the summer have not developed.

    Unreserved selling by Brazilian farmers could maintain a price premium for U.S. soybean exports for much of the summer. By the first half of 2020/21, however, the rapid depletion of Brazilian old-crop stocks will expedite a switchover in China’s suppliers. In 2020/21, China may account for most of the increase in global imports, so U.S. exports could contribute the largest gain to global exports.

    Still, foreign competition in the global export market for soybeans will remain formidable next year. Sharp depreciation of South American exchange rates relative to the U.S. dollar have made the soybean shipments of these competitors comparatively cheap. While U.S. soybean shipments to China may thrive in 2020/21, they may struggle in other import markets against low-cost Brazilian exports.

    The U.S. soybean crush in March 2020 totaled 192 million bushels—registering its highest monthly rate ever. Despite falling prices for the meal and oil byproducts, crush margins are still attractive because the purchase cost for soybeans has plummeted, as well. Even so, the lucrative 2019/20 market for domestic processors may revert to a more challenging climate next season.

    The 2020/21 soybean crush may edge 5 million bushels higher to 2.13 billion as the expected use of soybean meal registers a minimal gain. A modest increase for domestic soybean meal consumption could be largely offset by a loss of export demand.

    Despite expectations for a larger U.S. soybean crop, a revived export market should tighten season-ending stocks for 2020/21 to 405 million bushels. If realized, it would be a steep reduction compared with the revised 2019/20 forecast carryout of 580 million bushels and the 2018/19 inventory of 909 million.

    Even so, considerable pressure will remain on the level of soybean prices. Even bigger South American soybean crops and an accumulation of stocks in China—the world’s top consumer—could suppress a sustained price rally. Any possibility for more sown acreage and above-average yields would further constrain upward price movement. Currently, forward pricing contracts for soybeans are less attractive than they were a year ago.

    For the 2020/21 crop year, USDA projects a U.S. season-average farm price of $8.20 per bushel compared to $8.50 in 2019/20. Likewise, stagnant soybean meal demand may preclude any strengthening of its marketing-year average price, which is seen declining to $290 per short ton from $300 for 2019/20.

    Weaker 2020/21 Demand Confronts Meal and Oil Markets

    USDA forecasts modest growth for domestic disappearance of soybean meal in 2020/21—up 1 percent to 37.5 million short tons. The current coronavirus-related disruptions at U.S. meat slaughter plants have ramifications for subsequent animal production—particularly hogs. Plant capacity for hog slaughter, although increasing, is expected to reflect sector-wide adjustment to COVID-19.

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    Hog producers are likely to rein in expansion plans for this year and into early 2021. In contrast, poultry producers can more easily ramp output back up. As those expansion plans play out, so go the prospects for feed consumption by the animals.

    Gains for domestic soybean meal use may be countered by a dimmer outlook for U.S. exports. Global trade in soybean meal may be less favored next year on account of cheap soybean supplies and tight markets for vegetable oil. Also, as U.S. suppliers contend with the headwinds of a strong dollar, competing exporters may capture larger shares of the soybean meal market. U.S. soybean meal exports are seen slipping 3 percent in 2020/21 to 13.1 million tons.

    A lackluster outlook also faces the 2020/21 soybean oil market. For the better part of two months now, the coronavirus pandemic has closed numerous restaurant dining rooms across the country. The current upheaval in the foodservice industry has particularly taken a toll on frying oil demand. Plunging edible oil use may bottom out once most restaurants re-open but business could stay slow.

    The U.S. Department of Labor reports that since mid-March, more than 30 million Americans have lost their jobs. Many more are anxious about their employment status and health risks, adding to the number of consumers that are cutting back on nonessential dining out. The situation is reflected by a tumble for April soybean oil prices to a 14-year low.

    Assuming a gradual improvement in circumstances for 2020/21, edible and non-biodiesel use of soybean oil may stage a modest recovery. Forecast oil consumption for next year is up 2 percent to 15 billion pounds versus a 2-percent decline in 2019/20.

    Projected use of soybean oil by the biodiesel industry, the other primary domestic market, is seen expanding to 8 billion pounds in 2020/21 from 7.5 billion in 2019/20. Blending of biodiesel in the fuel supply should edge back up in 2020/21 as overall diesel fuel consumption recovers from this year’s sudden decline.

    Also bolstering the biodiesel market is the $1-per-gallon blending tax credit, which was extended for both 2020 and 2021. Current finances of biodiesel producers will be shored up by a retroactive restoration of the blending credit for 2018 and 2019, as well. In contrast, reduced availability of supplies is projected to curtail U.S. soybean oil exports by 18 percent to 2.1 billion pounds.

    Despite higher overall use, support for soybean oil prices is being eroded by weak soybean prices and the recent plunge in the cost of diesel. USDA projects that the 2020/21-average price for soybean oil may edge up to 29 cents from the forecast 2019/20 level of 28.5 cents per pound.

    Bigger Supplies To Buoy Use of Sunflowerseed, Peanuts, and Cottonseed

    U.S. production of sunflowerseed in 2020/21 is expected to show a year-over-year increase of 26 percent to 2.4 billion pounds. Higher production would follow an increase in planted area from 1.35 million to 1.56 million acres. The increase counters the trend towards lower sunflower planted area and is the highest since the 2016/17 marketing year. Exports of sunflowerseed are expected to increase from 90 million to 130 million pounds, reversing the 2019/20 decline.

    In contrast, exports of sunflowerseed oil are projected down 9 percent to 100 million pounds. The price of oil-type sunflowerseed is forecast down 10 percent to $17.00 per hundredweight while the sunflowerseed oil price is forecast to decline to 58 cents per pound. The 2020/21 average price for sunflowerseed meal will follow soybean meal prices down to $140 per short ton.

    Canola seed production is expected to decrease from the 2019/20 market year to the 2020/21 market year by 110 million pounds to 3.29 billion. This projected 3-percent drop in canola production would follow a decline in the area planted from 2.04 million acres to 1.99 million acres. The yield is projected at 1,715 pounds per acre, a three-year low. Canola prices for the 2020/21 marketing year are forecast staying nearly unchanged at $14.70 per hundredweight.

    U.S. peanut production is forecast to rise to 5.9 billion pounds from 5.5 billion in the 2019/20 marketing year. Planted acreage intentions are up 7 percent to 1.5 million acres with the largest increase in Georgia. The U.S. average yield per acre is projected to increase by 1 percent to 4,000 pounds per acre. Based on a lower peanut supply and slightly higher use, the U.S. average price received by farmers is projected up slightly from its expected 2019/20 value of 20.4 cents per pound.

    A 5-percent increase is projected for 2020/21 cottonseed production to 6.25 million short tons primarily due to expected improvement in the yield per acre. The gain may benefit both U.S. exports and crush of cottonseed, which are projected to increase to 425,000 short tons (up 31 percent) and 1.85 million tons (up 6 percent), respectively. The cottonseed season-average price is projected to decline by $11 per short ton to $150.

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