• Bountiful Soybean Harvest Ready to Meet Surging Oil Demand

    October 06, 2017 12:58 AM

    The latest projection released by the United States Department of Agriculture (USDA) promises a plentiful supply of soybeans through 2018 and projections show crops breaking records1.

    In its September 12 report, the USDA increased the soybean yield by 0.5 bushels per acre while keeping harvested acreage unchanged. This results in a projection of the soybean crop at 4,431 million bushels, almost 3 percent greater than last year’s previous record1. In its August World Agricultural Supply and Demand Estimates (WASDE) report, the USDA projected soybean prices to trade in a range with a midpoint of $9.20 per bushel, about the same as the previous two years2.

    The prospects for soybean oil prices seem to be more robust. On August 22, the United States Department of Commerce imposed duties on Argentinian and Indonesian biodiesel imports that will probably have the effect of immediately halting imports of these products3.

    In its July 27, 2017 blog, Genscape points out that “for every additional 100 million gallons of produced biodiesel in the U.S., the rise in soybean oil demand is about 400 million pounds, statistically speaking.”4 This undoubtedly drove the USDA to increase soybean oil demand for biodiesel feedstock in 2017-18 by 550 million pounds to a record 7 billion pounds in the most recent WASDE report4.

    Even though soybean prices seem to be stagnant at fairly low levels, the USDA expects soybean oil prices in 2018 to be some 6 percent above this year’s prices and 15 percent above last year’s prices, according to its latest WASDE report2. This would imply a price of 42.5 cents per pound for RBD soybean oil, delivered East Coast.

    References
    1 “Crop Production.” https://www.usda.gov/nass/PUBS/TODAYRPT/crop0917.pdf United States Department of Agriculture. September 12, 2017,
    2 “World Agricultural Supply Demand Estimates.” https://www.usda.gov/oce/commodity/wasde/latest.pdf United States Department of Agriculture. September 12, 2017.
    3 The National Biodiesel Board. “Commerce Department Rules in Favor of US Producers in Trade Dispute.” Biodiesel Magazine. August 22, 2017. http://www.biodieselmagazine.com/articles/2516127/commerce-dept-rules-in-favor-of-us-producers-in-trade-dispute
    4 “Analysis of the U.S. Biodiesel and Renewable Diesel Market.” Genscape. July 27, 2017. http://www.genscape.com/blog/analysis-us-biodiesel-and-renewable-diesel-market-genscape-and-playmaker-strategies

  • Soybean Complex Futures React to Latest Reports

    August 30, 2017 7:57 PM

    On August 10, the United States Department of Agriculture (USDA) forecast soybean production at 4.38 billion bushels, up two percent from last year.1 Based on August 1 conditions, yields are expected to average 49.4 bushels per acre, down 2.7 bushels from 2016, but up 1.4 bushels from the most recent USDA World Agricultural Supply Demand Estimate (WASDE) report.2 Area for harvest in the United States is forecast at a record high 88.7 million acres, unchanged from the June forecast but up 7 percent from last year.1 Planted area for the nation is estimated at a record high 89.5 million acres, also unchanged from June.1  

    Upon release of this report, soybean futures on the CBOT immediately dropped a whopping 40 cents per bushel (4%). Soybean oil futures dropped 1.2 cents per pound (3.5%) in sympathy with the soybean price collapse. The trade had expected a slight decrease in yield per acre and in soybean production, so this was a major surprise.

    However, the long-range prospects for these markets, especially soybean oil, look rather different.

    In the WASDE report, published in conjunction with the crop report, USDA decreased domestic soybean crush for next year due to a lower forecast for soybean meal exports. As a result of this and, of leaving demand for soybean oil unchanged, the soybean oil forecast stocks for September 30, 2018 fell by 260 million lbs. USDA forecasts that soybean oil demand for the next year will remain unchanged from the last two years and demand for biodiesel feedstock will be 450 million pounds higher than this year. Consequently, USDA increased the forecast price range for soybean oil to be one cent per pound higher than its last report, 31-35 cents per pound for crude soybean oil, FOB central Illinois for 2017-18.

    It appears that for the foreseeable future there will be a tug of war in the markets between lower trending soybean meal and soybean futures, and support for soybean oil futures.

    References
    1“World Agricultural Supply and Demand Estimates.” https://www.usda.gov/oce/commodity/wasde/latest.pdf. United States Department of Agriculture. August 10, 2017.
    2“Crop Production.” https://www.usda.gov/nass/PUBS/TODAYRPT/crop0817.pdf. United States Department of Agriculture. August 10, 2017.

  • Amid Dubious Prognosis, Soybean Production Projected to Increase

    July 28, 2017 9:33 PM

    As marketers and users of soybeans oils, why should we be concerned with soybean prices? While soybean prices are determined by the demand for the two primary coproducts, soybean oil and soybean meal, the supply side of the price equation is determined by current soybean supplies and the prospects for the next crop. By volume, 19% of the soybean crop is converted into oil. The remaining balance is used as meal for animal feed. The oil value and the balance from the feed products contribute 30-40% of the value of soybeans.

    The past two weeks have brought fresh news to the complex soybean markets. On June 30, the USDA reported soybean stocks as of June 1. The trade received a fairly bullish shock as soybean futures rallied a full dollar a bushel (11%) to over $10.00 per bushel for the first time since March.1 During this time, soybean oil futures rose by almost 2 cents/lb. to over 33.5 cents/lb.(6%).1

    Soybean Oil Futures2



    During this same period, the condition of the 2017 U.S. soybean crop gradually deteriorated due largely to hot and dry weather. At the end of June, the USDA reported the condition of the U.S. soybean crop as 66% good to excellent.3 The latest report from July 9 estimated the condition had declined to only 62% good to excellent.3 In comparison, the report from July 2016 rated the crop 71% good to excellent.

    The weekly World Agricultural Supply Demand Estimate (WASDE) report issued July 12 by the USDA provided insight into the implications of somewhat lower 2016 crop supplies and declining prospects for the 2017 crop. Despite the challenging soybean crop conditions, the USDA actually increased their projected production of soybeans in the report.4 Even so, it decreased the projected September 2018 soybean carryover by 35 million bushels.4 Consequently, the USDA has raised its projected average farm price of soybeans for the 2017 crop from $8.30-10.30 to $8.40-10.40.4

    The WASDE report made minor changes to the 2016 crop and 2017 crop soybean oil fundamentals, and resulted in no change to the June soybean oil price projections.4 The USDA currently projects 2017 crop average crude soybean oil prices, FOB Central Illinois at $.030-.034 per lb.4 This implies delivered RBD soybean oil at 39 cents/lb. on average for next year – about the same as this year so far.

    References
    1“Grain Stocks.” http://usda.mannlib.cornell.edu/usda/current/GraiStoc/GraiStoc-06-30-2017.pdf. United States Department of Agriculture. March 31, 2017.
    2“Soybean Oils Futures Quotes.” http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil.html. CME Group. July 1, 2017.
    3“Crop Progress.” http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1048. National Agriculture Statistics Service. July 10, 2017.
    4“World Agricultural Supply and Demand Estimates.” https://www.usda.gov/oce/commodity/wasde/latest.pdf. United States Department of Agriculture. July 12, 2017.

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Richard GallowayAbout the Expert

Richard Galloway is president of Galloway and Associates, LLC, a business consulting firm serving domestic and foreign agricultural processing, vegetable oil refining, biodiesel and grain handling industries. Galloway is a consultant to the QUALISOY Board, a collaborative effort among the soybean industry to help market the development and availability of trait-enhanced soybean oils, including high oleic soybean oil. Read More...