The estimated 14.1 percent decline in U.S. soybean production this year compared to last year has not received as much attention as the 13.2 percent decline in U.S. corn production and 30.6 percent decline in Russian wheat production. The National Agricultural Statistics Service of USDA in mid-September estimated soybean production this year at 2.63 billion bushels, down from 3.06 billion bushels last year. Global oilseed markets will need to ration soybean supplies for the next 12 months and markets will remain unsettled in the process.
The short crop will have an impact on export markets because last year 55.6 percent of the soybeans produced in the U.S. were exported as whole soybeans, meal and oil. This compares to less than 20 percent of the U.S. corn crop exported, including by-products of ethanol productions, and 40 percent of the 2011 Russian wheat crop. China purchased 62.8 percent of the U.S. soybeans exported last year and 63.9 percent of global soybean exports of 90.8 million metric tons (MMT).
U.S. soybean use and ending stocks estimates by the World Agricultural Outlook Board of USDA indicate how tight the market situation will be for this marketing year. The end of marketing year carryover on August 31, 2013 is projected at 115 million bushels, a nine-year low and considered by some analysts to be the minimum needed in the supply chain. To achieve this, the Board believes U.S. farm prices have to average $15-17 per bushel, up from $12.45 per bushel last year and $11.30 per bushel in 2010/11. Final production estimates may be slightly higher due to helpful late season rains and add to expected use.
A few soybeans are used as whole beans, with most crushed for their oil and meal content. The meal is used for animal and poultry feed and the oil mostly used for human consumption. The Board projects that 1.5 billion bushels will be crushed in the U.S., 57.0 percent of production and down from 1.705 billion bushels last year. Another 1.055 billion bushels will be exported to other countries, 40.1 percent of production and down from 1.36 billion bushels last year and 1.5 billion bushels in 2010/11. Market forces will ultimately decide how much is crushed and exported, but the physical supply will limit use in domestic and export markets.
In addition to exports of soybeans, 1.2 billion pounds of soybean oil will be exported from the U.S., 7.0 percent of production, and 6.8 MMT of soybean meal, 19.0 percent of production. Many smaller countries do not have large markets to justify a soybean crushing plant and rely on oil and meal from other countries.
Despite the shortfall in U.S. soybean production, global vegetable oil production for this marketing year is projected by the Foreign Agricultural Service (FAS) of USDA almost unchanged from last year at 154.3 MMT and soybean oil production will be unchanged at 42.3 MMT. U.S. soybean oil is a small part of a diversified vegetable oil market where market forces determine use and price. Palm oil production is expected to expand from 50.0 MMT last year to 52.3 MMT this year and offset declines of some of the minor oilseeds. Total vegetable oil exports are projected to increase from 63.2 MMT in 2011/12 to 64.3 MMT this year, while soybean oil exports remain unchanged at 8.4 MMT. Palm oil accounts for almost two-thirds of exports of vegetable oil and is expected to increase from 38.8 MMT last year to 40.3 MMT this year. End-of-year stocks of all vegetable oils will decline from 14.2 MMT to 11.5 MMT, while soybean oil stocks fall from 3.4 MMT to 2.2 MMT.
The oilseed meal market is dominated by soybean meal with global production of 179.1 MMT out of a total oilseed meal market of 264.2 MMT. Soybeans have a higher meal to oil ratio than the other oilseeds. Oilseed meal exports are expected to remain unchanged at 79.9 MMT, with soybean meal exports higher at 60.3 MMT this year versus 59.1 MMT last year. Ending stocks of oilseed meals are likely to decline from 11.2 MMT last year to 8.8 MMT this year, with soybean meal accounting for most of that declining from 9.2 MMT to 7.4 MMT.
This relatively optimistic global supply picture for soybean products and total vegetable oils and oilseed meals heavily depends on production in South America – Brazil, Argentina and Paraguay. As summer crops are being harvested in North America, they will be planted in South America over the coming 2-3 months. In 2009/10 and 2010/11 both growing region had relatively good crops with the U.S. producing 91.4 MMT and 90.6 MMT, respectively, and the South American countries 130.9 MMT and 132.9 MMT. In 2011/12 the U.S. crop declined by 7.4 MMT to 83.2 MMT, while the three South American countries’ production fell 21.4 MMT to 111.5 MMT. As we already know, in 2012/13 the U.S. crop declined another 11.5 MMT to 71.7 MMT. The weather patterns are expected to be much more favorable in South America and FAS has projected record large production of 144.1 MMT.
Market participants are keeping one eye on the size of the North American crops now being harvested and how quickly those supplies are moving through supply chains and the other eye on conditions in South America as crops are being planting to judge the large crop expectations. Government officials should be watching the same factors to anticipate likely supplies, prices and problems that might develop.
Higher market prices for soybeans are already telling users that supplies are smaller than in previous years. Soybean meal supplies may have a larger impact on prices since they are a larger share of the total oilseed meal supplies, but food uses of vegetable oils may be more price inelastic. Over the last ten years consumption of vegetable oils and oilseed meals has increased every year, with oil up 65 percent and meal up 45 percent. With China’s huge soybean purchases, it will be a key player. Unless the South American crop achieves those early expectations, maintaining consumption is not possible. Even if the crop is record large, but late being harvested due to weather problems, prices will likely rise to slow use until the market is assured use is curtailed to maintain pipeline supplies until the South American crop reaches the market.
Harvest starts in South America sometime in February depending when the first crops are planted. Until then the only significant supplies of oilseeds will come from North America and the Black Sea region. Markets are sorting out the buyers and will remain volatile until demand and supply adjustments are made.
Ross Korves is an Economic Policy Analyst with Truth About Trade & Technology