Oil crops outlook: Record demand is seen for U.S. soybeans in first quarter of 2013/14

Farm Forum

USDA’s estimate of the 2013/14 U.S. soybean crop was 3.289 billion bushels on a harvested acreage of 75.9 million acres. Larger supplies and record-large outstanding sales commitments led USDA to raise its 2013/14 forecast of U.S. soybean exports this month by 20 million bushels to 1.495 billion. Also, the 2013/14 forecast of the U.S. soybean crush was raised 10 million bushels this month to 1.7 billion, based largely on strong soybean meal exports. USDA forecasts the season-average soybean price at $11.75-$13.25 per bushel, compared to $14.40 for 2012/13.

Based on a higher estimate for harvested area (up 400,000 hectares to 29.5 million), USDA raised its forecast of Brazil’s 2013/14 soybean production this month to 89 million metric tons. Part of the supply increase for soybeans in Brazil is expected to boost the country’s 2013/14 crush by 275,000 tons to 37.3 million, although carryout stocks are also likely to expand.

Supply Gains for U.S. Soybeans in 2013/14 Aid a Quick Recovery in Demand

This month’s estimate of the 2013/14 U.S. soybean crop by the National Agricultural Statistics Service was 3.289 billion bushels on a harvested acreage of 75.9 million acres. The crop finished well above the 2012/13 harvest of 3.034 billion bushels. The 2013/14 production estimate increased 31 million bushels from the previous forecast as slightly higher yields for Minnesota, Indiana, and Nebraska more than offset reductions for Iowa and Arkansas. Despite late summer dryness, moderate temperatures and an extended growing season helped soybean yields to average 43.3 bushels per acre. By comparison, the drought-reduced 2012/13 yield had fallen to 39.8 bushels. The year-to-year gain for the 2013/14 soybean supply totaled 215 million bushels (to 3.454 billion).

According to USDA’s latest Grain Stocks report, U.S. soybean stocks on December 1, 2013 totaled 2.148 billion bushels. Given last fall’s larger harvest, the December stocks were moderately above the year-earlier inventory of 1.966 billion bushels. The stocks data indicate that quarterly use of soybeans in the first quarter of 2013/14 was the highest ever. Strong demand for soybeans is likely to extend for several months more. Thus, season-ending soybean stocks on August 31 are forecast at 150 million bushels, versus ending stocks of 141 million bushels in 2012/13.

U.S. Trade Fulfills Current Global Demand for Soybeans

USDA raised its 2013/14 forecast of U.S. soybean exports this month by 20 million bushels to 1.495 billion. Although export sales of soybeans appear to be slowing recently, record-large outstanding sales commitments will sustain U.S. shipments through the start of the South American harvest this spring. Sales commitments as of January 2 totaled 1.499 billion bushels. Not all of these U.S. sales may be shipped in the current marketing year, however, and how many are not could be determined by how soon a larger and lower-cost South American crop can be brought to market. Also, whether or not China’s soybean importers have been purchasing solely for current processing requirements will have a bearing on which exporters are ultimately picked to source their supplies over the next few months. If importers in China have been building up stocks, too, they might wait for a further decline in prices, which favors an eventual switch of deliveries from the United States to South America.

Robust demand has supported current prices and farmers have already benefited after selling close to half of this year’s crop. USDA forecasts the U.S. season-average soybean price at $11.75-$13.25 per bushel, compared to $14.40 for 2012/13. Yet, an imminent increase in export competition will trigger a declining price trend over the second half of 2013/14. Since last month, soybean futures prices for the March and subsequent CBOT contracts have fallen 45-70 cents per bushel in response to bright prospects for South American soybean production.

Better Outlooks for Soybean Meal and Soybean Oil Exports Support Domestic Crushers

Higher use of soybeans in this season’s first quarter can be primarily attributed to the export market, although domestic demand has also been firm. The 2013/14 forecast of the U.S. soybean crush was raised 10 million bushels this month to 1.7 billion. U.S. processors are operating at a strong pace largely because of record October-December exports of soybean meal. Outstanding export sales of soybean meal are also just as high as they were a year ago, so USDA raised its forecast of soybean meal exports to 10.7 million short tons from 10.5 million last month.

The brisk foreign trade and rapidly declining soybean stocks are supporting soybean meal prices. In December, the average price for soybean meal rallied to $498 per short ton versus $451 in November. However, soybean meal prices may have already passed a seasonal peak. Prices are already down substantially since December and further weakening into spring is likely. Nevertheless, the market’s current strength prompted a higher forecast of the 2013/14 average price by $15 per short ton to $415-$455.

In contrast, only a modest recovery in domestic demand for soybean meal (up 2.6 percent to 29.8 million short tons) is expected for 2013/14. There is little sign yet of an expansion in U.S. hog production. Compared to a year earlier, the December 1 inventory of hogs and pigs was down 1 percent—with only a modest 1-percent increase for spring farrowing intentions. Domestic demand for soybean meal could also be squeezed by its high cost and an unexpectedly large availability of corn distillers’ grains (DDGs), which can replace corn and a portion of soybean meal in feed rations. Recently, officials in China halted U.S. imports of DDGs after tests discovered traces of a biotech corn variety that is unapproved by the country. The possibility for more rejected shipments caused DDG prices to fall sharply relative to prices for corn and soybean meal.

For soybean oil, higher 2013/14 production is expected this month on account of a higher crush and better-than-average extraction rate. Improving supplies and tumbling prices for soybean oil are encouraging U.S. export sales. This led USDA to raise its 2013/14 forecast of soybean oil exports by 300 million pounds this month to 1.45 billion. Although export sales commitments of soybean oil as of January 2 were down 41 percent from a year earlier (when oil stocks were considerably higher), this year’s overall decline may be less severe than first anticipated. In December, soybean oil shipments strengthened to a 10-month high.

A slump in prices continues for soybean oil and other vegetable oils. The December average price for soybean oil was 37.6 cents per pound compared to 47.2 cents a year earlier. Soybean oil supplies are not anticipated to decline as much as previously thought. The lapse of the $1-per-gallon biodiesel blending credit on December 31 (and uncertain prospects for its restoration) is also contributing to the price weakness.

Huge Canola Supply May Swell Crushing While Sunflowerseed Supply Is Limited

U.S. canola acreage plunged by nearly one-fourth in 2013/14 to 1.35 million acres. North Dakota farms accounted for nearly all of the reduction, where excessive soil moisture last spring prevented producers from sowing as many acres as intended. The final estimate of U.S. canola acreage was 306,000 acres lower than planting intentions last March. Higher canola yields only partly offset the lower acreage, so U.S. output fell almost 10 percent to 2.2 billion pounds.

In addition, a massive canola crop in Canada will add substantial imports to the domestic supply this season. U.S. canola imports are expected to surge 52 percent in 2013/14 to 1.3 billion pounds. The sharp increase in supply is then seen expanding the U.S. canola crush to a record 3 billion pounds. U.S. supplies of canola oil are expected to increase by nearly 800 million pounds (19 percent) to 4.9 billion. Season-ending canola stocks could nearly triple to 345 million pounds. Consequently, farm prices for canola in December had fallen 30 percent from a year earlier to 19 cents per pound.

As with canola, U.S. planted acreage for sunflowerseed fell 18 percent in 2013 to 1.6 million acres. For top-producing North Dakota, sunflowerseed acreage declined to the State’s lowest level since 1974 due to excessively wet soils during spring planting. All of this year’s acreage reduction was for oil-type sunflowerseed varieties. In contrast, confection-type sunflowerseed acreage increased nearly 15 percent in 2013/14 to 300,000 acres. Lower yields completely offset the higher confection-type acreage, so its production was unchanged in 2013/14. A moderate reduction in total supplies of confection-type sunflowerseed (due to lower beginning stocks) is expected to trim exports. Similarly, a smaller harvest of oil-type sunflowerseed this year will continue to rein in demand by domestic crushers, which is forecast down 10 percent to 900 million pounds. Despite the loss of U.S. supplies, sunflowerseed prices have been weighed down by abundant global supplies of sunflowerseed and other oilseeds. In December, the average price received by farmers (at 19.7 cents per pound) was 21 percent below a year earlier.

Domestic flaxseed acreage sown fell 47 percent in 2013/14 to 181,000 acres, which is the lowest since 1997. Although the U.S. average flaxseed yield improved to 19.5 bushels per acre from 17.1 bushels in 2012/13, lower acreage cut domestic production by 41 percent to 3.4 million bushels. However, most of this decline is likely to be offset by a record level of flaxseed imports from Canada, where 2013 production of the crop surged by 46 percent to a 4-year high.