Oil crops outlook: Global oilseed supplies seen surging with a record U.S. soybean crop

Farm Forum

USDA calculates a 2014/15 trend yield for soybeans at 45.2 bushels per acre. When coupled with forecast harvested acreage of 80.5 million acres, U.S. soybean production is expected to climb 11 percent to an all-time high of 3.635 billion bushels. Record soybean demand is also expected for 2014/15, with U.S. exports forecast up 25 million bushels to 1.625 billion and the domestic crush up 20 million bushels to 1.715 billion. Despite higher use, season-ending soybean stocks for 2014/15 could surge to 330 million bushels. USDA forecasts a sharp decline in the 2014/15 U.S. average farm price for soybeans to $9.75-$11.75 per bushel.

Largely propelled by a strong increase in U.S. output, global soybean production for 2014/15 is expected nearly 6 percent higher to 299.8 million metric tons. For Brazil, modest area gains for soybeans are expected to raise production to 91 million tons. Argentine soybean production could total 54 million tons—equal to the 2013/14 crop. Soybean imports for China in 2014/15 are forecast up 3 million tons to 72 million based on higher consumption of soybean meal.

USDA Anticipates Bumper 2014/15 Soybean Crop If Record Acreage and Yields Are Realized

The current strength of soybean prices encouraged U.S. farmers to raise their 2014 acreage intentions by 6 percent to a record 81.5 million acres. Spring planting conditions look good as recent rainfall has left abundant soil moisture throughout the Corn Belt and Northern Plains regions. The rains have also slowed the start of crop planting (20 percent completed as of May 11, compared with a 5-year average of 21 percent) but it could accelerate quickly by the end of this month.

Last year, very low August rainfall in the Midwest pushed the U.S. average yield below its trend to 43.3 bushels per acre. USDA calculates a 2014/15 trend yield for soybeans at 45.2 bushels per acre. When coupled with forecast harvested acreage of 80.5 million acres, an 11-percent increase in U.S. soybean production is expected to an all-time high of 3.635 billion bushels. Such abundance should scale back soybean imports (expected to swell this year to an unprecedented 90 million bushels) to 15 million bushels. Total supplies of soybeans would expand by 261 million bushels from the current season.

U.S. Supply Gains Will Boost Soybean Demand but Foreign Competition Staying Firm

Despite USDA’s outlook for a historically large domestic crop, gains for U.S. soybean demand would be tempered by the likelihood of large inventories in South America this fall. Also likely to constrain the export market would be slower import growth for China—the top global destination for soybeans. U.S. soybean exports for 2014/15 are forecast at 1.625 billion bushels, surpassing the 2013/14 expected record of 1.6 billion.

The domestic crush in 2014/15 could grow moderately by 20 million bushels to 1.715 billion. The primary inducement for soybean processors may be a 1.7-percent increase in the domestic use of soybean meal (to 29.7 million short tons). Feed demand by the swine and poultry sectors should rebound next year with considerably lower costs and an expansion of breeding. Expanding supplies of competing protein substitutes such as canola meal could be offset by a reduced availability of cottonseed and cottonseed meal. And the U.S. market share of world soybean meal trade would be supported next year by moderating prices, which could inch 2014/15 exports slightly higher to 11.2 million short tons from 11.1 million this year.

Soybean oil domestic consumption has stagnated for 5 years, and no improvement is anticipated for 2014/15. Total domestic disappearance of soybean oil is forecast 2 percent lower next season to 18.1 billion pounds. The edible use of soybean oil may decline nearly 3 percent as other oils (particularly canola oil) dominate the growth in total vegetable oil use. And the biodiesel industry has little incentive to boost its consumption of soybean oil next year without either a restoration of the lapsed biodiesel blending credit or the setting of a higher use volume within the Renewable Fuel Standard. USDA forecasts the 2014/15 use of soybean oil in biodiesel unchanged at 4.8 billion pounds. A marginal increase is expected for U.S. soybean oil exports to 1.7 billion pounds from 1.65 billion in 2013/14.

Outlook for Much Higher Soybean Stocks in 2014/15 Will Pressure Prices

Continued growth is anticipated for U.S. soybean demand in 2014/15 but that could be overwhelmed by far larger gains in the supply. Following a minimal expected carryout of 130 million bushels for 2013/14, season-ending soybean stocks next year are forecast surging to 330 million bushels. If realized, this would be the largest soybean carryout in 8 years.

Currently, soybean cash prices in many locations have ballooned toward $15 per bushel. In order to sustain crushing margins, prices for soybean meal and soybean oil have similarly strengthened. However, once the fall harvest approaches, it is unlikely that the price outlook can stay that strong. Contract prices for new-crop delivery have now fallen below $12 per bushel and may continue weakening if growing conditions are mostly favorable. Early this fall, these forward contracts would support crop sales, but the cash prices could plummet. USDA forecasts the 2014/15 U.S. average farm price for soybeans at $9.75-$11.75 per bushel—down sharply from an expected 2013/14 average of $13.10 per bushel.

Likewise, the 2014/15 average price for soybean meal is forecast easing to $355-$395 per short ton, versus this year’s record $485. The soybean oil price level may also settle lower with larger soybean stocks and an ample supply of canola oil. USDA forecasts the 2014/15 average price for soybean oil at 37-41 cents per pound, compared with the 2013/14 average at 40 cents.

Northern Plains Wetness May Determine Crop Gains For Canola and Sunflowerseed

This year’s robust 29-percent recovery for intended canola acreage substantially raises U.S. production prospects for 2014/15 to 2.6 billion pounds from 2.2 billion last year. Lower crop yields should moderate the crop gains, though, as they are likely to fall back from last year’s stellar outcome. In Oklahoma, the winter canola crop is already in poor condition because of a prolonged drought. For the main crop of spring-sown canola in North Dakota, only 2 percent of the intended acreage had been sown by May 11 due to cold and wet soils.

Domestic crushers will benefit next season not only from a larger U.S. canola harvest but also from a ready supply of imports from Canada. Up to 1.65 billion pounds of canola imports could augment 2014/15 supplies—a high volume considering the bright U.S. crop outlook. Over the past few years, substantial crushing capacity has been added and could raise next season’s crush to a record 3.8 billion pounds. The export market for U.S. canola shipments abroad may also increase by nearly one-third in 2014/15 to 397 million pounds. Even with strong use, a major reduction in carryout stocks next year is unlikely.

For sunflowerseed, the supply gains this year may be limited by a minimal increase in March planting intentions, which were up only 1 percent to 1.6 million acres. Nevertheless, if it stays too wet in the Northern Plains to plant other crops, its later planting window could prompt a higher sown acreage. U.S. sunflowerseed production for 2014/15 is forecast 10 percent higher to 2.2 billion pounds mostly on expectations of improved yields to 1,481 pounds per acre. Below-average yields last year in North Dakota held down the national average to 1,378 pounds per acre.

Much of the small gain in 2014/15 sunflowerseed production is likely to come from confection-type varieties. Thus, the new-crop outlook for crushing oil-type sunflowerseed is virtually unchanged at 905 million pounds and would again constrain exports of sunflowerseed oil. Another year of large sunflowerseed oil imports—primarily from Argentina—may be the only way for domestic use to expand by an expected 9-percent to 425 million pounds.