Tight U.S. Soybean Stocks Support Prices in Advance
Of New-Crop Supplies
(June 13, 2014) USDA forecasts the 2013/14 domestic soybean crush 5 million bushels higher this month to 1.7 billion bushels. A higher crush would trim season-ending soybean stocks this year to a minimal 125 million bushels. Robust export commitments for U.S. soybean meal this spring led to a higher 2013/14 export forecast to a record 11.5 million short tons. Soybean oil exports for 2013/14 were also forecast higher--to 1.75 billion pounds versus 1.65 billion last month.
Global rapeseed production for 2014/15 is expected at 69.1 million metric tons--up 470,000 tons from last month. Based on better yield prospects, EU rapeseed production is forecast up by 500,000 metric tons this month to a record 22 million. Most of the gain in EU rapeseed production is expected to raise 2014/15 ending stocks to 2.2 million tons, versus 1.75 million for 2013/14.
Record Soybean Meal Exports in 2013/14
Support Demand by Soybean Crushers
Although U.S. exports of soybean meal are on a seasonal decline, they were still outpacing last year's shipments throughout the spring--despite lower soybean stocks. Cargoes of U.S. soybean meal have filled in for a decline in trade from India and sluggish seasonal increases from Argentina and Brazil. U.S. sales to Southeast Asia have been particularly good. Robust export commitments for U.S. soybean meal are forecast raising the 2013/14 total to a record 11.5 million short tons. However, exports of soybeans are forecast unchanged at 1.6 billion bushels as weekly shipments have slowed dramatically over the last 2 months. A shift in demand between foreign and domestic users is also signaled by soybean export bids that are now only modestly above the cash prices paid by domestic processors.
Soybean oil exports for 2013/14 were also forecast higher--to 1.75 billion pounds versus 1.65 billion last month. While overall export sales of soybean oil are lagging well behind a year ago, U.S. sales to China and a few South American and Caribbean countries have held up better than expected. In addition, better prospects for soybean oil output may not tighten oil stocks quite as much as previously anticipated. In May, soybean oil prices eased to an average of 40.7 cents per pound from the April average of 41.9 cents. USDA was prompted to lower its forecast of the 2013/14 average soybean oil price by 1 cent to 39 cents per pound.
The consequence of higher demand for soybean meal and soybean oil is stronger soybean demand by processors. Some seasonal slowing of the crush rate has occurred but it has not been as acute as previously anticipated. The domestic soybean crush for 2013/14 (September-August) is forecast 5 million bushels higher this month to 1.7 billion bushels. USDA expects an even larger increase for 2013/14 production of soybean meal and soybean oil due to a 15-million-bushel increase for the October-September soybean crush. A higher crush would trim season-ending soybean stocks to a minimal 125 million bushels. Although cash soybean prices this spring in many locations have topped $15 per bushel, they may be close to a seasonal peak.
For new-crop soybeans, planting started fitfully in early May for northern parts of the country as frequent rain showers interrupted fieldwork. Over the second half of the month, periods of clear skies and warmer temperatures helped to accelerate planting. As of June 8, U.S. sown acreage for soybeans had advanced to 87 percent, compared to the 5-year average of 81 percent. Now, soil moisture conditions throughout the Midwest and South are quite favorable for germination and early crop development. Soybean emergence as of June 8 had reached 71 percent compared to the 5-year average of 62 percent. Only 16 percent of the country's soybean acreage is located in areas that are classified in a drought--predominantly centered in Kansas.
USDA kept its 2014/15 forecasts of soybean yields and production unchanged. It is too early to be predictive of yields but an exceptionally high 74 percent of soybeans are currently rated in good-to-excellent condition. In addition, excessively wet fields in parts of the upper Midwest pressed many farmers up against planting deadlines for full insurance coverage on some crops. Some spring grains acreage was likely prevented from being sown and may have been switched to soybeans. USDA's Acreage report on June 30 could confirm this. The bright production outlook for soybeans may already be pressuring prices for new-crop futures contracts.
Larger EU Crops of Rapeseed and Soybeans are Anticipated This Year
Global rapeseed production for 2014/15 is expected at 69.1 million metric tons--up 470,000 tons from last month. Better yield prospects for the EU crop are responsible for the increase. EU rapeseed production is forecast 500,000 tons higher this month to a record 22 million. Rapeseed yields in Poland, Germany, Romania, and the United Kingdom are seen benefiting from May rainfall that was 50-100 percent above average. The current development stage of these crops ranges from flowering to pod-filling, so the May rainfall was very timely. Most of the gain in EU rapeseed production is expected to raise 2014/15 ending stocks to 2.2 million tons, versus 1.75 million for 2013/14. Domestic use of rapeseed is steady and export opportunities will be constrained by abundant supplies in Canada.
Also, soybean production in the EU is expected to expand this year to 1.425 million tons from 1.232 million in 2013/14. Italian soybean area is estimated 50,000 hectares higher this month as expected crop returns for soybeans were better than for corn. However, EU soybean demand for 2014/15 is not forecast any higher so a larger crop may raise season-ending stocks.
Harvest Delays and Peso Depreciation May Slow Argentine Exports This Year
This year's soybean harvesting in Argentina was drawn out by unseasonably wet weather, although it is now close to 90 percent complete. That contributed to lower than usual farm marketing and exports of the Argentine crop this year. Argentine soybean exports for 2013/14 were forecast 500,000 tons lower this month to 8.5 million. A slowing of exports would continue to add to the country's huge carryover of soybean stocks.
Marketing decisions of Argentine soybean producers are also being shaped by the foreign exchange market. Soybeans in Argentina are grown primarily for sales to the export market--either unprocessed or in the form of meal and oil. Soybeans and soybean products traded internationally are priced in U.S. dollars but that price does not get fully transmitted to Argentine farmers. They can convert only a small percentage of the pesos that they earn into dollars, and even then only at the official exchange rate set by the central bank. In recent years, the peso has been supported higher than its true market value, leading to a large accumulation of soybean stocks. Farmers are better off selling when the official rate is not highly overvalued.
After the Argentine Government devalued the peso in January by about 15 percent--narrowing the gap with the market rate--soybean sales picked up temporarily. Since then, however, the official rate and the market rate have started to diverge. U.S. interest rates are climbing with a strengthening economy and gradual monetary tightening. Thus, market rates for the Argentine peso (and other foreign currencies) are depreciating against the dollar. If the official rate for the peso is not allowed to adjust accordingly, it may once again deter soybean sales in Argentina.
Over the past year, the biodiesel industry in Argentina has suffered setbacks. In 2013, Argentine biodiesel exports slumped after the EU (the top import market) imposed anti-dumping duties on them through 2018. Some relief for Argentine biodiesel producers may be in sight, though. In May, the Argentine Government countered the EU tariffs by slashing its biodiesel export tax to 11 percent from 21 percent. In March, the country mandated a higher inclusion rate for biodiesel to 10 percent from 8 percent last year. Despite this increase, actual consumption of biodiesel by power plants and fuel blenders was well below even the former level as domestic supplies fell. The official price for domestic sales was set too low for producers to make a profit and focused their attention on the export market instead. In May, the Government also suspended domestic taxes on biodiesel, which should aid achievement of the higher blend requirement.
In response to these policy changes, USDA raised its 2013/14 forecast of Argentine industrial use of soybean oil by 100,000 tons this month to 2.3 million--and compared to 1.9 million in 2012/13. In contrast, the improving domestic use of soybean oil may trim Argentine exports of the commodity in 2013/14 to 4.4 million tons. Argentina favors biodiesel exports over soybean oil exports by means of a lower export tax (11 percent versus 32 percent for soybean oil).
Any slack in U.S. and Argentine soybean shipments right now can be fully made up by exports from Brazil. For 2013/14, soybean exports for Brazil are forecast 1 million tons higher this month to a record 45.5 million. Cumulative soybean exports for October 2013-April 2014 swelled 51 percent compared to a year earlier. Strong export gains are being realized for Brazilian soybeans in China, the EU, Thailand, Turkey, and Russia.
June 13, 2014
Economic Research Service
USDA, Washington, D.C.