OIL CROPS OUTLOOK April 12, 1996 Approved by the World Agricultural Outlook Board ----------------------------------------------------------------------------- OIL CROPS OUTLOOK is published monthly by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20005-4788. OCS-0496. ------------------------------------------------------------------------------ U.S. SOYBEAN CRUSH TO WANE Projected soybean crush for 1995/96 was lowered 10 million bushels this month to 1,360 million. This season's cumulative crush (through February) was 710 million bushels. This was just below last year's record of 718 million bushels, but the strong export boom of 1995 for soybean oil and meal had not yet occurred. With few signs of a pickup in U.S. soybean product exports and a new harvest of South American supplies imminent, domestic soybean crush may be hard to revive this season. Weekly March crush data from the industry were down about 13 percent from March 1995. Domestic use also increased from relatively large prospective plantings that raised expected seed use to 70 million bushels. U.S. 1995/96 SOYBEAN EXPORTS ESTIMATE RAISED AGAIN U.S. soybean exports are expected to reach 825 million bushels (22.4 million metric tons), up 2 percent from last month, but down 2 percent from last year's estimate. This would cut 1995/96 ending stocks to 190 million bushels. As of March 28, U.S. export shipments of soybeans for 1995/96 totaled 600 million bushels, and were running 1 percent ahead of last year's pace. On the other hand, outstanding export sales were 21 percent below the same date a year earlier. U.S. soybean exports are benefiting from an anticipated sharp decline in South American production and exports, and an increase in China's imports. Higher than average second crop planting for the new Brazilian and Argentine crops could also delay shipments and extend U.S. exports. Greater Asian investment in crushing facilities, increased consumption of food soybeans, and a gradual reduction of import duties have also aided U.S. soybean export prospects for 1995/96. Brazil soybean exports are expected to fall 300,000 tons this month to 3.1 million metric tons. This is contingent on production of 23.0 million tons and the continuation of a newly implemented value-added (ICMS) tax for Rio Grande do Sul and Santa Catarina. Any additional reduction in Brazil's supplies and the potential reduction of the ICMS in the State of Parana would further shorten Brazil's export forecast. The state legislature of Rio Grande do Sul (Brazil's largest soybean and product exporter) authorized a modification of the state value-added tax on exports of soybean meal and soybean oil to 5 percent from 8 and 11.1. Because this reduction gave Rio Grande do Sul crushers a significant advantage over their neighbors, the crushing industries of Santa Catarina and Parana have followed with lawsuits against their own state governments requesting equal treatment for ICMS taxes. The new ICMS has the potential to dramatically alter Brazil's soybean exports. The differential export tax is expected to climb from 2 and 5 percent for meal and oil, respectively, to 8 percent for both meal and oil. Given the large idle capacity in the Brazilian crushing industry, the lower cost of domestic soybeans will likely encourage an expansion in soybean crush, while depressing soybean exports. Furthermore, this year's anticipated lower production and the increasing differential export tax could lead to a substantial reduction in Brazil's soybean exports, while increasing soybean product trade. China is projected to become a net importer of soybeans for the first time since 1981. China's soybean production forecast was lowered 500,000 tons to 14 million tons this month. The decline, along with increasing demand for soybean meal, has pushed expected soybean imports to 600,000 tons for 1995/96. The United States is projected to ship approximately 300,000 tons, while the remainder will be supplied by Canada, South America, and Russia. The magnitude of China's soybean imports will heavily depend on how much soybean meal is imported in 1995/96. Soybean imports by Indonesia, Malaysia, Vietnam, and Thailand are projected to rise due to policy reforms, and economic and population growth. While in 1993/94 China exported more than 1 million tons of soybeans, Chinese soybean exports to Asian markets are expected to drastically decline in 1995/96 to only 300,000 tons. Several of these markets have switched to the United States for soybeans, while exports from India and South America will likely replace Chinese soybean meal exports. TIGHT CORN SUPPLY HELPS CARRY SOYBEAN MEAL PRICE HIGHER Despite a plunging hog-corn price ratio, USDA's Hogs and Pigs report indicated that the total U.S. swine population on March 1 was still slightly above a year earlier. Strong pork exports to Japan have helped buoy hog prices. Yet, signs of smaller herds in the future (hence smaller protein meal consumption) are starting to appear. The fall pig crop and December 1 inventory were revised downward. March 1 breeding animals were down from last year and the previous quarter. Weekly hog slaughter data in March suggest that a slight increase in sow slaughter may be beginning. March-May 1996 farrowing intentions are 1 percent below last year and June-August farrowing intentions are the same as a year earlier. The slowdown in soybean meal consumption also could show up soon in the poultry sector. But, hatching data through February are still above a year ago, indicating that any contraction has not yet started. USDA's Grain Stocks report indicated that soybean stocks as of March 1 were 180 million bushels below last year's ample amount. Total use for the first half of 1995/96 was just 60 million bushels less than the first half of 1994/95. The report also confirmed a substantial reduction in stocks of corn and other feed grains since last year, suggesting significant rationing and scrounging for substitutes are needed for the last half of the season. Old crop futures prices for corn, soybeans, and soybean meal surged soon after this report was released. With a reduction in crush, even shorter (down 250,000 tons) soybean meal supplies are anticipated from last month. So, given no change in domestic use from the March forecast, USDA raised its projected 1995/96 price range for soybean meal to $215-$235 per ton. SHARPER COMPETITION DAMPENS U.S. SOYBEAN MEAL TRADE U.S. soybean meal exports are down 200,000 tons from the March projection to 5.4 million short tons and 1.3 million tons less than 1994/95. Although soybean meal demand from China and other Asian countries is projected up, strong competition from South American soybean meal and lower U.S. soybean meal production are expected to limit U.S. soybean meal exports in 1995/96. As in 1993/94, another strong meal market year, relatively low carryout stocks of meal at mills (150,000 tons) are anticipated. Normally, South American soybean meal exports gradually dip during the October-March. However, extremely low prices at harvest (April-July 1995) in Brazil and Argentina led farmers and the government to store more soybeans than usual. Rising soybean prices by late October 1995 and intentions by Brazil's Rio Grande do Sul to reduce the ICMS tax for soybean meal and oil pushed South American soybean farm sales and soybean crush to levels above the average for October 1995-March 1996. Projected 1995/96 soybean imports into the EU were lowered this month to 14.5 million tons, down 300,000 tons from March. While the year-to-date U.S. shipments to the EU are just slightly below last year, soybean imports from South America are expected to fall during April-September. Reduced crush margins and a large rapeseed crop are the primary reasons for this decline. Although the EU program to counteract the Mad Cow disease will dramatically reduce the number of cattle in the UK, the overall effect on meat consumption and meat and bone meal use is unclear. UK beef consumption will undoubtedly fall in 1995/96. However, the extent of this decline and the prospects for an increase in consumption of other meats such as pork and poultry are yet uncertain. The effects of the ban on meat and bone meal on EU soybean meal consumption and imports is clouded by the fact that meat and bone meal consumption will be permitted if the meal receives a treatment process. This process is already in place in several EU countries. In addition, rapeseed meal is primarily used in the UK dairy industry, and these and other feedstuffs will compete with soybean meal for any increase in demand for protein meals. China is projected to become a net importer of soybean meal for the first time ever. Factors affecting China's soybean meal imports include falling domestic soybean meal production, rising production of meat, reduced import tariffs, and a projected decline in fish meal use for calendar year 1996. Despite an increase in soybean imports, a large drop in soybean production will likely reduce China's soybean meal production by more than 10 percent from the 1994/95 record. A rapid increase in fish meal prices relative to soybean meal prices, and a reduction in soybean meal import tariffs from 20 percent to equal the 5-percent fish meal tariff, are expected to displace fish meal in favor of soybean meal imports during January-September 1996. China imports about 90 percent of its fish meal from Peru. A significant drop in the Peruvian fish catch during the last quarter of 1995, and a fishing ban since February 1, 1996, have crippled that country's flow of fish meal exports and pushed fish meal prices to record levels. GROWTH IN DOMESTIC SOYBEAN OIL SUPPLY SLOWS Projected soybean oil production in 1995/96 was adjusted downward again this month because of lower crush and a lower oil extraction rate. The October-September expected crush of 1,360 million bushels times the 11.15-pounds-per-bushel extraction rate would produce 15,180 million pounds of oil. This would be down 165 million pounds from the March forecast. Falling production also slowed accumulation of oil stocks at mills and warehouses. March 1 stocks increased only 9 million pounds from the beginning of February. Even so, oil stocks were 35 percent above a year earlier. The slowdown in crush has firmed soybean oil prices, which averaged 23.5 cents per pound in March. The projected 1995/96 price was raised slightly this month to 23.5-25.0 cents per pound. WINDOW NARROWS FOR U.S. VEGETABLE OIL EXPORTS U.S. soybean oil exports are projected to fall again this month to 1,550 million pounds (703,000 metric tons), 6 and 42 percent lower than the previous month and year, respectively. The dimmer U.S. soybean oil outlook stems from a remote possibility of any surge in Chinese imports of U.S. soybean oil, large foreign shipments of sunflower and rapeseed oil to formerly U.S.-subsidized markets, and heavy selling of soybean oil by South American exporters during October-March 1996. China's ample supplies of domestic rapeseed and peanut oils, coupled with a boost in soybean oil imports from South America during October-January, have built up vegetable oil supplies. This has eased prices and limited China's import requirements. The difference between Chinese and international soybean oil prices is an indicator for potential imports. Currently, this gap is the narrowest since early 1994. By this time last year, China had taken 906 million pounds of U.S. soybean oil. This season, just 277 million pounds have been shipped to China. Global soybean oil import demand is projected down as competition from rapeseed, sunflower, and palm oils put pressure on vegetable oil prices. Countries in North Africa and the Middle East that have a consumer preference for sunflower oil are enjoying sunflower oil prices below those for soybean oil. Soaring supplies of European rapeseed and sunflowerseed from Argentina, Ukraine, and Russia will prevent any significant rebound in global and U.S. exports of soybean and sunflower oil during 1995/96. This may cause U.S. sunflowerseed crush and oil production to tumble about one-fifth from the 1994/95 record. U.S. SOYBEAN ACREAGE TO HOLD ITS GROUND IN 1996 Based on farmers' intentions as of early March, USDA projects soybean area planted at 62.5 million acres, nearly unchanged from 62.6 million a year ago. Most States indicate little change from last year, with acreage reductions in Indiana, Ohio, Arkansas, and Louisiana being almost fully offset by increases in Iowa, the Lake States, and the Great Plains. Iowa, Minnesota, Wisconsin, Nebraska, Illinois, South Dakota, and North Dakota farmers will plant record or near-record soybean acreage this spring. States that had larger soybean area generally dropped cotton, oats, and sunflower acreage. New-crop soybean prices that now exceed $7 per bushel may prompt an increase in double cropping with wheat in the South and are bidding some land away from cotton. However, if dryness in winter wheat areas persists, it may hold back some double cropping of soybeans. States that had smaller soybean area generally had more corn, barley, and wheat acres. Despite higher soybean prices, even tighter wheat and corn markets are pulling up grain acreage at the expense of soybeans. With the price ratio of November soybeans futures to December corn futures being slightly favorable to corn, soybeans will be less competitive this year in the major producing regions. New-crop futures (November 1996) prices sharply increased after the Prospective Plantings report was issued, reflecting the market's desire for more corn acreage without reducing soybean acreage to less than 62.5 million. U.S. SUNFLOWER, FLAXSEED AREA TO DROP Attractive prices for barley, spring wheat, and corn are curtailing farmers' plans to plant sunflowers this spring. And a flat vegetable oil market this year will depress returns for high oil-yielding crops more than for soybeans. The intended acreage for sunflowers is 3.0 million acres, down 13 percent from 1995. Farmers in North Dakota (the largest producing State) reported a 2-percent increase in intended acreage, most of which is for the non-oil variety. Despite favorable prices, persistent disease problems in wheat may have induced North Dakota farmers to consider more oilseeds in their rotations this year. But reductions in all other producing States (for both oil and non-oil types) result in a net decline in U.S. sunflower area. Flaxseed acreage would continue its downward trend, falling 4 percent from 1995 to 158,000 acres. North and South Dakota account for all of this year's decline. NEW FARM POLICIES AFFECTING OILSEEDS On April 4, President Clinton signed the Federal Agricultural Improvement and Reform Act, which establishes farm policy for the next 7 years. The new law eliminates annual acreage reduction programs, which sometimes held down acreage planted to oilseeds. Producers' payments will now be made on 85 percent of a farm's contract acreage and program yield. Farmers are allowed to plant any crop (excluding fruits and vegetables) on this acreage without risking future government payments. The 0-85/92 program, which permitted planting of minor oilseeds on program acres, is eliminated. However, the new flexibility provisions give farmers the same freedom to idle land or plant alternative crops, including soybeans. High grain and soybean prices this spring will likely bring more acreage into production that was idled under the 0-85/92 program last year. Greater planting flexibility is apt to replace continuous corn production with a half corn-half soybean rotation. It may also shift more rice acres in the Delta to production of soybeans. Loan rates for oilseeds were set at 85 percent of the average price for the preceding 5 years (excluding the high and low years). This change makes loan rate determination for oilseeds on the same basis as other program crops. However, the rates cannot fall below $4.92 per bushel for soybeans or exceed $5.26. Under the new formula, the 1996 rate would be about $4.97 per bushel and with high prices again in 1996, the loan rate could be near $5.26 by 1997. The loan rate for 1995 was $4.92. This change adds greater security to some farmers and may marginally increase soybean acreage, most likely in the South. Similarly, the minimum and maximum loan rates are $8.90 and $9.30 per hundredweight, respectively, for sunflowerseed, canola, rapeseed, safflowerseed, flaxseed, and mustard seed. In another influential provision for oilseeds, the new farm legislation reauthorizes the Conservation Reserve Program (CRP). The act caps CRP enrollment at 36.4 million acres. It also permits, with 60 days notice to USDA, withdrawal of less environmentally sensitive acreage that has been enrolled in the program for at least 5 years. Previously, USDA announced that it would only grant early release for CRP acres that would have expired in September 1996 and that are not highly erodible or otherwise environmentally sensitive. For contracts expiring this year, farmers also have the option to extend for 1 year. Farmers can sign up for the early out option through May 31 to make the land eligible for production flexibility contract payments in 1996. Given the compressed period available to complete the paperwork and the extra preparation necessary to return the land to crop production, USDA analysts estimate that only about 1 million acres may be freed up for crop production this year, with just a small boost to soybean acreage. Beyond 1996, the impact will undoubtedly increase net soybean acreage. Potential increases in plantings are subject to how farmers evaluate their expected future returns from farming the land eligible for early out versus the rental rates, which are to be based on the land's fair market value. Programs for export credit guarantees, foreign food assistance (PL-480), and the Export Enhancement Program (which includes vegetable oils) were also extended. Funding rates for EEP are set just below the amount permitted under the recently reformed General Agreement on Tariffs and Trade (GATT). The law also establishes the National Canola and Rapeseed Board, an organization formed to fund research and promote food and industrial uses of canola and rapeseed, which is to be funded by assessments on producers' marketings. ****************************************************************************** Information Contacts: Mark Ash Soybeans, Minor Oilseeds, Fats and Oils (202) 219-0712 Scott Sanford Peanuts, Cottonseed (202) 219-0835 Jaime Castaneda World Oilseeds (202) 219-0826 ****************************************************************************** The next Oil Crops Outlook is scheduled for 4:00 pm ET Monday, May 13. Table 1--Soybeans: U.S. supply and disappearance ------------------------------------------------------------------------------ Supply Disappearance -------------------------------- ------------------------------------ Year Seed, begin. Beg. Im- Produc- Total Crush Ex- feed, Total End. Sept. 1 stocks ports tion ports & resid. stocks ------------------------------------------------------------------------------ -------------------------- Million bushels--------------------------- 1993/94 292 6 1,871 2,170 1,276 589 96 1,961 209 1994/95 209 6 2,517 2,731 1,405 838 153 2,396 335 1995/96 1/ 335 5 2,152 2,492 1,360 825 117 2,302 190 ------------------------------------------------------------------------------ 1/ Forecast. Table 2--Soybean meal: U.S. supply and disappearance ------------------------------------------------------------------------------ Supply Disappearance ---------------------------- ------------------------------------ Year begin. Beg. Produc- Total Domestic Ex- Total End. Oct. 1 stocks tion ports stocks ------------------------------------------------------------------------------ ------------------------------1,000 tons----------------------------- 1993/94 204 30,514 30,788 25,283 5,356 30,638 150 1994/95 150 33,265 33,479 26,538 6,717 33,256 223 1995/96 1/ 223 32,407 32,700 27,150 5,400 32,550 150 ------------------------------------------------------------------------------ 1/ Forecast. Table 3--Soybean oil: U.S. supply and disappearance ------------------------------------------------------------------------------ Supply Disappearance ---------------------------- ------------------------------------ Year begin. Beg. Produc- Total Domestic Ex- Total End. Oct. 1 stocks tion ports stocks ------------------------------------------------------------------------------ -------------------------- Million pounds--------------------------- 1993/94 1,555 13,951 15,574 12,941 1,529 14,471 1,103 1994/95 1,103 15,613 16,733 12,916 2,680 15,596 1,137 1995/96 1/ 1,137 15,180 16,360 13,150 1,550 14,700 1,660 ------------------------------------------------------------------------------ 1/ Forecast. Table 4--Oilseeds prices received by farmers, U.S. -------------------------------------------------------- Marketing Soy- Cotton- Sun- year beans seed flowers Peanuts Flaxseed -------------------------------------------------------- $/bu. $/ton $/cwt Cents/lb $/bu. 1990/91 5.74 121.00 10.80 34.70 5.27 1991/92 5.58 71.00 8.69 28.30 3.52 1992/93 5.56 97.50 9.74 30.00 4.12 1993/94 6.40 113.00 12.90 30.40 4.25 1994/95 5.45 101.00 10.60 29.00 4.65 1994/95 September 5.47 101.00 10.70 30.60 4.54 October 5.30 96.00 10.50 28.60 4.49 November 5.36 107.00 10.60 25.90 4.51 December 5.41 103.00 10.30 25.80 4.71 January 5.47 95.00 10.60 25.70 4.76 February 5.40 70.00 10.80 NA 4.94 March 5.51 NA 10.40 NA 5.15 April 5.55 NA 10.70 NA 5.10 May 5.56 NA 10.50 NA 4.93 June 5.68 NA 10.50 NA 5.13 July 5.90 NA 11.50 NA 5.10 August 5.84 100.00 11.70 30.70 5.16 1995/96 September 5.99 100.00 11.00 29.70 5.11 October 6.15 99.00 11.00 28.80 5.11 November 6.39 114.00 10.80 29.50 5.13 December 6.76 116.00 10.90 28.30 5.03 January 6.78 98.00 11.00 29.80 5.27 February 7.01 120.00 11.50 NA 5.18 March1 6.97 NA 11.70 NA 5.30 -------------------------------------------------------- 1 Preliminary. Table 5--Vegetable oil prices --------------------------------------------------- Cotton- Sun- Marketing Soybean seed flower Peanut Corn year oil2 oil3 oil4 oil5 oil6 --------------------------------------------------- Cents/lb. 1990/91 21.00 24.10 23.67 45.50 27.50 1991/92 19.10 22.83 21.63 27.30 25.82 1992/93 21.40 30.07 25.37 27.40 20.90 1993/94 27.00 30.30 31.08 43.20 26.38 1994/95 27.51 29.23 28.10 44.30 26.47 1994/95 October 27.06 27.81 28.90 46.00 24.73 November 29.84 30.72 29.40 50.88 24.75 December 30.61 31.83 30.63 53.80 24.75 January 29.04 28.70 29.25 50.25 28.01 February 28.15 29.95 27.66 41.83 27.26 March 28.33 27.14 27.97 41.00 28.17 April 26.30 27.61 26.89 41.25 27.30 May 26.00 27.51 26.34 40.25 26.42 June 26.78 30.04 27.30 39.00 26.61 July 27.60 30.63 28.69 39.13 27.38 August 26.56 30.26 27.47 41.50 26.35 September 26.26 28.61 27.41 41.30 25.93 1995/96 October 26.56 27.61 27.49 42.50 26.05 November 25.41 26.27 26.25 41.63 25.54 December 24.76 26.10 25.98 39.20 24.99 January 23.69 24.45 24.65 37.25 24.52 February 23.65 24.35 24.23 36.00 24.30 March1 23.60 24.25 24.28 36.60 24.34 ------------------------------------------------------------------------- 1 Preliminary 2 Decatur 3 PBSY Greenwood MS 4 Minneapolis 5 Southeast mills 6 Chicago Table 6--Oilseed meal prices --------------------------------------------------- Soy- Cotton Sun- Marketing bean seed flower Peanut Linseed year meal/2 meal/3 meal/4 meal/5 meal/4 --------------------------------------------------- $/Short ton 1990/91 181.40 130.75 88.00 193.00 130.10 1991/92 189.20 140.50 76.80 154.50 125.25 1992/93 193.75 161.78 89.00 172.90 133.60 1993/94 192.86 164.30 94.00 194.91 139.55 1994/95 162.55 112.02 62.70 128.94 95.85 1994/95 October 168.50 134.40 75.00 151.25 122.50 November 161.00 120.50 69.50 147.50 110.00 December 156.90 114.20 52.50 127.00 95.60 January 156.40 106.75 50.00 105.00 82.40 February 151.30 97.50 46.88 107.50 85.25 March 156.90 100.30 52.50 119.00 90.00 April 161.90 98.10 62.50 125.00 94.40 May 159.10 92.75 60.90 123.75 85.00 June 160.40 108.75 62.38 134.00 85.00 July 170.45 116.90 73.75 138.75 92.50 August 166.70 116.50 83.75 136.25 95.00 September 180.99 137.60 NA 142.00 112.50 October 193.90 153.25 82.88 132.50 131.00 November 204.10 165.00 99.00 175.00 151.67 December 223.60 185.80 122.50 204.00 143.75 January 232.00 208.80 135.00 220.00 142.00 February 228.30 202.80 130.00 215.00 143.75 March1 226.57 195.63 123.50 210.00 155.00 ---------------------------------------------------------------------------- 1/ Preliminary. 2/ Hi-pro Decatur. 3/ 41% Memphis. 4/ Minneapolis. 5/ 50% SE mills. 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