From the May 2011 USDA Oil Crops Outlook Report:
"This fall, a lower domestic supply and larger stocks in South America could dampen U.S. soybean export demand."
A combination of corn demand for mandated ethanol by the U.S. government and soybean use for biodiesel production is leading to reduced soybeans on the market in the U.S. this coming season, raising soybean prices in the U.S. and making our market less competitive globally. At the same time, South America is increasing soybean production and is more competitive on the global soybean market.
"The inexorable decline of soybean oil stocks into next year is largely the product of a stronger outlook for its use in biodiesel."
You recall that as part of the $858 billion Middle Class Tax Cut Act of 2010 (passed on December 15, 2010) extending the Bush-era tax rates and a variety of expiring business tax credits, Congress extended the Biodiesel credit, a $1 per gallon credit, which had expired at the end of 2009. It was extended through 2011.
Market to Market summarized it up like this:
U.S. oilseed production for the year is projected at 99 million tons, down 1 percent over last year. Soybean totals account for most of the decline but reductions in sunflower seed, canola, and peanut production also are expected to be lower. USDA prognosticators anticipate soybean production will reach just under 3.3 billion bushels, down 44 million from the 2010 harvest.
Domestic soybean oil consumption is expected to increase by 7 percent primarily due to gains in biodiesel production. Even with a projected increase in global import demand, with lower U.S. supplies and higher South American output, has USDA experts predicting soybean exports to be down slightly at 1.6 billion bushels.
On the international level, biodiesel from a variety of sources, including palm oil, is being consumed by other nations, as well, leading to lower global vegetable oil stocks. (Go to the source for information on oil production other than soybean.)
Next, find highlights from the report.
- Despite gains for total oilseeds production in 2011/12, the projected global carryout for vegetable oils could be one of the tightest ever at 10.1 million tons.
- The U.S. soybean crop for 2011 is projected at 3.285 billion bushels, based on a harvested area estimate of 75.7 million acres and a long-term yield trend of 43.4 bushels per acre.
- A lower domestic supply and larger stocks in South America this fall could dampen U.S. soybean exports in 2011/12 to 1.54 billion bushels against this year’s record 1.55 billion.
- Season-ending stocks could continue to tighten to 160 million bushels from 170 million in 2010/11.
- The United States would remain the top exporter of soybeans, but its market share of global trade would dip to around 42 percent versus 44 percent in 2010/11.
- The price ratio between corn and soybeans this spring has favored corn. (Corn is 150 to 200 bucks an acre more profitable.)
- The USDA projects U.S. soybean oil exports for 2011/12 at 1.6 billion pounds—down more than half from 3.3 billion this year.
- The inexorable decline of soybean oil stocks into next year is largely the product of a stronger outlook for its use in biodiesel.
- Unlike the previous peak in 2007/08, when the biodiesel market was overwhelmingly led by export demand, next year’s market would be dominated by domestic consumption. Federal law has incrementally raised the minimum required U.S. consumption of biomass-based biodiesel to 800 million gallons in 2011 and 1 billion gallons in 2012.
- Soybean oil prices have climbed rapidly over the last several years. No end is seen for that trend in 2011/12 as even tighter supplies are likely.
- For 2011/12, global soybean production is projected to grow a modest 0.5 percent to 263.3 million metric tons.
- Higher prices would expand soybean area next season by 3 percent in Brazil to 25 million hectares and 4 percent in Argentina to 19.3 million hectares.
- Global ending stocks of vegetable oil are expected to plunge 16 percent in 2010/11 to 11 million tons.
- Palm oil may contribute the largest share of the gains in global vegetable oil production and trade.