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USDA Oil Crops Outlook


10 February 2012

USDA Oil Crops - February 2012 USDA Oil Crops - February 2012

Despite a dimmer outlook for South American soybean production, U.S. exports for 2011/12 are expected to be unchanged at 1.275 billion bushels as an anticipated upswing in sales may only narrow a large gap with last year’s pace of shipments.
USDA Oil Crops Outlook

Losses in South American Soybean Production May Revive Interest in U.S. Supplies

Despite a dimmer outlook for South American soybean production, U.S. exports for 2011/12 are expected to be unchanged at 1.275 billion bushels as an anticipated upswing in sales may only narrow a large gap with last year’s pace of shipments. Domestic processing margins for soybeans have not appreciably improved, either, so the 2011/12 crush forecast did not change from 1.615 billion bushels. Without changes in forecast U.S. soybean demand, the expectation for season-ending stocks is unchanged at 275 million bushels.

Based on smaller South American crops, global soybean production for 2011/12 is forecast down by 5.5 million metric tons this month to 251.5 million. In Brazil, drought losses in the South are forecast to reduce 2011/12 soybean production by 2 million tons this month to 72 million. Soybean production for Argentina in 2011/12 is also forecast down this month to 48 million tons from 50.5 million due to lower estimates of area and yields.

DOMESTIC OUTLOOK

U.S. Prices Rally With Declining Prospects for South American Soybean Crops

Domestic soybean prices strengthened last month as the likely damage to South American soybean crops increased. The value of soybeans at central Illinois country elevators rose 60 cents to a January average of $11.83 per bushel. Comparable increases were seen for other U.S. cash markets. But the impact on the U.S. season-average farm price is muted by the high proportion of the 2011 soybean crop already sold by farmers through last month. USDA narrowed the range of its 2011/12 price forecast to $11.10-$12.30 per bushel from $10.95-$12.45 last month. Similarly, the tightening of global supplies boosted January average prices for soybean meal (to $311 per short ton from $282 in December) and soybean oil (to 51 cents per pound from 50.2 cents).

So far, a dimmer outlook for South American production has benefited U.S. export sales very little. In January, U.S. soybean export shipments rebounded compared to December but that only accelerated the decline in outstanding sales. New export sales from the United States were tempered last month by record January soybean shipments from Brazil—supported by seasonally large old-crop stocks. Cumulative U.S. export inspections through February 2—at 755.6 million bushels—still lagged the previous year’s pace by 268 million bushels. Nonetheless, a brief improvement in U.S. sales and shipments is anticipated although that may only help to narrow a large gap with last year’s exports. Sales for fall delivery should be even more active. Total soybean exports for 2011/12 are expected at 1.275 billion bushels, which is unchanged from last month’s forecast and down sharply from the 2010/11 total of 1.501 billion.

Domestic processing margins for soybeans have not appreciably improved, either, so the 2011/12 crush forecast did not change from 1.615 billion bushels. Without changes in forecast U.S. soybean demand, the expectation for season-ending stocks is unchanged at 275 million bushels.

INTERNATIONAL OUTLOOK

Global Soybean Stocks To Fall in 2011/12 as Yield Losses Accumulate in South America

Based on lower South American crops, global soybean production for 2011/12 is forecast down to 251.5 million metric tons, compared to 257 million last month and the 2010/11 total of 264.2 million. It was previously anticipated that soybean production gains for South America would partly offset the reduction in U.S. output, but this now seems unlikely. Lower soybean output is expected to reduce global ending stocks 13 percent this year to 60.3 million tons.

In Brazil, soybean production for 2011/12 is forecast 2 million tons lower this month to 72 million. Much of the reduction is related to larger crop losses seen for Parana. With only about half of the usual seasonal precipitation in this southern State, the current drought rivals one from 3 years ago in severity. Farther south, the soybeans in Rio Grande do Sul are less developed, but rain is urgently needed to ease the stress on these later-sown crops. Despite these threats to soybean production in the South, Brazil may still harvest its second-largest crop ever this year due to higher area and favorable growing conditions for other regions. The pace of harvesting in Mato Grosso has been stalled by a persistence of wet weather there. Thus, only about 6 percent of the country’s soybean harvest has been completed to date.

A smaller harvest is expected to trim 2011/12 soybean exports from Brazil to 37.8 million tons from last month’s forecast of 39 million. Even so, this is still likely to set a record volume of soybean trade for the country by a wide margin. Brazil’s soybean shipments are also forecast to well exceed U.S. exports (34.7 million tons) this year.

Across the border in Paraguay, the weather has been just as dry as in Brazil’s western Parana, with very little rainfall since early December. Reduced area and sharply lower yields are seen shrinking Paraguay’s soybean crop this year to 6.4 million tons, compared to last month’s forecast of 7.6 million and last year’s record crop of 8.3 million. As a result, the reduction in Brazil’s 2011/12 shipments will be compounded by lower soybean exports from Paraguay, which are seen being 800,000 tons lower this month to 5 million.

A Make-or-Break Period Lies Ahead for Argentine Soybean Yields

December precipitation for central Argentina was near a historic low for the month. The drying was exacerbated by several episodes of intense heat. Since mid-January, however, the rainfall has moderately improved, helping to stabilize crop conditions and encouraging a resumption of soybean planting. The Argentine Government reported that 18.5 million hectares of soybeans were sown through February 2. Since farmers are very near the end of the feasible planting window, minimal increases in sown area are likely from this point on. USDA lowered its 2011/12 forecast of soybean area harvested for Argentina by 100,000 hectares this month to 18.6 million.

Despite some temporary relief, moisture deficits persist in Argentina. Water demand by crops will increase significantly there over the next 2 months as they advance into a reproductive stage. The smaller reserve of soil moisture makes the rainfall received for February-March even more crucial in determining soybean yields. If rains continue like they did a year ago (after a similar bout of early dryness), yields can still be close to average. Conversely, it is possible that soybean yields could collapse as they did 3 years ago when the drought continued unabated. Most affected now are the earliest-sown soybean fields, where the plants have been stunted by the adverse growing conditions. And where planting was deferred, Argentine farmers were forced to use short-season (but lower-yielding) soybean varieties. This month, lower estimates of soybean area and yields for the most-developed fields reduced the 2011/12 production forecast for Argentina to 48 million tons from 50.5 million.

Smaller supplies are expected to reduce Argentine soybean exports in 2011/12 to 8.9 million tons. This is down 900,000 tons from the previous forecast and below the 2010/11 exports of 9.2 million. In contrast, the Argentine crushing industry is more resistant to a crop reduction as it enjoys a significant advantage in the export of soybean products. Operating rates for processors are still close to record highs although in a year from now, the crop losses should constrain the industry’s growth. The Argentine soybean crush for 2011/12 is forecast at a record 38.9 million tons, up from last year’s 37.6 million but down 600,000 tons from last month’s forecast. Similarly, Argentine exports of soybean meal and soybean oil would be trimmed but still expanding. Soybean carryout stocks in Argentina are also likely to tighten, which could curtail exports early in the next marketing year.

Although Uruguay’s production of soybeans is dwarfed by its larger neighbors, it has expanded rapidly over the past decade. This year’s area was estimated up to a record 1 million hectares. But the region’s dry and hot weather encompassed Uruguay, too, and is anticipated to reduce its soybean yields. The country’s soybean crop is forecast down 100,000 tons this month to 1.7 million. Nearly all the soybean crop in Uruguay is exported.

Moderating Soybean Demand Seen for China

Tightening supplies and higher prices for soybeans are likely to slow the growth of global imports. World soybean imports in 2011/12 is seen rising to 90.8 million, which would be up from 88.8 million in 2010/11. However, compared to last month, the trade forecast is reduced 2.2 million tons. China—which accounts for approximately 60 percent of world soybean trade—figures prominently in this market development.

For China, October 2011-January 2012 soybean imports totaled 19.5 million tons—down slightly from 19.8 million a year earlier. Processing margins in China have been pressured by sluggish soybean meal demand and industry overcapacity. The growth in domestic feed demand has been interrupted by a low output of hogs. Producers have been forced to reduce herds for months by outbreaks of disease among the animals. The resulting supply deficit for pork (the country’s most popularly consumed meat) has been filled by imports. As soon as better control is gained over these animal diseases, rising feed demand this year should boost the profitability of crushing and gradually quicken the pace of soybean imports. At the same time, U.S. shipments could regain a modestly higher trade share of China’s soybean imports. Given the recent strength in prices, however, it is unlikely that demand by China’s crushers would expand strongly enough to reach USDA’s prior forecast of this year’s imports. Soybean imports by China in 2011/12 were forecast 1 million tons lower this month to 55.5 million.

Demand for the Canadian Canola Crop Is Growing Strongly

Last year’s record-large canola (rapeseed) harvest in Canada is disappearing rapidly. The evidence is that—despite a year-to-year increase in canola supplies of nearly 800,000 tons—the country’s stocks on December 31 were 140,000 tons lower than a year earlier. This rapid decline in canola stocks can be primarily attributed to robust export demand. Exports of canola from Canada are expected at a record 8 million tons in 2011/12—up 800,000 tons from last month’s forecast and last year’s total of 7.21 million. According to the Canadian Grain Commission, exports of canola were 4.7 million tons through January 29—more than 1 million tons ahead of last year’s pace. Shipments to China accounted for a majority of the increase. After declining last year, rapeseed crushing in China is expanding again. China’s 2011/12 rapeseed imports were forecast 200,000 tons higher this month to 1.4 million.

Domestic use of canola is strong, too, as Canadian processors are now better equipped to use the plant capacity that they added several years ago. For August-December 2011, the cumulative canola crush was 2.9 million tons compared to the previous year’s record pace of 2.6 million. This month, USDA raised its 2011/12 forecast for the canola crush in Canada by 100,000 tons to 6.65 million. Thus, even with Canada’s record supply of canola, brisk use could slash the season-ending stocks to an 8-year low of 1.1 million tons.

To a large extent, the additional supplies of canola products generated by Canadian crushers are being absorbed by the U.S. import market. An expansion of U.S. canola oil imports is forecast to a record 1.5 million metric tons this year—more than twice the volume just 5 years ago. These imports from Canada are helping to offset lower U.S. production of soybean oil and sunflowerseed oil. Also, U.S. canola meal imports could climb to a record 2.45 million metric tons in 2011/12 from 2.04 million in 2010/11.

China may also be importing more Canadian meal, too, after it recently banned rapeseed meal imports from India over a phytosanitary issue. These additional supplies, combined with a higher output of domestically processed rapeseed meal, could offset a moderate lowering of the country’s soybean meal supply.

February 2012

Published by USDA Economic Research Service

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