Prices and Economic Indicators

RECENT DEVELOPMENTS & IMPLICATIONS The March global oilseed output estimate was nearly unchanged from the previous month, with gains in China about offsetting losses in Argentina and India. However, some weakness in Asian demand will push global oilseed ending stocks to 31 days of use, compared with last month's 30 day estimate. Most of the expected recovery in foreign oilseed stocks will be in South America. Never-the-less, world oilseed ending stocks are projected to continue significantly below their 10-year average as are U.S. soybean ending stocks.

This month's ending-stock estimates in days of total use for 1997/98 with comparisons and percentage differences from their respective 10-year averages include:

This month's upward revisions in the current ending stock use coverage estimates from last month for U.S. soybeans and world oilseeds point to slightly lower than previously expected soybean and meal prices. Downward revisions in ending stock estimates for U.S. soybean oil and world vegetable oils indicate higher prices for most vegetable oils.

Outside the United States, the linkages between stocks and prices are much weaker than in the U.S. These differences may reflect the fact that the estimates for foreign stocks are less complete, less well known, and less reliable. Also, foreign producers' pricing power may vary depending upon stocking capacity and financial liquidity.

The global vegetable oil output forecast was revised upward by 0.33 million tons, reflecting gains in China and Indonesia and the EU-15, partly offset by slight downward revisions in India, Canada, Argentina and Thailand. However, strong demand is expected to trim U.S., as well as world vegetable oil ending stocks slightly below last month's forecasts and U.S. soybean oil exports should exceed the previous forecast because: (1) foreign vegetable oil supplies will expand by only 1.7 percent, or less than half their 10-year average annual usage growth rate; (2) foreign vegetable oil stocks are sharply below normal; (3) vegetable oil demand is very inelastic to price changes; and (4) China's expanding oil usage will overshadow the impact of slowing economic growth in some other Asian countries.

Weakness in the new crop soybean/corn futures price ratio could curb U.S. soybean plantings this spring in the corn belt. The above average soybean/cotton price ratio could benefit soybeans or corn. Recovery in vegetable oil prices relative to grain should boost plantings of high-oil content oilseeds.

KEY INDICATORS February indicators exceeding their respective 12-month trailing averages include: feed profitability; the broiler feed price ratio; soybean oil's share of product value; and U.S. soybean exports and crush. Indicators falling short of their respective 12-month trailing averages include: the soybean/corn price ratio; the soybean/cotton price ratio; the meal/grain price ratio; U.S. soybean oil stocks; the U.S. hog/corn ratio; U.S. soybean crush margins; Malaysian palm oil stocks; U.S. soybean oil stocks; and the value of the European Currency Unit (ECU) in U.S. dollars.

FEBRUARY 1998 PRICE SUMMARY Cash prices for U.S. soybeans and corn showed counter seasonal weakness, while soybean meal prices registered above-normal weakness. In contrast, soybean oil prices, at a discount to palm oil, showed counter seasonal strength. These prices, except for soybean meal, remained significantly above their respective monthly 10-year averages. Oil prices registered an above normal seasonal gain in relation to meal. Relative strength in soybean prices boosted the February soybean/corn price ratio slightly above its 10-year average. The February 1998 index of prices received for all U.S. farm products was 2 percent below the previous month and 4 percent less than a year ago. Annual percentage changes in February U.S. prices for selected commodities include: palm oil, +15; soybean oil, +11; and corn, -3; livestock & livestock products, -5; soybeans, -9; coconut oil, -15; and 48-percent soybean meal, -25. February 1998 cash prices for selected commodities were all below their respective 12-month averages, except for palm oil and soybean oil.

In February 1998, U.S. corn, soybean and soybean oil prices each exceeded its 10-year average for that month, while meal and the meal/corn price ratio lagged.

Possible implications of the above changes:

*** Improved cash soybean/corn price ratios boosted Southern Hemisphere oilseed plantings in late 1997.

*** Lower grain prices could improve feed profitability and could boost livestock product output.

*** Lower meal prices in relation to grain, could boost meal feeding rates.

*** Above normal oil/meal and oil/grain price ratios may boost plantings of high-oil content crops this spring.

Key percent changes in February 1998 U.S. prices for selected commodities are:

SOYBEANS In mid-February, U.S. farm prices for soybeans were slightly below the previous month, but above the 10-year average for that month. February soybean prices registered monthly declines in six out of the last 10 years. In contrast, March prices during the same years rose 90 percent of the time. Although the current price forecast implies a counter seasonal decline in soybean prices in coming months, U.S. ending stocks of soybeans are expected to be 29 percent below the 10-year average in days of use. Therefore, this season's average soybean price should remain above its 10-year average.

Although U.S. soybean stocks on Sept 1, 1998 are expected to remain below its 10-year average in days of use, the foreign sector will begin 1998/99 with nearly four million tons more carry-in, compared with this season's 3-million ton decline. Unless U.S. oilseed yields in 1998 are significantly below-trend, the stage is set for a significant increase in U.S. and global oilseed stocks and lower prices in 1999. The historic inventory soybean cycle which resulted in peak prices in 1993/94, 1988/89, 1983/84 and 1978/79 was disrupted by strong grain demand which curbed foreign oilseed plantings in 1996/97. This cut soybean stocks and boosted prices to the highest level since 1988/89. The price increase triggered expansion in 1997 oilseed plantings and output that could boost stocks and curb prices next year, unless the "El Nino" is followed by a "La Nino" which could adversely affect U.S. yields in 1998. However, prices are likely to remain at above-average levels until above normal stock levels are assured.

In February, producer prices were 21 percent below their May 1997 peak and 4 percent below their long-term trend. The chances are two out of three that monthly soybean prices will remain within one standard error, (plus or minus 13.8 percent) from the trend. In February 1998, with the market in transition, the November soybean futures were flat with farm prices. During the past decade, November soybean futures averaged 3.8 percent over the farm price for that month, but ranged between 5.6 percent under in 1997 to 8.8 percent over in 1991.

CORN The mid-February, U.S. producer price for corn was 2.3 percent below the previous month, but remained 2 percent above its 10-year average for that month. During the last 10 years, February corn prices registered monthly increases 70 percent of time, compared with 90 percent of the time in March. In February 1998, U.S. corn prices were 6 percent below a year earlier, reflecting some recovery in U.S. ending stocks which could benefit feed profitability.

CROP PRICE RATIOS The high soybean/corn price ratio that boosted South American oilseed plantings nearly 10 percent faded to 2.27:1.0 based on March 10 new crop futures, or 11 percent below a year earlier and 14 percent below its long-term average. Although unchanged from a year earlier, the soybeans/cotton price ratio is above average. In the U.S. corn belt, producers may plant more corn. In the cotton belt, the soybean/cotton price ratio favors soybeans, but for some, corn may be a better alternative. The depressed wheat/corn price ratio favors less wheat and more corn or soybeans in the western corn belt. Higher vegetable oil price will give a boost to sunflower and rapeseed plantings. This may result in a slight increase in 1998 U.S. oilseed plantings, following last year's 8 percent increase. However, adverse weather could prevent timely corn plantings and further boost soybean plantings. The first indication of U.S. 1998 crop plantings will be issued on March 31.

FEED PROFITABILITY In February, the U.S. feed profitability index was 6 percent above a year earlier and at its highest level in 29 months. Since 1965, the monthly changes in this index during February ranged between -1.5 and +7.6 percent and averaged +1.6 percent. In February, this index increased 3 percent despite lower livestock prices, reflecting lower feed prices. With improving efficiency and expanded farrowing, the hog/corn price has trended downward and the February ratio, at 14.1:1, was only 9 percent above its long-term low. In contrast, the broiler/feed price ratio in February was 6 percent above a year earlier, while its 12-month average gained 6 percent from a year earlier.

CRUSH MARGIN Despite expanded 1997/98 U.S. supplies, the February 1998 soybean crush margin dropped 28 percent from a year earlier to a-level 41 percent below its 12-month average. Larger supplies normally result in improved margins. However, this season U.S. producers have been reluctant to sell at prices significantly below last year when a "La Nino" could follow the "El Nino," bring dry weather and curb yields. Also, crushers have been forced to bid more competitively for beans during a period when reduced soybean stocks in South America and larger purchases by China were boosting U.S. soybean exports. Despite reduced margins, U.S. soybean processors' capacity utilization in January rose to 88.2 percent, compared with 85.9 percent a year earlier. U.S. crushers continue to expand capacity. However, during the last decade, the 3-year average of U.S. soybean production increased 23 percent, while U.S. soybean crush capacity is estimated to have increased only 19 percent.

U.S. SOYBEAN DISAPPEARANCE About 48 percent of the 290 million bushel increase in the 1997/98 U.S. soybean supply was used up during the first half of the marketing year. By the end of February, U.S. soybean disappearance (crush plus exports) using Census data plus preliminary weekly data totaled 1,524 million bushels, or 140 million bushels more than the year earlier period. During Sept-Feb 1997/98, the crush and export each increased 10 percent from a year earlier to about 838 million bushels and 686 million bushels, respectively. Current forecasts imply that the U.S. soybean crush and exports will both slow sharply during Mar-Aug 1998.

SOYBEAN MEAL February prices for U.S. 48-percent meal were 27 percent below a year earlier and 15 percent below its long-term trend. The down swing in meal prices, now 37 percent below the May 1997 peak, reflects the expected surge in competing exports from South America, as well as shrinking demand prospects in some Asian countries due to currency devaluations. However, abundant U.S. soybean supplies and lower than previously expected prices will boost U.S. soybean meal exports significantly above the previous record of 6.6 million metric tons in 1986/87. Cumulative exports plus outstanding export sales through February exceeded 6.3 million tons or 66 percent more than a year earlier.

SOY MEAL/CORN PRICE RATIO Despite some recovery in U.S. corn stocks and expanding meal exports, the February 1998 U.S. soybean meal/corn ratio was 3 percent below the previous month and 23 percent below a year earlier. During the nine months ending February 1998, the U.S. soybean meal/corn ratio dropped 32 percent to a level 13 percent below its long-term average of 2.48:1. Reduced meal/grain price ratios should boost meal feeding rates, feed profitability and finally meal usage.

U.S. SOYBEAN MEAL USAGE & EXPORTS During the 12 months ending December 1987, U.S. soybean meal domestic disappearance, at 27.5 million short tons gained 2.1 percent, despite higher prices. With significantly lower prices expected for the Mar-Sep 1998, U.S. soybean meal usage expansion is expected to accelerate to 3.3 percent compared with only 1.6 percent growth during the same months a year earlier. Although domestic meal usage is benefitted by growing U.S. animal product exports, growing meal imports, largely rapeseed meal from Canada will approach 1.2 million tons, or 14 percent more than last year. In contrast, U.S. soybean meal exports which surged 38 percent during Oct-Dec. 1997 are expected to drop 2 percent during Jan-Sept. 1998 from the same months a year earlier.

SOYBEAN OIL PRICES In February, U.S. prices were up 6 percent from the previous month to a level 18 percent above a year ago, reflecting a 18 percent reduction in U.S. soybean oil stocks from a year earlier. Soybean oil prices in February were 21 percent above the depressed July 1997 level, but only slightly above its long-term trend. Previous cyclical peaks in soybean oil prices were $675 per metric ton in December 1994 and $654 per metric ton in July 1988. The downtrend in nominal prices for U.S. soybean oil, as well as other major vegetable oils which persisted for decades reversed during the last decade. The price reversal reflected the slowing rate of expansion in global meal use in the developed countries, as well as accelerating incomes and oil usage in the developing countries. The long-term upward trend in vegetable prices will likely continue for the foreseeable future.

U.S. SOYBEAN OIL USAGE & EXPORTS With a record crush of 1.48 billion bushels, up 6.6 percent during the 12 months ending Dec. 1997, U.S. soybean oil domestic disappearance, during the same 12 months at 14.44 billion pounds gained 5.6 percent, while Jan. 1, 1998 U.S. soybean oil stocks dropped 18 percent from a year earlier. The above average increase in domestic disappearance was inconsistent with factory consumption as reported by Census. This could indicate some buildup in oil in unreported positions. The current forecast would imply only a 0.4 percent increase in domestic disappearance during Jan-Sept. 1998, much less than the long-term average increase of 3.1 percent. U.S. soybean oil exports during Oct-Dec. 1997 rose to 841 million pounds, or 32 percent above a year earlier. Larger U.S. movements to China through Hong Kong accounted for most of the increase. The oil export recovery took place during a period of rising prices. Historically, forward coverage tends to surge during period of rising prices. The current export forecast implies that U.S. soybean oil exports will increase 26 percent during Jan-Sept. 1998 from the same month last year.

OIL % OF SOYBEAN PRODUCT VALUE In February, the U.S. soybean oil share of product value was 39.4 percent, or 41 percent more than a year earlier and the highest level since September 1995. Since October 1985, U.S. soybean oil as a share of total soybean product value ranged between 26.11 and 47.58 percent and averaged 33.54 percent. Following a down trend during the 1960's and 1970's, the soybean oil/48% meal price ratio trended upward during the last decade.

PALM OIL OUTPUT SLOWS AS CHINA'S IMPORTS GROW On February 1, Malaysian palm oil stocks were down 11 percent from a year earlier, despite output expansion. The reduction in Malaysian oil stocks reflected slowing output expansion, as well as growing exports to China. During the 12 months ending January 1998, Malaysian palm oil output expansion slowed to 7 percent, compared with 9 percent during the 12 months ending September 1997. However, the current Malaysian palm oil output forecast of 8.8 million tons for Oct-Sept 1997/98 implies reduced output in coming months. The lagged effects of reduced rainfall indicate less favorable yields in Malaysia and also Sumatra region of Indonesia in coming months. Reduced output would result in reduced stocks and higher prices, but China holds the key. China, the world's leading importer is expected to expand vegetable oil imports by 0.52 million tons, including 0.13 million tons more palm oil, reflecting reduced indigenous output, chiefly peanut oil. However, China's oil stock data are incomplete so it is difficult to predict exactly how much China will need or when they will cover those requirements.

PALM OIL PRICES February 1998 Malaysian FOB prices for refined bleached deodorized (RBD) palm oil were up 8 percent from the previous month and 18 percent above a year earlier. Malaysian FOB prices for palm oil rose to a 4 percent premium over Decatur soybean oil, compared with a 1 percent average premium during the last 12 months and a 17 percent average discount during the decade ending Sept. 1997.

COCONUT OIL The February 1998 U.S. coconut oil price was 28 percent below a year earlier, but 5 percent above its 10-year average for that month. The price cut reflected larger exports resulting from a sizable expansion in lauric acid oil output in the Philippines, Indonesia and Malaysia. With a relatively inelastic demand for lauric acid oils and limited inter-substitutability with other oils, prices for these oils in coming months could very be sensitive to output changes. The lagged effects of less favorable rainfall may curb the expansion in lauric acid oil output and exports from these three countries in 1997/98. Therefore the combined 1997/98 lauric oil output from the Philippines, Indonesia and Malaysia is forecast to drop 3 percent following last year's 17 percent increase. With inelastic demand, U.S. lauric acid oil usage is forecast at 0.64 million tons or 4 percent above its 5-year average, while net imports of lauric acid are forecast at 0.63 million tons, or 2 percent over its 5-year average. U.S. imports of lauric acid oils tend to fall short of usage when prices favor stock depletion.

US EXPORTS TO SELECTED COUNTRIES: With an 8.3 million ton increase in 1997/98 U.S. oilseed supplies, U.S. oilseed and product exports during Oct-Dec 1997 increased 2.9 million tons. Although the volume of U.S. oilseed product exports increased 22 percent in Oct-Dec 1996, export unit values dipped only 2 percent, reflecting tight supplies abroad. U.S. soybean exports through December were up 20 percent with Argentina, Brazil, Mexico, the Netherlands, Spain, Taiwan and Indonesia accounting for most of the gain. Comparably, U.S. soybean meal exports through Dec. 1997 were up 38 percent with Spain, France, Italy, Saudi Arabia, Mexico, and Germany showing significant gains. U.S. oil exports for the same three months were up 32 percent with the bulk of the increase moving to China through Hong Kong, with minor gains to Korea, Mexico, Peru, Tunisia, and the Dom. Republic. In coming months, U.S. exports of most oilseeds and meals will slow sharply, reflecting heavier competition from South America, U.S. vegetable oil exports should continue to expand at double digit rates, reflecting below-normal expansion in foreign vegetable oil supplies.

Alan Holz PH (202) 720-0143; FAX (202) 720-7670

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Last modified: Tuesday, September 14, 2004