Soybean Oil Value Surging as Meal Value Declines
In Feb. 1998, soybean oil accounted for nearly 40 percent of soybean product value, or 41 percent more than a year earlier and the largest share since Sept. 1995. Key factors underlying the rise in oil's share of soybean product value include below normal global carry-in stocks of vegetable oils and prospects of a further decline in oil stocks. Declining oil stocks are expected in response to continued expansion in global oil usage coupled with the lagged effects of El Nino on palm oil production. In addition, a record large soybean harvest in South America will continue to depress meal prices.
The inverse correlation between oil and meal prices will lead to lower meal prices as oil prices continue to rise. With expanded oilseed supplies, lower soybean meal prices will likely boost meal usage and crush. Crush expansion will also boost oil output and eventually help to moderate oil prices. However, the positive correlation between soybean and soybean meal prices point to lower soybean prices which will reduce the incentive to expand soybean plantings. The record large South American oilseed output now being harvested, together with some increase in U.S. oilseed plantings this spring sets the stage for further oilseed stock recovery and lower oilseed and meal prices in 1998/99 assuming normal U.S. yields. However, the soybean oil/meal price ratio will continue above average until stock recovery in the United States, as well as abroad is assured.
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