Prices and Economic Indicators
MAY 1998 SUMMARY
In May, U.S. prices for soybean meal and corn registered counter seasonal declines from the previous month. In contrast, May prices for soybeans and soybean oil registered below normal gains. Vegetable oil prices were key with coconut, palm and soybean oil up 16 percent, 8 percent and 1 percent, respectively. The trade weighted index of vegetable oil prices was up 3 percent in May to a level 28 percent above a year earlier. The May 1998 index of prices received for all U.S. farm products were down 1 percent from the previous month and 5 percent below a year earlier. Annual percentage changes in May 1998 U.S. prices for selected commodities: palm oil +23; soybean oil +19; coconut oil +6; combined livestock and products -5; and corn -12; soybeans -25; soybean meal -48. Among the selected commodities, most May 1998 prices were below their respective 12-month trailing averages, except vegetable oils.
During May, most key indicators were below their respective 12-month averages except the feed profitability index, the broiler/feed price ratio, soybean oil as a share of product value, and U.S. soybean oil stocks. Despite the above average increase in foreign oilseed supplies, U.S. soybean disappearance (crush plus exports) during the 12-months ending May 1998 increased from a year earlier. Most of the expansion in foreign exports has come as oilseeds, rather than products. This is curbing U.S. soybean exports, but benefiting our exports of meal and oil.
DEVELOPMENTS WITH POSSIBLE PRICE IMPACT
Foreign 1997/98 oilseed supplies are up 4.7 percent following last year's 1.9 percent decline. Most of the output recovery is in South America, Canada, and the EU-15, partly offset by reduced carry-in stocks of soybeans in Brazil and Argentina.
U.S. soybean exports during Sept-May using Census data through March plus weekly inspections for export through May approximated 791 million bushels. However, this was only three million bushels more than a year earlier, reflecting the 9.6 million-ton gain in foreign oilseed supplies.
U.S. soybean crushing as reported by Census for September through April plus the adjusted National Oilseed Processors Association data through May were up 124 million bushels from the 1,117 million bushels crushed in the same period a year ago. This increase reflected reduced South American oilseed availabilities during Oct-Mar 1997/98 in the face of growing global use. In April 1998, US soybean crush capacity utilization was about 77.7 percent, compared with 71.3 percent a year earlier and 73.6 percent in April 1996, despite continued growth in capacity.
The U.S. 1997/98 soybean supply increased 293 million bushels reflecting expanded area and improved yields. This increase overshadows the 126 million bushel surge in soybean disappearance through May and will boost soybean stocks on Sept. 1, to 33 days of use, but still 25 percent below its 10-year average. Through March, 32 percent of the increase in U.S. soybean meal equivalent exports was to Brazil and Argentina.
U.S. 1998 soybean plantings as of June 7, were 86 percent complete, compared with a 68 percent average for that date. Crop conditions for soybeans as of June 7, were very favorable with 70 percent reported to be in good to excellent condition. Variations in planting dates explained 43 percent of the U.S. soybean yield trend deviations since 1980. In 1998, earlier than normal soybean plantings could kick yields above the 1980-97 trend, if rainfall is adequate, but a La Nino driven drought could hurt yields. Despite less favorable soybean prices in relation to competing crops, increased producer flexibility under government programs boosted 1998 U.S. soybean plantings 2 percent from last year and slightly above the previous record of 28.5 million hectares in 1979.
U.S. 1998 cotton plantings as of June 7, were 89 percent complete, equaling its average for that date. On that date, 49 percent of the cotton area was in good to excellent condition compared with 59 percent last year.
Competing exports of soybeans and meal, as meal, from Brazil and Argentina during Oct-Mar 1997/98 totaled 6.1 million tons, or 1.2 million tons less than the same months a year earlier. In the same period, U.S. soybean meal equivalent exports were 20.4 million tons, or 2.2 million tons more than the same months a year earlier. Despite lower prices, combined soybean meal equivalent exports from the U.S., Brazil, and Argentina during Oct-Mar 1997/98 gained only 4.0 percent from a year earlier following 7.6 percent growth a year earlier, reflecting slowing demand growth in some Asian countries.
U.S. soybean export expansion during Sept-Mar 1997/98, at 1.0 million tons, chiefly reflected gains to Argentina, Brazil and Mexico, Spain and the Netherlands. During the same period, U.S. soybean exports based on weekly export sales and inspections for export exceeded the volume reported by Census by 0.86 million tons.
U.S. soybean meal export expansion during the 6-months ending March 1998 exceeded 1.5 million tons. Most of the increase moved to the EU-15, Korea, Poland, Mexico, Syria, and Chile.
China's 1997/98 oilseed output at 43.4 million tons exceeded the previous estimate, but was about unchanged from the 1995/96 volume. China's 1997/98 oilseed area fell short of its 5-year average. However, China's annual growth in meal and oil use during the last 5 years averaged 2.6 and 1.1 million tons, respectively. Demand growth boosted China's annual average growth in net imports of oilseeds, meals and oils by 0.7, 1.4 and 0.6 million tons, respectively.
U.S. soybean oil stocks on April 30, 1998 totaled 1.868 billion pounds, compared with 2.164 billion pounds a year earlier. This represents 38 days of total U.S. soybean oil use, compared with 48 days a year ago. However, by Sept. 30, U.S. soybean oil stocks are expected to be about 1.4 billion pounds, or only 29 days of total use.
Malaysian palm oil stocks on May 1, 1998, at 0.63 million tons were 10 percent less than a year earlier, despite a 3.0 percent increase in output expansion during the 12-months ending April 1998. This followed 11.2 percent growth during the same 12 months a year earlier. Malaysia's palm oil output expansion for the 12-months ending April 1998, was 0.26 million tons, but is forecast to drop 0.30 million tons for the 12-months ending Sept. 1998. During the last 15 years, Malaysia's 12-month palm oil output has registered four declines between 7 months and 12 months and averaging 10 months. Unless unforeseen weather shifts take place, the current cyclical downswing in Malaysian palm oil output may continue to mid 1999. In Malaysia, the El Nino adversely affected rainfall and began curbing oil palm yields in October 1997. Based on rainfall through March, palm oil yields are unlikely to normalize until the second half of 1998/99.
U.S. coconut oil imports during the 12-months ending March 1998, at 644,000 tons, were up 44 percent from the same months a year earlier and 34 percent above its trailing 5-year average of domestic disappearance, reflecting the fact that prices have been at significant discounts to other oils. U.S. stocks of coconut oil at the end of April, were 144,476 metric tons or 82 percent above a year ago. In March, the U.S. coconut oil import unit value at $567 per ton dipped 24 percent from a year earlier. However, the lagged effects of reduced rainfall will limit Philippine coconut oil output in coming months and curb U.S. coconut oil imports as prices rise and stocks are depleted in 1998/99.
The El Nino was the wild card that boosted the oil/meal price ratio by lowering oil yields in South East Asia. This is curbing the growth in exports of tree crop oils thus boosting import requirements for other vegetable oils.
Current ending-stock estimates in days of use with comparisons include:
ENDING STOCKS IN DAYS BY REGION & COMMODITY
|96/97||97/98 MAY EST.||97/98
% DEV. FM
|US SOYBEAN OIL||34||26||29||43||-32%|
|WORLD VEG. OILS||35||30||30||39||-23%|
Despite this month's 2.6 million ton upward revision in 1997/98 world oilseed production, the global oilseed stock estimate remains unchanged. However, the corresponding expansion in crush and oil output will have little impact on ending stocks of oil.
Recent dip in daily soybean oil prices may have reflected: (1) less than expected March exports, as reported by Census; (2) reports of improved rainfall in Southeast Asia; and (3) uncertainties in India and Pakistan. However the underlying strength in vegetable oil prices has been reduced palm oil output and stocks in Malaysia, and it will take months of improved rainfall to change that. Furthermore; recent economic sanctions imposed on India and Pakistan will have little impact on U.S. vegetable oil exports since less than 2 percent of India and Pakistan's combined vegetable oil imports were from the U.S. last year. This season, more U.S. vegetable oil exports is moving to China, Hong Kong, Mexico, the Dominican Republic, and Korea.
Key percent changes in May 1998 U.S. prices for selected
|PRICES & PRICE RATIOS||
MAY 98 % DEV. FM MAY
MAY 10-YR. AV. % DEV. FM 10-YR. OCT-SEP AV.
MAY 98 % DEV. FM CURRENT FORECAST
|MAY 98 CHANGE FM PREVIOUS MONTH|
|48% SOY MEAL||-25.0%||+1.2%||-13.5%||-1.5%|
In May 1998, prices for soybean meal and corn declined counter seasonally to levels significantly below their 10-year averages, while prices for soybeans and oil registered below-normal gains. The bean/corn price ratio and the soybean oil/meal exceed their respective 10-year averages, while the soybean meal/corn is below its 10-year average.
Selected U.S. prices during May 1998 with 10-year comparisons
are as follows:
|PRICES AND PRICE RATIOS||
10-YR MAY HI
|10-YR MAY LO||10-YR
|SOYBEANS, CASH ($/BU)||
|SOYBEANS, JUL. FU ($/BU)||8.67||5.79||6.81||6.39|
|SOYBEANS, NOV. FU ($/BU)||7.76||5.92||6.61||6.16|
|CORN, CASH ($/BU)||4.14||1.94||2.60||2.36|
|SOYBEAN/CORN PRICE RATIO||3.60||1.86||2.60||2.66|
|48% SOYBEAN MEAL ($/ST)||306||159||213||160|
|SOYBEAN OIL (CENTS/LB)||29.1||20.2||23.7||28.3|
|SOY MEAL/CORN PRICE RATIO||3.44||1.65||2.36||1.90|
|SOY OIL/MEAL PRICE RATIO||3.27||1.55||2.30||3.54|
May 1998 prices for U.S. soybeans, corn and soybean meal were below their respective 10-year averages for that month and soybean meal is near its 10-year low. In contrast, soybean oil prices were above the 10-year average and the soybean oil/meal price ratio exceeded its 10-year high. Price volatility for both soybean meal and oil have increased sharply in recent months and this may continue until palm oil yields in Southeast Asia normalize and the magnitude of the 1998 U.S. soybean crop is assured.
1998/99 SUPPLY-DEMAND PROSPECTS
U.S. 1998 oilseed plantings expand to new record reflecting U.S. policy changes under "freedom to farm". This expansion is overriding less favorable soybean prices in relation to corn and cotton. Depressed wheat prices, wheat disease problems and relatively high vegetable oil prices encouraged expansion of oilseed plantings (soybeans, canola and sunflowers) in traditional wheat growing areas.
U.S. soybean supply prospects are favorable reflecting early plantings and abundant moisture which should benefit yields. Unlike the last year when U.S. oilseed area was up nearly 10 percent, this year's 1.5 percent increase in area could be overshadowed by yield changes. If yields are on trend, U.S. soybean output will be record large, and with the sharp increase in carry-in stocks will result in a sharp rise in ending stocks to a level in the magnitude of 57 days of use, or 28 percent above its 10 year average. Even a "La Nino" drought would likely not prevent some recovery in ending stocks and hold prices below a year earlier.
U.S. next crop export sales are shifting from soybeans toward products. Heavy new crop movements from South America are now curbing U.S. exports of soybeans, although U.S. meal and oil exports continue strong. Feed profitability indexes are recovering with declining feed ingredient prices and this will spur meal demand, except in some Asian countries where weakness in local currencies are shrinking usage. U.S. export sales of 1998 crop soybeans as of the first week in June amount to 1.8 percent of the 1998/99 forecast, compared with 10.1 percent a year earlier and its 10-year average for that date of 3.7 percent. We believe that the sharp decline in new crop export sales is not signaling a sharp drop in U.S. soybean exports because recent new crop soybean futures in May were $0.91 per bushel over the mid-point of the current new crop price forecast range. Furthermore, South America is moving a larger share of their exportable supplies in the form of beans rather than products. Comparably, U.S. export sales of 1998 crop soybean meal as of the first week in June amounted to 4.4 percent of the 1998/99 forecast. However, we expect U.S. exports to register above normal seasonal strength in the second half of 1998/99.
In 1998/99, despite recovery, U.S. oilseed ending stock use coverage will fall short of that in 1991, and 1985-87 and are not expected to result in a global recovery in vegetable oil stocks. This is because: (1) a large share of the expansion in oilseed crush is expected to be as soybeans which have a relatively low percentage of oil, in relation to most oilseeds; (2) the recovery in palm oil output will not coming until the second half of 1998/99; (3) it will take months to boost pipeline stocks of vegetable oil to above average levels not seen since 1993. Thus, we could see above-average vegetable oil price volatility, in 1998/99.
Canadian 1998 oilseed area will exceed 6.0 million harvested hectares, reflecting more favorable rapeseed prices in relation to wheat. However, below-normal rapeseed carry-in stocks and below normal growth in area are expected to result in a below-average increase in 1998/99 oilseed supplies and this could slow the growth in Canadian exports. Furthermore, continued dry weather could trim yields below the current forecast.
India's 1998 oilseed plantings may expand, but output will be heavily dependant upon a timely monsoon. Unless widespread rains soon develop, soil moisture may be insufficient for timely oilseed plantings and could result in below normal yields. In 1997/98, India produced 26.2 million tons of oilseeds, or 6.3 percent less than last year. The reduction in output is now curbing India's meal exports, but oil imports could drop 10 percent to 1.48 million tons if domestic usage drops 0.24 million tons, as currently forecast.
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