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Situation and Outlook
SUMMARY
U.S. oilseed production prospects for 1998 are off sharply from last month but are still expected to reach a record 84.3 million tons. Soybean production is forecast at a record 75.4 million tons (2.8 billion bushels), down 3.8 million tons from September but up nearly 2 percent from 1997/98. Indicated U.S. yield is off sharply to 2.6 tons per hectare (38.7 bushels per acre), and down slightly from the revised 1997 yield. Reductions in the Corn Belt account for most of the decrease. Cottonseed production is down again this month to 4.5 million tons, the lowest since 1989. The first survey-based sunflowerseed production forecast of 2.1 million tons is close to earlier indications. Peanut production is little changed this month at 1.6 million tons.
U.S. oilseed demand prospects for 1998/99 are reduced this month, reflecting lowered export prospects for seeds and products. Larger competing supplies abroad more than offset some increase in importer demand. Forecast soybean exports are reduced 816,000 tons this month to 22.6 million tons while soybean crush is lowered 680,000 tons to 43.5 million tons. Stocks are reduced 2.4 million tons to 10.8 million tons, representing 15.3 percent of use. A drop of 635,000 tons in forecast soybean meal exports to 7.6 million tons is the main reason for lower crush as increased domestic meal use is only partially offsetting. A strong finish in 1997/98 prompted an increase for projected 1998/99 domestic use. Soybean oil exports are also reduced, as increased supplies and exports in Argentina more than offset a small upward revision to importer demand. Domestic soybean oil use is raised to 7.0 million tons. Projected stocks of soybean oil are cut to 656,000 tons from last month's 721,000 tons.
Season-average U.S. soybean prices are forecast at $5.00 to $5.70 per bushel, up 35 cents from last month. Soybean oil prices are raised 1.0 cent per pound and soybean meal prices are raised to $130 to $150 per short ton.
Global oilseed production for 1998/99 is projected at a record 288.3 million tons, down 2.5 million tons from last month but up 1.5 million tons from 1997/98. Major foreign changes this month include a 1.0-million-ton increase for Argentina's soybean crop to 16.5 million tons and a 300,000-ton increase for India's soybean crop to 5.8 million tons. Partially offsetting this is a 300,000-ton reduction in China's soybean crop to 13.5 million tons. Argentine growers are indicating more interest in soybean plantings this coming season at the expense of corn plantings. China's soybean yield is cut marginally this month, based mainly on dry weather in Eastern Heilongjiang Province. Other notable changes this month include a 400,000-ton increase in China's 1998 peanut crop and sharp reductions in Indonesia's palm oil and palm kernel production estimates for both 1997/98 and 1998/99.
GLOBAL 1998/99 OILSEED HIGHLIGHTS IN OCTOBER
WORLD OILSEED PRODUCTION The global oilseed production forecast shrank 2.5 million tons from last month to 288.3 million metric tons, or only 1.5 million more than last year's estimate. The key change was the record large 3.8 million ton cut in the October U.S. soybean production estimate which overshadowed upward revisions in oilseed output in Argentina, India, Canada and China. This forecast includes a 2.6 million-ton cut in (yet to be harvested) oilseed output in Brazil, Argentina, Paraguay and Bolivia. However, Oct. 1, 1998 soybean stocks in
these countries were 4.6 million tons more than a year earlier. Also key, floods in China curbed yields and cut oilseed output 2.8 million tons.
US SUPPLIES With U.S. oilseed area about unchanged and less than previously expected yields, U.S. oilseed production is now forecast at 84.3 million tons or only 0.7 million tons more than last year. Above normal temperatures and below normal precipitation during August hurt the soybean yield, but this should result in an above normal oil extraction rate. Despite a below-average increase in oilseed output, larger carry-in stocks boosted U.S. indigenous oilseed supplies to 90.7 million tons. U.S. oilseed supplies will register an above-normal increase and account for one-third of the global expansion.
U.S. EXPORTS The FY-99 volume of U.S. oilseed and product exports is expected to dip 6 percent following last year's 8 percent gain to a record large volume of 36.6 million tons. The expected decline reflects below normal growth in foreign meal and oil usage. The U.S. oilseed and product export value could drop nearly 20 percent below last year's record large $11.5 billion estimate, chiefly reflecting depressed oilseed and meal prices and weak demand in some Asian Rim countries. However, vegetable oil prices are expected to continue at above-average levels reflecting the lagged effects of reduced rainfall on Southeast Asian oil palms and continued growth in China's income and imports.
OILSEED STOCKS Despite an expected decline abroad, U.S. oilseed ending stocks are still forecast to expand to 52 days of use, or 20 percent above its 10-year average. However, U.S. stocks will fall short of last month's estimate when the ending stocks were pegged 43 percent above its 10-year average.
VEGETABLE OIL STOCKS Global vegetable oil ending stocks are forecast at 30 days of use, slightly more than last month's estimate, but 25 percent below its 10-year average. In the United States, vegetable oil ending stocks will also remain below its 10-year average and tighten to 32 days of use compared with last month's estimate of 34 days of use.
PRICES This month's cuts in output and stock estimates are expected to moderate the decline in prices of soybeans and meal and boost soybean oil prices. During the 1998/99 marketing year, U.S. soybeans are now expected to be about 17 percent below last year and 13 percent below its 10-year average. Weak foreign demand could trim soybean meal prices 25 percent below last year's $205 per ton level. However, indications of a further decline in global vegetable oil stocks from last year's below normal use coverage should spur most oil prices to higher levels. U.S. soybean oil prices are expected to be 5 percent above last year's $568 per ton average and about 18 percent above its 10-year average.
IMPLICATIONS The reduced production estimate will add $1.3 billion to the farm value of the 1998 U.S. soybean crop. Double digit meal price declines will buy more domestic use, but larger Oct. 1 soybean stocks in South America will dampen U.S. exports in early FY-99. Weak income growth may slow foreign demand throughout FY-99. Despite low soybean prices and increased domestic usage, U.S. soybean stocks will build. The value of U.S. soybean and product exports will be curbed by depressed prices. The decline in meal prices will benefit livestock producer profitability. Early next year, South American oilseed production will drop if yields return to trend line levels. However, the high soybean/corn loan price ratio, with normal yields, will boost U.S. soybean production in 1999 and this could set the stage for a significant recovery in U.S. exports in FY-2000, particularly if foreign economic growth begins a recovery phase.
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