Prices and Economic Indicators

NOVEMBER 2000 SUMMARY

PRICE SUMMARY: In November, U.S. soybean meal prices registered above-normal seasonal strength as corn posted significant counter seasonal strength. Yet, prices for both commodities remain below their 10-year averages. In contrast, soybean oil prices continued to weaken in the face of rising stocks. Despite the strength in meal prices, weakness in oil prices held soybean prices to a below-average seasonal gain. The soybean/corn and soy meal/corn price ratios both registered counter seasonal weakness, but only the soybean meal/corn price ratio was above the 2000/01 forecast in November. Soybean crush margins improved sharply from last year's depressed levels, on abundant supplies and strength in meal. With record supplies, improved margins and continued income growth abroad, U.S. soybean exports and the crush will expand. Since the crush is geared to meal demand, oil stocks will build until palm oil output slows and/or foreign oil demand improves. The soy oil/meal price ratio has been in a down draft for 25 months. Since Oct. 1979, the three previous downswings in the soy oil/meal price ratio lasted between 15 and 38 months and averaged 27 months.

HISTORICAL PERSPECTIVE (1) In the two years ending 1998/99, foreign oilseed supplies registered sharply above-normal growth, reflecting record yields and above-normal expansion in area. (2) That caused global oilseed stocks to rise to a record volume, despite above-normal usage expansion and most oilseed prices dropped sharply. (3) In 1999/00, low prices curbed the growth in global oilseed area and allowed usage to outrun production. (4) We ended 1999/00 with 39 days of U.S. soybean stock/use coverage, or 9 percent below its 10-year average. (5) However, U.S. corn stock/use coverage remained large at 66 days, or 19 percent above its 10-year average. (6) The large corn stocks depressed 1999/00 prices and the linkage with soybeans pulled the U.S. soybean price down 6 percent to a level 20 percent below its 10-year average. (7) In 1999/00, above-normal expansion in palm oil output, boosted global vegetable oil stocks and devastated prices for most soft oils. (8) With depressed oil prices, soybean meal prices moved sharply higher to carry more of the load. (9) Above-normal meal/grain price ratios curbed meal feeding rates and slowed global meal usage expansion. (10) The weakness in the EURO against the U.S. dollar exacerbated the problem for European livestock and poultry producers.

WHAT NEXT? (1) In 2000/01, with higher yields global oilseed supplies will be record large, but only 1 percent above last year, reflecting little change in area. (2) With below-average prices and continued income growth in many countries, global oilseed usage will exceed output and trim stocks. (3) Some reduction in global stocks, together with slightly higher corn prices should result in some recovery in soybean prices. (4) With little change in foreign supplies, U.S. oilseed exports will increase. (5) However, the rise in U.S. exports may not prevent some increase in U.S. oilseed stocks, unless the draw down in foreign stocks is less than expected. (6) More attractive soybean prices could result in significant expansion in Brazil and Argentine production in coming months, if yields are on trend. (7) Expansion in South American output could curb the expansion in U.S. soybean exports during Apr-Aug. (8) Expanded oilseed production in China may result in reduced imports, despite continued growth in meal and oil, but the lack of definitive stock data make China's imports uncertain. (9) Low vegetable oil prices curbed planting of high oil-content seeds this season. (10) That will slow the expansion in global oil output and bring global vegetable oil output back into balance with usage following two years of global stock expansion.

ASSUMPTIONS: (1) This season, global real income growth may slow, reflecting higher petroleum prices. (2) Combined income and population growth is expected to boost global usage of vegetable oils and meals by 2.7 percent and 2.2 percent, respectively. (3) With below-normal growth in global oilseed supplies, global oilseed ending stocks may be worked lower, even as U.S. stocks continue to expand. (4) Below-normal growth in foreign vegetable oil supplies, should result in some recovery in U.S. vegetable oil exports. (5) However, U.S. vegetable oil stocks are expected to increase, as lauric acid oil stocks are replenished. (6) In December, the global oilseed output forecast was revised upward, reflecting more soybeans in Argentina, Paraguay and China; more peanuts in China; more sunflowers in the FSU-12: but less rapeseed and cottonseed in India and less sunflowers in Argentina. (7) However, upward revisions in the global oilseed crush will pull global oilseed stocks below the November estimate. (8) The global soybean crush is now estimated to expand by more than six million tons and offset more than a three million-ton decline in the crush of other oilseeds, chiefly sunflowers and rapeseed. (9) The shift in crush to more low oil content seeds will slow seed oil production, but cyclical recovery in olive oil output together with continued growth in output of tropical oils will likely hold global vegetable oil stocks unchanged, unless global oil usage exceeds our forecast and/or palm oil output falls short of expectations. (10) In December, the U.S. oilseed and product balance also benefitted from upward revisions in soybean and meal exports, partly reflecting the EU feeding ban on animal by-product meals. (11) However, the gap in EU animal by-product meals is also expected to boost South American exports from the upcoming crops to be harvested in Feb-Apr and this could prevent a recovery in South American soybean stocks ending Sept. 2001. (12) If these forecasts are on track, U.S. oilseed and product exports during FY-2001, excluding corn by-product meals, will be record large at 36.7 million tons, or 0.4 million tons more than last year. (13) U.S. exports of vegetable oils, as such, may increase slightly to about 1.2 million tons, but will remain below its 10-year average of 1.3 million tons and much less than the current U.S. vegetable oil import forecast of 1.7 million tons. (14) The current forecasts of upcoming South American oilseed crops assume that yields are on trend and that output exceeds last year's volume by about 3.7 million tons. (15) Until vegetable oil prices recover in relation to other commodities, there is no incentive for producers to plant more high oil content oilseeds such as rapeseed and sunflowers.

KEY PRICE SHIFTS Annual percentage changes in November U.S. prices for selected commodities are as follows: 48% soy meal +16; corn +8; all US farm products +4; combined livestock products +1; cash soybeans +1; soybean oil -14; palm oil -30; and coconut oil -53. Most selected commodity prices in November 2000 were above their respective 12-month averages, except vegetable oils.

INDICATOR SHIFTS: U.S. indicators that exceeded their respective 12-month trailing averages in November include: soybean exports; the soybean crush; the soybean meal/corn price ratio; the wheat/corn price ratio; the broiler/feed price ratio; soybean crush margins; U.S. soybean oil stocks; and Malaysian palm oil stocks. In contrast, the oil share of soybean product value has been lagging its 12-month trailing average, reflecting the continuing build-up in stocks of major competing oils. The soybean/corn and soybean/cotton price ratios and the hog/corn ratios also lag their respective 12-month averages.

NOV. 2000 U.S. PRICES WITH COMPARISONS:

PERCENTAGE CHANGES IN NOV. 2000 U.S. PRICE & RATIOS:

Possible implications of the above changes include: (1) Below-average soybean and corn prices may have trimmed factor inputs. (2) Depressed oil/meal price ratios may shift some high oil content oilseed area to competing crops. (3) Recent strength in grain and meal ratios may slow the expansion in livestock product output. (4) Above-average meal/grain price ratios may limit feeding rates. (5) Low oil prices could stimulate non food usage. (6) The counter seasonal drop in the November soybean oil/meal price ratio indicates a rise in oil stocks.

U.S. OILSEED SUPPLIES Although carry-in stocks were 1.9 million tons less than last year, higher yields and some increase in area will result in the fifth consecutive year of U.S. oilseed supply expansion. Expansion in U.S. oilseed supply plus below-average growth in foreign supply

will ensure continued expansion in U.S. oilseed exports. In 2000/01, growth in U.S. oilseed supplies is expected to account for more than half of the expansion in global oilseed supplies.

FOREIGN OILSEED SUPPLIES Indigenous foreign oilseed supplies are expected to increase by only about one million tons from last year's 237 million ton volume reflecting higher yields and a slightly larger carry-in. Canada and China account for much of the increase in foreign the oilseed carry-in. However, soybean stocks in Brazil and Argentina on Oct. 1, 2000 are estimated at only 10.0 million tons, or 2.5 million less than last year. South American oilseed output is forecast at 69.2 million tons, or 3.6 million more than last year. However, yields there will remain uncertain until March 2000. During the year ending September 2001, the bulk of the expansion in South American oilseeds will be crushed and exported as products, but expansion in soybean exports as such will slow sharply.

GLOBAL OILSEED US AGE Although global oilseed supplies are up less than three million tons, usage is expected to grow by about five million tons. The below-normal growth in demand will reflect slowing real income growth resulting from higher energy costs and higher prices for feed grains and oilseeds. This would imply a 15 percent draw-down in foreign oilseed stocks, although soybean stocks in Brazil and Argentina may remain about unchanged at about 10 million tons.

U.S. TRADE: Oilseed exports are forecast at a record 27.4 million tons. U.S. export growth will slow sharply despite meager expansion in foreign supplies, reflecting the factors mentioned above. Weak growth prospects for domestic demand and export sales would imply that U.S. oilseed stocks may increase somewhat. Although the shortfall in the South American soybean carry-in and the EU feeding ban on animal by-product meals should kick FY-2001 U.S. soybean exports into high gear, there are larger oilseed carry-in stocks in China and Canada. Key markets for potential expansion in U.S. exports will be the EU, Mexico and the Asian Rim countries.

Meal exports may decline slightly reflecting accelerated growth in competition from the up coming South American harvest together with below-average expansion in global meal trade. Most of the expansion in EU demand will be from oilseed imports, while China's crush expansion will be fed by growth in indigenous supplies. There are limited growth prospects for meal in Mexico, the Philippines, Thailand and Turkey, but meal market prospects in the FSU, and Eastern Europe are bleak.

In contrast, U.S. vegetable oil exports are expected to recover to somewhat, following two consecutive years of double digit percentage declines. The fundamentals are now more favorable with: (1) Very low prices; (2) Prospects for slowing growth in global palm oil supplies; (3) Continued expansion in foreign usage; and (4) Indications of growing vegetable oil exports to China and Pakistan. Other markets that may have potential for expanding U.S. oil exports include Mexico, Bangladesh, and India.

U.S. oilseed and product export value, excluding corn gluten feed and meal, is forecast at $9.0 billion, or 1 percent more than FY-2000, reflecting a record volume of 36.7 million tons and some recovery in export unit values. During the past decade, annual changes in U.S. oilseed and product exports ranged between +31 percent in FY-95 and -22 percent in FY-99. If unfavorable weather shrinks South America yields below our estimates, U.S. oilseed and product exports could benefit.

OILSEED STOCKS U.S. oilseed ending stocks are expected to rise to 41 days of total use, compared with 38 days of use a year earlier, but 2 percent below its 10-year average. In contrast, foreign oilseed ending stock/use coverage is forecast to drop to 26 days of use, or 13 percent below its 10-year average.

PRICE IMPLICATIONS The downward revision in U.S. and global oilseed stocks, together with higher corn prices is expected to bring only a mild recovery to the long depressed soybean market. Although the midpoint of this month's USDA soybean price forecast was increased to $176 per ton, soybean prices will remain well below their 10-year average until oil stocks are reduced. Meal prices will continue to exceed the levels of a year earlier, as well as their 10-year average.

U.S. MEAL DISAPPEARANCE In 2000/01, U.S. oilseed meal usage is expected to increase 1.5 percent, or significantly below its 10-year annual average growth of 4.5 percent, reflecting slow growth in pork production. The November 2000 hog/corn ratio at 19.6:1.0, was 16 percent below the previous 12 months. Output expansion may not accelerate until 2002. The next Hog and Pig report will be released on Dec. 28. Although broiler/feed price ratios are favorable and output growth may exceed last year's 2.6 percent, future growth will remain sharply below its 10-year annual average of 6.6 percent.

FOREIGN MEAL DISAPPEARANCE Expansion in total meal use abroad is forecast at 2.4 percent, compared with the 3.9 percent 10-year annual average growth rate. Higher meal prices, slowing income growth and weak currencies in some countries will result in below-average expansion in foreign livestock output and leaner meal feeding rates. However, the mix will include more soybean meal usage in China and the Asian Rim countries, while total foreign usage of other meals declines somewhat. Soybean meal usage is expected to account for all of the expansion in global meal usage, compared with 43 percent last year.

VEGETABLE OIL DISAPPEARANCE U.S. vegetable oil domestic disappearance growth will accelerate to 3.8 percent, or slightly above its 10-year average growth, while foreign oil usage expansion slows following two consecutive years of sharply above-average growth. Foreign oil disappearance (beginning stocks, plus output, plus net exports to the U.S., minus ending stocks) will slightly exceed output. Despite some dip in total foreign stocks of vegetable oil, combined stocks in Malaysia, Indonesia and the Philippines are now expected to be record large, exceeding last year's 1.9 million tons. Oil stock changes in China and India, which are also important are not reported, but are expected to decline.

GLOBAL PER CAPITA VEGETABLE OIL USE TREND World usage (beginning stocks plus production less ending stocks) for the nine major vegetable oils is forecast at 14.04 kilos per capita, compared with 13.84 kilos last year and 10.64 kilos 10 years ago. In comparison, U.S. per capita domestic disappearance for the same commodities is forecast at 35.62 kilos, compared with 34.63 kilos last year and 28.30 kilos 10 years ago. In the foreign sector, per capita disappearance for the same commodities is forecast at 13.02 kilos, compared with 12.85 kilos last year and 9.74 kilos 10 years ago. This season will be the fifth consecutive that world oil usage has exceeded its long-term trend.

GLOBAL PALM OIL SUPPLIES WILL SLOW Following 1999/00, when world palm oil supplies (beginning stocks plus production) gained 13 percent to 21.1 million tons, the lagged effects of less favorable rainfall in Malaysia and Indonesia together with less expansion in carry-in stocks may cut this season's growth to only 7 percent. Palm oil prices have been depressed by the sharp rise in the 2000/01 global carry-in to 2.8 million tons, up 12 percent from a year earlier following last year's 49 percent increase from only 1.7 million tons. Despite slowing supply growth, global palm oil stocks are expected to continue to rise this season. Prices for most vegetable oils will remain depressed until stocks are worked lower.

CHINA'S OUTPUT EXPANSION MAY CURB OILSEED IMPORTS Although China's oilseed and product disappearance continues to exceed indigenous production, accelerated expanded planting boosted this season's oilseed production to nearly 48 million tons, or 2.5 million tons more than last year following annual growth of less than one million tons in recent years. Soybeans are expected to account for the bulk of China's oilseed and product imports, but the volume could drop more than two million tons from last year's 10 million ton volume, unless production falls short of current estimates. China's rapeseed imports are also likely to fall more than one million below last year's 3.7 million volume. However, depressed oil prices and growing usage may boost China's palm and soybean oil imports above last year's 1.2 and 0.6 million tons, respectively.

INDIA TO CONTINUE AS LEADING VEGETABLE OIL IMPORTER India's vegetable oil imports may approximate or exceed last year's record of 4.67 million tons, reflecting little change in indigenous production with continued population and income growth. In 2000/01, India's vegetable oil imports will be nearly four times the 1995/96 volume, reflecting nearly a 50 percent increase in usage in the face of reduced domestic output. As with China, India's stocks are not reported. This raises the level of uncertainty concerning import requirements. Some recovery in soybean production may boost India's soybean meal exports slightly to 2.5 million tons.

U.S. SOYBEAN DISAPPEARANCE During the 12 months ending Oct. 2000, U.S. soybean disappearance (crush plus exports) approximated 2.55 billion bushels, or 5 percent above the same 12 months a year earlier. Nov. 2000 was the 13th month consecutive month of expansion of the 12-month U.S. soybean disappearance, following 11 consecutive months of decline which bottomed in Feb. 1999 at 2.29 billion bushels. Although the U.S. 12-month trailing soybean disappearance should continue to expand throughout this season, the rate of growth will slow in after South American crops become available in Feb-Apr. 2001. During the 12 months ending Oct. 2000, U.S. soybean exports were 17 percent above a year earlier, while the crush was lagging by 2 percent. U.S. soybean disappearance in the 12-months ending Aug. 2001 is forecast at 2.580 billion bushels, or 1.1 percent above a year earlier.

SOYBEAN PRICES The mid-November U.S. farm price for soybeans was 1 percent above a year earlier and 1 percent above the previous month. During the last decade, November U.S. soybean prices averaged 1.0 percent less than the complete season weighted average price, but 5.5 percent under the average annual monthly peak. Although the November 2000 price was 23 percent below its 10-year average, it is only 6.0 percent under the midpoint of the current USDA season average price forecast. Using season to-date prices and the projected increase in ending stock/use coverage, U.S. soybean prices are expected to be in the range of 4 percent more than last year. Although cash soybean prices are expected to continue slightly above last year, the expected buildup in U.S. soybean stocks and large oil stocks will hold prices significantly below its 10-year average, unless unfavorable yields in South America cause a substantial supply shortfall.

CORN PRICES In mid-November, the U.S. producer price gained 5 percent from the previous month and 8 percent above a year earlier. Despite some recovery, the November price was 19 percent under its 10-year average for that month. During the past decade, November prices averaged 5 percent under its complete season weighted average. In Nov. 2000, corn prices were only 1.1 percent below the midpoint of the current USDA 2000/01 MY price forecast.

SOYBEAN/CORN PRICE RATIO In November, the U.S. soybean/corn price ratio dropped 4 percent from the previous month and 6 percent below a year earlier. The recent ratio was 5 percent below its 10-year average for that month while South American oilseed planting, still in process, is estimated at 29.9 million hectares, compared with 29.3 million hectares last year. The recent soybean/corn ratio is 12 percent below Nov. 1998 when South American oilseed planting expanded 5 percent to 29.4 million hectares. In contrast, U.S. oilseed area was about unchanged in 2000 at 37.3 million hectares, but increased 5 percent in 1999. If price prospects for new crop soybeans remain favorable in relation to competing crops, U.S. oilseed planting will continue to expand next year.

SOYBEAN MEAL PRICES The November U.S. 48-percent soybean meal price rose 5 percent from the previous month, but remained 6 percent under its 10-year average for that month. Meal prices are in a recovery phase with the Nov. 2000 level 16 percent above a year earlier. The recent soybean meal price was 1.4 percent under the midpoint of the current USDA 2000/01 forecast, but that forecast is 5 percent below its 10-year average. During the past decade, the average November soybean meal price was just under the season average price, but on an annual basis November price ranged between 32 percent over the 1997/98 average to nearly 14 percent under the 1995/96 average.

SOYBEAN MEAL/CORN PRICE RATIO In November, the U.S. 48-percent soybean meal/corn price ratio at 2.75:1.0 was 8 percent above a year earlier and 16 percent over its 10-year average for that month. The higher meal/corn price ratio with flat pork production will curb the growth in U.S. meal usage. During the last decade, the November soybean meal/corn price ratios averaged 5 percent over its 10-year annual average and ranged between 7 percent under in 1996/97 and 24 percent over in 1997/98.

PALM OIL STOCKS & PRICES Malaysia's Nov. 1, 2000 palm oil stocks were record large at 1.4 million tons and 19 percent more than a year earlier. In response, fob prices for refined-bleached-deodorized (RBD) palm oil, as well as olein dropped 30 percent from a year earlier. In Nov. 2000, Malaysian palm olein was priced 15 percent under than Decatur soybean oil, compared with 4 percent over a year earlier, reflecting the sharp increase in stocks in Malaysia. Because Malaysian oil output has both cyclical and seasonal patterns, prices will recover after yields are trimmed by less favorable and stocks are worked lower. November 2000 marks the 19^th month of the current cyclical upswing in Malaysian palm oil output. Since 1984/85, four previous upswings in Malaysian palm oil output have lasted between 28 and 38 months.

SOYBEAN OIL PRICES In November, the U.S. soybean oil price dropped 1 percent from October to 14 percent under a year earlier. During the past decade, the November soybean oil price averaged about 2 percent over its annual average and ranged between 5 percent under in 1993 and 27 percent over in 1998. The November 2000 soybean oil price is 9 percent below the midpoint of the current USDA price forecast. However, this season's large carry-in stocks of vegetable oil in the U.S. and key palm oil producing countries, together with prospects for continued expansion in global palm oil stocks this season will delay the recovery in oil prices until stocks are normalized.

U.S. OIL/MEAL PRICE RATIO In November, the U.S. soybean oil/48 percent meal price ratio dipped 6 percent from the previous month to only 1.49:1.0. That was 39 percent below its 10-year average for that month and 26 percent below a year earlier. Since Oct. 1979, this ratio has ranged between 1.55:1 in May 1997 and 3.87:1 in Dec. 1994. Our current forecasts indicate that the soybean oil/meal price ratio will continue sharply below-average in coming months. The soybean oil/meal price ratio is currently depressed by above-average palm oil output expansion in Southeast Asia. However, slowing palm oil output growth and accelerated oil imports by China could reverse the low oil/meal price ratio in 2001/02.

U.S. FEED PROFITABILITY Although feed profitability as measured by the ratio of the index of prices received by producers for livestock and products divided by index of prices paid for feed, as well as the broiler/feed price ratio have recently improved, the hog/corn price ratio weakened. However, all three ratios are at or above their long-term trends which should result in continued expansion in livestock product output. However, higher prices for meal and other feed ingredients will slow the growth in global meal usage. Weak currencies and poor livestock producer profits could adversely affect livestock output in some European countries.

U.S. CRUSH MARGINS After an extended period of depressed levels, soybean crush margins have significantly improved. Therefore, margins will not impede the crush this season. Increased margins reflect abundant U.S. supplies and growing domestic and export demand. In November, the U.S. soybean crush margin was 21 percent above a year earlier and 7 percent above its 12-month average. In contrast, November farm prices for soybeans were only 1 percent above a year earlier and 4 percent below its 12-month average. Thus, crush margins now account for a larger share of soybean product value.

Alan Holz PH (202) 720-0143; FAX (202) 720-0965

Last modified: Tuesday, September 14, 2004