February 2001 - Prices and Economic Indicators

ENDING STOCK/USE RATIO & PRICES The March forecasts were marked by key upward revisions in 2000/01 oilseed output. These include Argentine soybeans, +1.0 million tons; China soybeans, +0.3 million tons, and upward revisions in 1999/00 oilseed production Brazil soybeans, +0.8 million tons; China sunflowers, +0.5 million tons. These upward revisions boosted the global oilseed ending stock forecast 2.0 million tons above last month. Despite these upward revisions, global oilseed ending stock-use coverage is forecast at 38 days, compared with 41 days a year earlier, but 6 percent above its 36-day 10-year average. However, upward revisions in foreign meal usage will benefit U.S. soybean exports and trim U.S. soybean ending stock-use coverage slightly below last month’s estimate down to 44 days, compared with 39 days a year earlier. Never-the-less indications of larger global stocks forced a slight downward revision in the soybean price forecast. Above-normal corn and soybean stocks will likely continue to hold oilseed prices for these commodities in a below-normal range in 2000/01. Record large vegetable oil stocks in the U.S. and Malaysia have pressured most vegetable oil prices to their lowest levels in 30 years. The soybean oil/meal price ratio at less than 1.5:1 is also the lowest in decades. Despite upward revisions in Indonesian palm oil output, upward revisions in global oil usage are expected to curb the global vegetable oil ending stock-usage at slightly under a year earlier and prevent even lower vegetable oil prices.

1/ U.S. farm price. 2/ 48% bulk at Decatur. 3/ Crude bulk Decatur.

IMPLICATIONS (1) The increase in foreign oilseed ending stock-use coverage, as well as below average prices may curb U.S. exports and product exports in 2001/02. (2) Weakness in the new crop soybean/corn futures price ratio will not curb U.S. soybean planting this spring in the corn belt, reflecting the rise in Nitrogen fertilizer prices and the favorable soybean/corn loan price ratio. (3) Until vegetable oil stocks are worked lower, depressed vegetable oil/grain price ratios may hold down planting of high oil-content oilseeds. (4) Foreign demand for meal will continue to expand despite higher meal prices reflecting continued real income growth, but higher energy prices may slow that growth. (5) Despite depressed prices, vegetable oil commitments may lag until stocks peak and oil prices reverse their negative momentum.

KEY INDICATORS February U.S. indicators exceeding their respective 12-month trailing averages include: U.S. soybean exports and disappearance; the broiler/feed price ratio; the wheat/corn price ratio; the value of the EURO in U.S. dollars; U.S. stocks of soybean oil; and Malaysian palm oil stocks. In contrast, indicators that fell short of their respective 12-month trailing averages include: the soybean/corn price ratio; the soybean meal/corn price ratio; vegetable oil /grain price ratios; the hog/corn price ratio; soybean oil as a share of soybean product value; and the soybean crush margin.

FEBRUARY 2001 PRICES - HISTORICAL PERSPECTIVE

FEBRUARY 2001 PRICE SUMMARY U.S. prices for soybeans, soybean meal and corn registered above-normal seasonal weakness, on rising South American soybean output prospects. Soybean oil prices showed below-normal weakness despite sharply higher stocks. Prices for these commodities were all significantly below their respective monthly 10-year averages. Because U.S. ending stock/use ratios for soybeans and corn are forecast to increase this season, prices for both soybeans and corn are expected to remain below their respective year earlier levels. Oil prices registered sharp counter seasonal strength in relation to meal. The soybean/corn price ratio registered above-normal weakness to 7 percent below its 10-year average. The February 2001 index of prices received for all U.S. farm products was up 2 percent from the previous month and 6 percent above a year earlier.

Annual percentage changes in February U.S. prices for selected commodities include: livestock & products, +8; corn, -3; 48-percent soybean meal, -3; soybeans, -9; soybean oil, -18; and RBD palm oil, -36; and coconut oil, -59. February cash prices for selected commodities, except livestock, were below their respective 12-month averages.

IMPLICATIONS (1) Despite recent weakness in meal prices, lower grain prices and improved broiler prices will boost feed profitability and this could expand livestock product output and build meal demand in some countries. (2) However, livestock disease problems and higher meal/grain price ratios may curb meal feeding rates in the EU-15. (3) Despite indications of an above-normal U.S. oil ending stock/use coverage, the soybean oil/meal price ratio registered a large counter seasonal increase in February, despite a 6 percent increase in U.S. soybean oil stocks from the previous month to a volume 21 percent above a year earlier. (4) The recent relative strength in oil prices is from extremely depressed levels and coincided with some pick up in U.S. soybean oil exports and slowing percentage gains in monthly soybean oil stocks from a year earlier. (5) However, U.S. soybean oil prices are now 25 percent under Malaysian FOB prices for palm olein, compared with 1 percent under a year ago. (6) Recovery in U.S. soybean oil prices and exports cannot be achieved until foreign oil usage exceeds expectations or palm oil output expansion slows and stocks are worked to lower levels.

Feb. 2001 price changes with comparisons are as follows in percent:

In February 2001, U.S. prices for corn, soybeans and products were all below their respective year earlier levels and significantly below their respective 10-year averages for that month. The soybean/corn and soybean oil/meal price ratios also lost ground during the last 12 months and were also below their respective 10-year averages. In contrast, the soybean meal/corn price ratio held steady at 12 percent over its 10-year average during the last 12 months.

Longer term implications of the above changes:

*** Until the soybean/corn market price ratios recover above the U.S. soybean/corn loan ratio and Nitrogen fertilizer prices decline sharply, U.S. producers will likely continue to expand soybean planting.

*** Despite recent expansion, U.S. soybean area accounts for only 39 percent of global soybean area and U.S. oilseed area accounts for less than 20 percent of global oilseed, compared with 48 percent and 22 percent in 1985/86.

*** The current season’s average of U.S. oilseed yields is only 4.7 percent above its 10-year average. In contrast, foreign oilseed yields are expected to exceed their 10-year average by more than 11.6 percent.

*** Until oil/meal price ratios improve, producers of high oil content oilseeds will likely shift land from oilseeds to grain. Canadian planting intentions will be an early indicator.

SOYBEANS NASS reported mid-February farm prices for soybeans at $4.37 per bushel, or 9 percent below the year and the lowest for that month since 1972. This reversed the 10-month recovery in soybean prices during the Apr. 2000 through Jan 2001 when the 3-month trailing average of monthly U.S. soybean producer prices scored gains from the same months a year earlier. During the 1975-90 period, there were five periods when the 3-month trailing average of farm prices for U.S. soybeans exceeded the year earlier levels. The periods ranged in length from 12 to 23 months in length and averaged 15 months. Since 1990, there were also five periods when the 3-month trailing average of U.S. soybean producer prices exceeded the year earlier levels, but the duration of these price upswings ranged between 3 and 23 months, averaging only 10 months. The long-term soybean price trend since 1975 has been down as improved seed, cultural practices pushed up yields and more land was shifted into production. The sharp rise in South American soybean production has shortened the producer’s response to higher prices, flattened the seasonal variations in prices and made storage much beyond a new tax year unprofitable in most years.

CORN NASS reported mid-February farm prices for corn at $1.92 per bushel, or 3 percent below the year earlier level. Monthly corn prices have exceeded the 12-month trailing average for three months. Despite significant improvement since last October, the February 2001 corn price was the lowest for that month since 1988. In 2000/2001, the U.S. farm price for corn is forecast to average $1.80 per bushel, or 24 percent below its 10-year weighted average and the lowest since $1.50 per bushel in 1986/87.

SOYBEAN/CORN RATIO The U.S. soybean/corn price ratio has been trending lower since last August. The February 2001 level at 2.28:1.0 was 6 percent below a year earlier and 10 percent below the current forecast. Mar 7, 2001 cash prices put the soybean/corn price ratio at 2.27:1.0, but 2001 crop futures put that ratio at 1.91:1.0.

Key factors affecting soybean prices

Net Bearish This season, U.S. soybean carry-in stocks were down 1.8 million metric tons from a year earlier. However, beginning oilseed stocks abroad, largely soybeans in Brazil and Argentina, were up 3.6 million tons.

Bearish U.S. oilseed supplies are estimated to increase 1 percent and result in a 10 percent increase in ending stocks, reflecting flat exports and below average expansion in global usage.

Bullish Foreign oilseed output is forecast to increase only 0.8 million tons, reflecting reduced output of sunflowers and rapeseed, because of depressed oil/grain price ratios for these high oil content crops. However, foreign meal usage is expected to grow by 3.8 million tons, despite higher meal prices and higher meal/grain price ratios.

Mixed Although current estimates show that foreign oilseed supplies will increase only 4.3 million metric tons, foreign oilseed usage is also expected to grow by 6.6 million tons, reflecting a 3.8 million-ton expansion in meal usage. Despite the indicated expansion of the foreign oilseed deficit, the forecast 2.2 million-ton drop in foreign oilseed ending stocks would prevent recovery in U.S. oilseed exports.

Bearish Global palm oil output is forecast to register its third consecutive year of above-trend growth reflecting expanding bearing tree numbers in Malaysia and Indonesia, as well as higher yields driven by the lagged effects of above normal rainfall. This month, upward revisions for Indonesia are expected to push global palm oil ending stocks to a record volume accounting for 39 percent of the global vegetable oil stocks, compared with 35 percent last year and 29 percent in 1999. If correct, expect price discounts for palm oil to widen.

Summary The above factors appear to be net-bearish, but the full impact will take months to unfold. The expected increase in U.S. soybean planting is already factored into future’s prices, but yields are uncertain. Expanded U.S. soybean output could cut oilseed/grain price ratios and possibly boost foreign grain planting in 2001. That could boost the U.S. oilseed export volume, but when U.S. soybean stocks increase expect soybean prices drop.

U.S. 2001/2002 OUTLOOK For the 2001 harvest, U.S. farmers are guaranteed a soybean/corn loan price ratio of $5.26/$1.89 (2.78:1.0), unchanged from a year earlier, but much above the recent futures price ratios. Adding in the sharp increase in corn production costs, due to higher Nitrogen prices, and it would seem certain that the 2001 U.S. soybean planting will exceed last year’s 74.5 million acres. The USDA Planting Prospects Report will be issued on March 30.

With normal yields plus a 1.1 million-ton increase in carry-in, the 2001/02 U.S. soybean supply could register its largest increase since 1997/98. If yields are on trend, next year’s U.S. ending stocks will sharply exceed this year’s forecast of 46 days of total use, and reach the highest usage level since 78 days of use in 1987. This would put more downward pressure on soybean prices for the foreseeable future.

During the 1960's and 1970's, U.S. soybean prices rallied to new cyclical peaks every three or four years. However, the 3-month trailing average of U.S. soybean producer prices during past inventory cycle peaks in 1981, 1984, 1988, 1994 all failed to exceed its June 1977 peak of $8.81 per bushel, despite inflation and low U.S. stocks. What has changed? South American soybean stocks on Oct. 1, have been on a sharp upward trend and the total stock-use coverage has not justified higher prices.

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Mar. 8, 2001 Alan Holz PH (202) 720-0143; FAX (202) 720-0965

Last modified: Tuesday, September 14, 2004