May 2001 - Prices and Economic Indicators

MAY 2001 SUMMARY

In May, U.S. prices for soybeans and meal registered above-normal gains from the previous month in the face of strong soybean exports to China. In contrast, the corn price registered an above-normal counter seasonal decline, while soybean oil prices were flat. Recent U.S. Crop conditions for soybeans and corn were less favorable than a year earlier with excess moisture in many areas, while dry weather prevailed in China. Palm oil led most vegetable oil prices lower in May. The trade-weighted index of vegetable oil prices dropped 5 percent in May to 11 percent below a year earlier. Despite lower feed grain prices, the May 2001 index of prices received for all U.S. farm products was 2 percent above the previous month and 8 percent above a year earlier, reflecting gains in livestock and food grains. Key annual percentage changes in May 2001 U.S. cash prices for selected commodities: combined livestock and products, +13; soybean meal, -14; corn, -16; soybeans, -17; soybean oil, -19; palm oil, -32; and coconut oil, -47. In May, prices for most selected commodities were below their respective 12-month trailing averages.

During May, these key indicators exceeded their respective 12-month averages: the hog/corn price ratio, broiler/feed price ratio, the soybean/cotton price ratio, the wheat/corn price ratio and monthly U.S. soybean oil stocks. Below-average expansion in foreign oilseed supplies and growing domestic demand allowed U.S. soybean disappearance (crush plus exports) during the 12-months ending May 2001 to increase 5 percent from a year earlier. However, below-normal expansion in foreign meal and oil usage and large stocks are curbing U.S. oilseed and product exports and unit values. U.S. oilseed supplies now account for 27.4 percent of 2000/01 global supplies, compared with its 10-year average of 28.9 percent. U.S. oilseed ending stocks may dip to 35 days of use, or 17 percent below its 10-year average. In contrast, oilseed stock use coverage outside the U.S. is expected to be 22 percent above its 10-year average.

DEVELOPMENTS WITH POSSIBLE PRICE IMPACT

Foreign oilseed supplies are up 3.4 percent following last year’s 4.0 percent increase, compared with a 10-year annual average increase of 3.6 percent. This reflects soybean supply increases totaling more than 11 million tons in Argentina, Brazil, Paraguay and China, partly offset by a 3.4-million-ton reduction in supplies of all other oilseeds, largely rapeseed in Canada, Australia, India, the EU-15, and Poland, also sunflower seed in Argentina, China, Romania and Turkey.

U.S. soybean supplies increased 1.6 million tons because of higher yields and a slight increase in area, despite reduced beginning stocks. The below-average increase in supply will result in reduced U.S. soybean stocks on Sept. 1, 2001 from the year earlier volume of 7.9 million tons, reflecting some expansion in soybean exports and domestic meal demand.

U.S. soybean exports during Sept-May using Census data through March plus weekly inspections for export through May approximated 24 million metric tons. This was 1.7 million tons more than a year earlier, reflecting an 8.2 million-ton gain in foreign oilseed supplies in the face of an 8.7-million-ton increase in estimated foreign oilseed usage.

U.S. soybean exports to China at 5.2 million tons and Mexico at 2.3 million tons, increased 77 percent and 10 percent, respectively during Sep-Mar 2000/01. During the same period, U.S. soybean exports to the EU at 5.8 million tons were down 1 percent. U.S. soybean exports to all other countries were 14.0 million tons, down 4 percent from the same period last year.

The U.S. soybean crush using Sep-Apr Census data plus our unofficial estimate for May was up 0.9 million tons from the 32.9 million tons for the same period a year ago. The increase reflected some improvement in domestic demand for meal, despite weak exports in the face of increased South American exports during Oct-Mar 2000/01.

U.S. domestic meal demand growth is slow, reflecting below-average expansion in livestock product output. However, improved feed profitability is expected to accelerate meal usage in 2001/02.

U.S. soybean meal exports to Asia at 1.3 million tons and the EU at 0.5 million tons, increased 24 percent and 51 percent, respectively during Oct-Mar 2000/01. However, total U.S. soybean meal exports during that period at 3.9 million tons were down 3 percent, reflecting a 21 percent drop to all other regions, chiefly South America down 71 percent, and the Middle East, down 31 percent. Meal prices were higher through January. This with higher meal/grain price ratios may curb foreign meal usage growth to about 2.4 percent, or below its 10-year annual average growth of 3.9 percent.

U.S. soybean oil exports to North Africa at 74,900 tons and South Asia at 47,300 tons gained 431 percent and 283 percent, respectively during Oct-Mar 2000/01. However, total U.S. soybean oil exports during that period at about 399,500 tons were down 2 percent, reflecting a 15 percent drop to all other regions, chiefly other Asia, down 32 percent, and the Middle East, down 52 percent. Despite lower soybean oil prices, discounts for palm oil curbed U.S. exports, but failed to boost foreign oil usage expansion above its 10-year annual average growth of 4.5 percent.

U.S. 2001 soybean planting as of June 3, was 80 percent complete, compared with a 75 percent average for that date. Crop conditions for soybeans as of June 3, were mixed with only 56 percent reported to be in good to excellent condition compared with 66 percent a year ago. Since 1980, variations in planting dates explained 43 percent of the U.S. soybean yield trend deviations. In 2001, despite cool temperatures, earlier than normal soybean planting could put yields above the long-term trend, if growing conditions are favorable. The favorable soybean/corn loan ratio may boost 2001 U.S. soybean planting 3 percent above last year to record large 31.0 million hectares.

U.S. 2001 cotton planting as of June 3, was 88 percent complete, exceeding its average of 86 percent for that date. On that date, 53 percent of the cotton area was in good to excellent condition compared with 49 percent last year. Last year only 84 percent of the cotton area was harvested, or sharply below the long-term average of 92 percent. If abandonment and yield are normal, this could boost this year’s output significantly above last year’s 5.8-million-ton volume.

Exports of soybeans and meal from Brazil and Argentina during Oct-Mar 2000/01 totaled 11.8 million tons, meal equivalent, or 0.7 million tons more than the same months a year earlier. In the same period, U.S. soybean meal equivalent exports increased to 19.8 million tons, or 1.7 million tons more than the same months a year earlier. Thus, despite higher prices, combined soybean meal equivalent exports from the U.S., Brazil, and Argentina during Oct-Mar 2000/01 gained 8.2 percent from a year earlier, reflecting accelerating demand growth in some Asian countries.

China’s oilseed output is now estimated at 50.6 million tons, or 4.8 million tons more than last year following an annual average increase of less than one million tons in recent years. China’s annual growth in meal and oil use during the last four years averaged 1.8 and 0.5 million tons, respectively. This year, China’s vegetable oil usage expansion may near 0.8 million tons and meal usage is indicated to increase by 2.0 million tons. However, China’s net imports of vegetable oil may recover only 0.1 million tons to 2.0 million tons, compared with more than 3.3 million tons in 1997/98. Similarly, China’s net imports of meal may be almost nil, or 0.5 million tons less than last year and 4.2 million tons less than in 1997/98. What changed? China expanded its crushing capacity. China’s net imports of oilseeds may approximate last year’s 13 million tons, compared with only 2.9 million tons in 1997/98. However, China’s soybean imports from the U.S. are growing sharply and may continue to expand next year. The U.S. is supplying nearly one-half of China’s oilseed imports as soybeans, compared with 39 percent last year. What next? After China joins World Trade Organization, we could see greater emphasis on imports of oil and meal, rather than oilseeds. However, China’s new coastal mills will still need soybean imports to supply growing domestic demand and possibly third country markets with products.

U.S. soybean oil stocks on April 30, 2001 totaled 2.487 billion pounds, compared with 2.099 billion pounds a year earlier. This represents 51 days of total U.S. soybean oil use, compared with 44 days a year ago. However, U.S. soybean oil stocks are expected to shrink to about 2.2 billion pounds, or 45 days of total use, by Sep. 30, 2001 and continue lower next year, reflecting indications of slowing palm oil output expansion and below-average expansion in rapeseed and sunflower seed production.

Malaysian palm oil stocks on May 1, 2001, at 1.19 million tons, were 23 percent more than a year earlier, despite only a 6.5 percent increase in output during the 12-months ending April 2001. May 2001 is the 24th consecutive month of increase for Malaysia’s 12-month trailing palm oil output. Since 1984/85, previous cyclical upswings in Malaysia’s 12-month palm oil output lasted between 29 and 38 months, averaging 34 months. The lagged effects of less favorable rainfall will at some point end current cyclical upswing in Malaysian palm oil output. Since 1984/85, Malaysia's 12-month palm oil output showed four declines lasting from 7 months and 12 months, averaging 10 months.

U.S. coconut oil imports during the 6-months ending March 2001 were 270,340 tons, or 36 percent more than the same months a year earlier. Those imports will cover 206 days of estimated domestic use. The increase in imports reflects the fact that coconut oil prices have been very depressed. U.S. stocks of coconut oil at the end of April, were 130,278 metric tons, or 2.8 times the year ago volume. Although the U.S. coconut oil import unit value in March 2001 was only $327 per ton, or 44 percent less than a year earlier, the import volume dwindled to only 10,128 tons, or 78 percent less than a year ago. However, the lagged effects of less favorable rainfall will at some point curb Philippine coconut oil output and normalize lauric acid oil prices.

Global 2000/01 oilseed supply-use: This month’s world oilseed production estimate was revised upward by 2.2 million tons. More soybeans in Brazil plus peanuts and rapeseed in China were partly offset by cuts in Argentine sunflowers and Indian peanuts. Soybean stocks in Brazil and Argentina on Oct. 1, 2001 could exceed 15 million tons, or 2 million tons more than a year earlier. However, global oilseed stocks may decline slightly with less rapeseed and sunflowers in the major producer-exporter countries.

Current ending-stock estimates in days of use with comparisons include:

Key shifts: (1) Last year’s 2 percent increase in global oilseed area, larger global carry-in, and some increase in yields pushed global stocks higher; (2) Above-average foreign demand gave U.S. exports a sharp boost and this cut U.S. oilseed ending stocks; (3) This season, larger global oilseed carry-in, all outside the U.S., depressed prices and resulted a slight reduction in oilseed area, both in the U.S. and abroad; (4) Favorable weather then boosted U.S. and foreign yields by 4 percent and 3 percent, respectively; (5) This season’s reduced carry-in limited U.S. oilseed supply expansion to only 1.1 million tons; (6) In contrast, the larger foreign carry-in and higher yields boosted foreign oilseed supplies by 8.2 million tons; (7) However, an estimated 8.7-million-ton in foreign oilseed usage will result in some increase in U.S. exports; (8) Although South American soybean stocks on Oct. 1, 2001 will be 2 million tons more than a year earlier, total foreign oilseed carry-in stocks are expected to be about unchanged, reflecting less rapeseed and sunflower; (9) In the second half of this season, U.S. soybean and meal exports may weaken as expanded new crop Southern Hemisphere oilseed supplies move into consumption; (10) At the same time, U.S. vegetable oil exports may improve as palm oil output expansion slows; (11) In 2001/02, unless global oilseed production is significantly below the trend, or demand accelerates, U.S. exports may show little change; (12) Most oilseed and meal prices will be depressed, by a buildup in U.S. soybean stocks next year.

Selected U.S. prices during May 2001 with 10-year comparisons:

Key changes in May 2001 U.S. prices and ratios for selected commodities:

SUPPLY-DEMAND PROSPECTS - 2001/02

U.S. 2001 soybean planting is likely to be record large reflecting the favorable loan price ratio relative to corn. Depressed vegetable oil prices may prevent expansion in sunflowers, but strong domestic demand may boost canola planting.

U.S. soybean supply prospects are favorable reflecting early planting and abundant moisture which should benefit yields. With normal weather, this year’s 4 percent increase in area will result in record large U.S. soybean output. Despite a reduced carry-in, the record output, together with record large South American soybean supplies would likely push U.S. ending stocks higher and curb prices next year.

U.S. export sales of 2001 crop soybeans as of the first week in June were 0.5 million tons, compared with 0.4 million tons a year ago and 0.2 million tons two years ago. The gain in new crop export sales took place in May when new crop soybean futures were $0.02 per bushel under the previous month and at the midpoint of the current new crop price forecast range. Although South American exporters have already moved and/or committed large shares of their exportable supplies, their Oct. 1, 2001 soybean stocks may increase by 2 million tons. This could result in below-normal strength in U.S. soybean exports during the first half of 2001/02. However, with record supplies and lower prices, U.S. soybean exports could register a significant recovery beginning in next March.

U.S. feed profitability indexes are recovering with higher livestock prices and depressed feed ingredient prices. This together with a higher wheat/corn price ratio should spur U.S. meal demand, but outside the U.S., weaknesses in some local currencies, slower real income growth and some livestock disease problems could result in below-average growth in meal usage.

U.S. soybean ending stock use coverage in 2001/02 may recover to the highest level since 1991, even though foreign oilseed stock use coverage could decline. If yields are normal, global soybean stock use coverage is expected to expand next year. That would be the fifth consecutive year that global soybean ending stocks were above its 10-year average. Only a serious shortfall in production or sharply accelerated demand could prevent stock recovery and lower prices next year.

Global vegetable oil stock use coverage may decline in 2001/02. Key factors: (1) low vegetable oil prices curbed planting of high oil content oilseeds such as rapeseed and sunflowers; (2) the lagged effects of less rainfall in Malaysia, Indonesia and the Philippines will curb yields and slow the expansion in supplies of tropical oils following a period of above-normal production and relatively low prices; (3) continued real income growth should fuel the upward trend in per capita usage of vegetable oils in a number of countries.

Canadian 2001 oilseed planting may be curbed by less favorable canola prices in relation to wheat. Below-normal rapeseed carry-in stocks and reduced area will curb 2001/02 oilseed supplies and this could interrupt growth in Canadian exports.

India’s 2001 oilseed planting will increase from last year’s depressed volume, but output will be heavily dependant upon the monsoon. With early rains, soil moisture is sufficient for timely oilseed planting and could result in above-average yields. In 2000/01, India produced 21.5 million tons of oilseeds, or 1.5 million tons less than last year and 3.9 million tons less than its 5-year average. Although soybean output was about unchanged at 5.25 million tons, growing domestic usage shrunk India’s meal exports to the smallest volume since 1995. Meanwhile, India’s vegetable imports are record-large near 6 million tons, or 1 million tons more than last year and double its 5-year average, reflecting income and population growth.

In 2001/02, meal demand will drive the crush, but slowing tree crop oil output could curb global oil stock use coverage somewhat. With normal yields, U.S. indigenous oilseed supplies could exceed 100 million tons, up more than 6 million from this season. The expected increase in U.S. oilseed supply, plus the 2-million-ton expected increase in South American soybean stocks on Oct. 1, 2001 would sustain a 3.3 percent increase in foreign oilseed usage, even if foreign oilseed production stagnates at the 2000/01 volume of 225 million tons. Unless there is a shortfall in oilseed foreign production and or foreign oilseed usage expansion exceeds 3.3 percentl, global oilseed stocks will remain at or above the currently forecast 2000/01 volume of 33.7 million tons.

What would brighten the price outlook? Possiblities: [a] China's oilseed usage expansion could far exceed expectations; [b] Foreign producers may shift from oilseeds to other crops; [c] Real income growth in other major market countries could accelerate; [d] Adverse weather and/or plant pestilence may trim oilseed yields in a number of major producing countries.

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For further information contact Alan Holz Ph (202) 720-0143; FX (202) 720-0965

Last modified: Tuesday, September 14, 2004