Despite a sharp increase in October for soybean oil production, strongly higher demand reduced the month-ending stocks by 120 million pounds to 3.239 billion.
Exports have been particularly robust. According to the Export Sales report, U.S. commercial shipments of soybean oil are off to the best start ever, totaling 814 million pounds through Dec. 2. Much of the early surge in exports this year can be attributed to extraordinarily large shipments to China, although the North African trade is also brisk. Once the outstanding sales to China have shipped, the export pace should start to cool as sales revert to more traditional U.S. markets.
U.S. soybean oil exports for 2010/11 are forecast at 2.7 billion pounds, down from last season’s record 3.4 billion. And later on in 2011, domestic consumption of soybean oil should start to improve as it becomes needed to meet higher use requirements for biodiesel.
Global vegetable oil stocks in 2010/11 are expected to fall to a 7-year low, which has strengthened prices across all markets. In the United States, soybean oil prices have risen with an outlook for lower output, higher use, and a tightening soybean supply. A weakening dollar and higher price for crude petroleum also provide support for the soybean oil market. In November, the monthly average price for soybean oil swelled to 47.6 cents per pound from 44 cents in October. Soybean oil values are expected to rise well above last year’s average price of 35.95 cents per pound, but not quite to the record highs of 2007/08. This month, USDA raised its forecast of the 2010/11 average price for soybean oil by 2.5 cents to 45-49 cents per pound. Such a price increase would raise soybean oil’s share of the processing value for soybeans to more than 40 percent.
In contrast, the demand outlook for soybean meal is not as bright. Domestic soybean meal consumption for 2010/11 is forecast 100,000 short tons lower this month to 30.5 million. U.S. imports of canola meal in 2010/11 could surge to 1.9 million short tons due to record large output in Canada. Also contributing to a substantially higher supply of protein feed substitutes this year is a much bigger U.S. cottonseed crop. Conversely, a supportive factor for soybean meal use is that the protein content of this year’s supply may be below-average. This means that feed mixtures would have to incorporate a higher percentage of soybean meal to achieve the same desired protein level.
This month’s reduction in domestic soybean meal demand is offset by an upward adjustment in the 2010/11 export forecast to 9.2 million short tons from 9.1 million.
Export sales commitments of soybean meal this season have not been poor, but they do lag last year’s record pace by 16 percent. The resurgence in soybean meal exports from India (up 64 percent for October-November from a year earlier) presents higher competition for U.S. exports this fall, particularly in Asian import markets. Soybean meal exports from Argentina and Brazil have also been
seasonally strong. As the demand for U.S. soybean meal falls further behind last year’s pace, the domestic soybean crush will progressively weaken.
Current soybean meal prices are high, and declining output will help support them throughout the marketing year. In November, the central Illinois price for soybean meal averaged $342 per short ton, the highest level in 14 months. But by next spring, there could be additional pressure on that price, provided that soybean crops in South America turn out well. The season-average price for soybean meal is expected at $310-$350 per short ton, unchanged from last month. The sooner that price erosion develops, the faster it will undermine soybean crushing margins.