February 12, 2001
SOYBEAN PRICES AT MARKETING YEAR
The soybean market got caught once
again leaning the wrong way in front of a USDA report. In January,
the soybean market expected the USDA to significantly reduce the
estimated size of the 2000 U.S. soybean crop. When that did not
happen, prices declined sharply. Last week, the market expected
the USDA to maintain or increase the projection of soybean exports
for the current marketing year. The 15 million bushel reduction
in that projection, along with a 10 million bushel reduction in
the projection of domestic crush of soybeans, provided another
negative surprise to the market. As a result, futures prices traded
to new contract lows on February 8. The average cash price of
soybeans in central Illinois declined to $4.39 per bushel, $.025
below the previous marketing year low established in late October
2000 and $.585 below the marketing year high price established
on December 19, 2000.
The decline in the projection of
marketing year exports was especially surprising given the rapid
pace of exports to date and the large undelivered sales currently
on the books. As of February 8, 23 weeks into the marketing year,
the USDA reported cumulative export inspections of 566 million
bushels, compared to 565 million by the same date last year. Last
year, marketing year exports reached a record 973 million bushels.
Compared to last year, shipments to the European Union have been
smaller than shipments of a year ago, but shipments to China have
As of February 1, the USDA reported
that 246.3 million bushels of soybeans had been sold for export
but not yet shipped. That compares to unshipped sales of only
144 million bushels on the same date last year. Total sales (shipped
and unshipped) as of February 1 represented 81.3 percent of the
USDA's revised export projection of 960 million bushels. That
is the highest percentage for that date in the past ten years,
and compares to only 69 percent sold on the same date last year.
With such large sales on the books, why was the export projection
There are two basic reasons. The
first is related to the timing of purchases and receipt of U.S.
soybeans by China. Last year, China imported 191 million bushels
of U.S. soybeans. However, as of February 1, 2000 China had imported
only 65 million bushels and had priced a total of only 72 million
bushels. Sales and shipments to China were very large from February
through August 2000. This year, China is expected to import fewer
U.S. soybeans, but has already received over 100 million bushels
and has priced at least 175 million bushels. Sales and shipments
to China are expected to be much smaller over the next seven months
than during the same period last year. There is also some concern
that China may default on some of the U.S. purchases because of
lower prices and the availability of low priced soybeans from
South America.The second reason is the prospects for larger exports
from South America during the spring and summer of 2001. The USDA
now estimates the 2001 South American harvest at 2.3 billion bushels,
55 million larger than the January estimate and 195 million larger
than the record harvest of 2000. South American exports are projected
at 713 million bushels, 70 million larger than last year's shipments.
With world trade expected to equal that of last year, the U.S.
will lose market share of exports to South America.
The USDA now projects U.S. soybean
stocks at the end of the current marketing year at 345 million
bushels, 55 million larger than stocks at the beginning of the
year and at the upper end of year ending stocks of the past 13
years. Even with low prices and a five percent increase in world
consumption, year ending stocks on a worldwide basis are expected
to remain very large, near 950 million bushels. Currently, the
market expects little relief from the burdensome supplies during
the year ahead due to prospects for continued large plantings
of soybeans in the U.S. A reduction in winter wheat seedings and
increased cost of corn production has the market looking for at
least another million acres of soybeans in the U.S. in 2001.
Are there any bright spots for soybean
prices? Some improvement in soybean oil demand is anticipated
if there are significant restrictions placed on feeding of animal
fat due to concerns about "mad cow" disease. Restrictions
would most likely occur in the European Union, which accounts
for about 18 percent of the world tallow and grease consumption.
The U.S. accounts for about 30 percent of consumption and China
accounts for about 16 percent of world consumption. Consumption
of talllow and grease in the European Union is equivalent to about
2 percent of world vegetable oil consumption. After moving to
the lowest level in 29 years, there is some room for soybean oil
prices to increase. As a result, soybean prices could make some
modest recovery, but recovery would be limited by weakening soybean
The best opportunity for price recovery
may be during periods of weather concerns in the upcoming U.S.
growing season. In the meantime, producers who own soybeans for
which the loan deficiency payment has already been established
need to get price protection in place.
University of Illinois