September 18, 2000
SEVERAL HURDLES TO HIGHER SOYBEAN
Soybean prices have traded in a
wide range so far in 2000. November 2000 futures traded to a high
of just under $6.00 per bushel in early May on concerns about
a dry summer and small production. Unexpectedly large imports
of U.S. soybeans by China also supported the rally. The price
of that contract dropped to a low of $4.45 in early August on
the basis of improved crop ratings and prospects of a 3 billion
bushel crop. Prices did not sag as low as a year ago when prospects
of a 3 billion bushel crop pushed November 1999 futures to a low
of $4.05. Last week, November 2000 futures moved up to $5.15 on
the basis of deteriorating crop conditions and prospects for a
smaller USDA crop estimate. Such wide price swings are typical
for the soybean market.
In the September Crop Production report, the USDA reduced the
estimated size of the U.S. soybean crop from 2.989 billion to
2.9 billion bushels. The reduction was less than generally expected
by the market. Initially, the USDA's disclosure that NASS would
resurvey harvested acreage intentions in some of the states most
affected by dry weather provided some support to prices. The market
assumed the USDA would reduce the estimate of harvested acreage,
yield, and production in the October report. Unless the production
estimate is to be reduced by another 100 million bushels, however,
the 2000 crop will still exceed the projected level of use during
the 2000-01 marketing year. The USDA now projects year ending
stocks at 365 million bushels, up 100 million from the expected
level of stocks on September 1, 2000. The official estimate of
September 1 stocks this year will be released on September 29.
November futures traded under $4.90 this past week as harvest
For soybean prices to move higher,
there will need to be some indication that use will exceed production
so that stocks will be reduced. A sustained rally to significantly
higher prices will require an indication that the rate of soybean
use has to be reduced. Current USDA projections indicate that
world soybean use will increase by 161 million bushels during
the year ahead and that world stocks will rise by 69 million bushels.
The need for rationing does not appear to be on the horizon.
One important factor in determining
price direction for the next few months is the size of the Chinese
soybean harvest. The USDA currently estimates that crop size at
551 million bushels, 26 million larger than last year's crop.
Chinese imports of soybeans from all sources are projected at
266 million bushels. That is 65 million fewer than imported last
year, but 25 million more than imported two years ago when the
crop was estimated at 557 million bushels. Consumption of soybean
meal is expected to continue to increase in China this year. The
drop in imports of soybeans is expected to be partially offset
by a small increase in soybean meal imports and a decline in domestic
stocks by year end. If, as some private source have estimated,
the Chinese crop is 40 to 70 million bushels larger than the current
USDA projection, U.S. exports could be a bit smaller than the
one billion bushels currently projected.
A second important price factor
over the next six months will be the prospective size of the South
American crop. Based on expectations of a small increase in acreage
and trend yields, the USDA has projected at 4 percent (84 million
bushel) increase in production in 2001. In spite of a larger crop
next year, the USDA projects that South American soybean exports
during the period from October 2000 through September 2001 will
be 59 million bushels less than during the previous 12 months.
Meal exports are expected to grow only 2 percent (600,000 short
tons). South American exports of both soybeans and soybean meal
are expected to be limited by increasing domestic use of meal
A smaller than expected South American
crop would obviously increase the demand the U.S. soybeans and
result in smaller U.S. and world stocks than now projected. Such
a development would be supportive for prices. The current concern,
however, is that increases in soybean acreage may be larger than
projected by the USDA. Some private forecasts in South America
suggest that a recovery to trend yields in 2001 could result in
a 10 percent increase in production. That is an additional 120
million bushels that could be exported or added to inventory.
As always, South American crop development will be closely watched.
A major hurdle to a near term increase
in price is the abundance a vegetable oils. World production of
major oilseeds increased 1.5 percent last year and the USDA projects
an additional 2 percent increase this year. Most of that increase
is soybeans, with rapeseed production expected to decline by 9
percent. Year ending oilseed stocks are expected to remain large.
World production of major vegetable oils increased by 5 percent
last year and is expected to grow another 1.4 percent this year.
Even with a 4 percent increase in world vegetable oil consumption,
stocks will remain abundant. With an abundant supply of competing
oils, the price of soybean oil will have difficulty breaking out
of the slump of the past two years. History is very clear, however,
sometime in the next 10 months, soybean prices will likely trade
well above the current level. The increase will likely be driven
by crop concerns.
Issued by Darrel
University of Illinois