Soybean Complex Futures React to Latest Reports

August 30, 2017 7:57 PM

On August 10, the United States Department of Agriculture (USDA) forecast soybean production at 4.38 billion bushels, up two percent from last year.1 Based on August 1 conditions, yields are expected to average 49.4 bushels per acre, down 2.7 bushels from 2016, but up 1.4 bushels from the most recent USDA World Agricultural Supply Demand Estimate (WASDE) report.2 Area for harvest in the United States is forecast at a record high 88.7 million acres, unchanged from the June forecast but up 7 percent from last year.1 Planted area for the nation is estimated at a record high 89.5 million acres, also unchanged from June.1  

Upon release of this report, soybean futures on the CBOT immediately dropped a whopping 40 cents per bushel (4%). Soybean oil futures dropped 1.2 cents per pound (3.5%) in sympathy with the soybean price collapse. The trade had expected a slight decrease in yield per acre and in soybean production, so this was a major surprise.

However, the long-range prospects for these markets, especially soybean oil, look rather different.

In the WASDE report, published in conjunction with the crop report, USDA decreased domestic soybean crush for next year due to a lower forecast for soybean meal exports. As a result of this and, of leaving demand for soybean oil unchanged, the soybean oil forecast stocks for September 30, 2018 fell by 260 million lbs. USDA forecasts that soybean oil demand for the next year will remain unchanged from the last two years and demand for biodiesel feedstock will be 450 million pounds higher than this year. Consequently, USDA increased the forecast price range for soybean oil to be one cent per pound higher than its last report, 31-35 cents per pound for crude soybean oil, FOB central Illinois for 2017-18.

It appears that for the foreseeable future there will be a tug of war in the markets between lower trending soybean meal and soybean futures, and support for soybean oil futures.

References
1“World Agricultural Supply and Demand Estimates.” https://www.usda.gov/oce/commodity/wasde/latest.pdf. United States Department of Agriculture. August 10, 2017.
2“Crop Production.” https://www.usda.gov/nass/PUBS/TODAYRPT/crop0817.pdf. United States Department of Agriculture. August 10, 2017.

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Richard GallowayAbout the Expert

Richard Galloway is president of Galloway and Associates, LLC, a business consulting firm serving domestic and foreign agricultural processing, vegetable oil refining, biodiesel and grain handling industries. Galloway is a consultant to the QUALISOY Board, a collaborative effort among the soybean industry to help market the development and availability of trait-enhanced soybean oils, including high oleic soybean oil. Read More...