• New EPA Mandate Boosts Soybean Oil Demand

    January 03, 2017 10:45 PM

    After a number of months in which petroleum prices were so soft that the edible oil markets all but ignored them, on November 23, 2016 the U.S. Environmental Protection Agency (EPA) set the renewable volume obligation (RVO) that commits the petroleum industry to minimums for biodiesel (specifically “Biomass-based Diesel”) usage at 2.12 billion gallons.1 This represents a 6 percent increase over 2017 and is higher than the industry expected. The primary feedstock for producing biodiesel is soybean oil. Other feedstocks include other vegetable oils, animal fat and corn oil from ethanol production.

    In reaction to the mandated minimum biodiesel volume, on December 9 the United States Department of Agriculture (USDA) increased its projection of soybean oil usage in biodiesel production for the 2016-17 marketing year by 250 million pounds from its November World Agricultural Supply Demand Estimate (WASDE) report. The December 9 WASDE report further projected a crude soybean oil price range of $0.3450 to $0.3750 per pound. This is 2 cents per pound higher than the November projection and 4.64 to 7.64 cents higher than the price experienced in the 2015-16 marketing year which ended on September 30.2

    Note the price reaction of January soybean oil futures since November 23.

    Soybean Oil Futures3

    Market Updates Blog Graph

    The long green line in late November depicts the immediate reaction to the EPA announcement. After gradually drifting lower from late October to the low to mid 34 cent range, prices have since shot up above 37 cents.

    Recall from previous Market Updates that we have been observing a gradual tightening of soybean oil stocks for several consecutive WASDE reports. The December 9 WASDE report projected soybean oil stocks on September 30, 2017 at a very tight 1,552 million pounds. This is a mere 25-day supply. We routinely tolerate a 30 to 40-day supply at year’s end, but a 25-day supply will be logistically challenging.

    A remedy for soybean oil stocks’ tightness is to increase the domestic crush of soybeans; the supply of soybeans is more than adequate to do that. The challenge is that global soybean meal demand is not adequate to absorb both the crush from the latest vast U.S. soybean crop and the large 2016 and impending 2017 Argentine soybean crush. Argentina has a differential export tax policy that taxes exports of raw soybeans at a higher rate than exports of both soybean meal and soybean oil. Effectively, this is a subsidy for the Argentine soybean crushing industry, and it allows Argentine crushers to have an unfair advantage in competing with U.S. crushers for international soybean product demand.4 Consequently, we cannot expect to be rescued by a higher domestic crush, unless the Argentine crop experiences significant weather problems at the end of their growing and harvest seasons. In Argentina, most soybeans are harvested in February and March.

    Last month’s Market Update concluded with the expectation that fully refined soybean oil is likely to trade at 40 to 45 cents per pound this year. Given the November increase in the biodiesel RVO and the December 9 WASDE report, we should modify expectations to the mid to upper 40 cent range for fully refined soybean oil. Since virtually all other vegetable oils base their prices off of soybean oil, expect other oils to experience a similar price increase. Generally, expect all vegetable oils to trade 5 to 10 cents per pound higher than last year.

    1 “Final Renewable Fuel Standards for 2017, and the Biomass-Based Diesel Volume for 2018.” https://www.epa.gov/renewable-fuel-standard-program/final-renewable-fuel-standards-2017-and-biomass-based-diesel-volume. U.S. Environmental Protection Agency. December 2016.
    2 “World Agricultural Supply and Demand Estimates.” http://www.usda.gov/oce/commodity/wasde/latest.pdf. United States Department of Agriculture. December 2016.
    3 “Soybean Oils Futures Quotes.” http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil.html. CME Group. December 2016.
    4 “Export Taxes on Agricultural Products: Recent History and Economic Modeling of Soybean Export Taxes in Argentina.” https://www.usitc.gov/publications/332/journals/export_taxes_model_soybeans.pdf. United States International Trade Commission. September 2007.

  • Projected Soybean Yield Reaches Record Bushel per Acre

    November 30, 2016 5:56 PM

    According to the November supply and demand forecast issued by the U.S. Department of Agriculture (USDA)1, harvested acreage of soybeans remains unchanged from the October report, and projected soybean yield increased to a new record of 52.5 bushels per acre. To add a bit of perspective for those primarily interested in soybean oil, that’s approximately 578 pounds of refined oil from every acre of soybeans harvested. The report forecast a carryover inventory of 480 million bushels of soybeans, the largest carryover since September 2007. Since the report’s release on November 9, January soybean futures are off 31 cents per bushel, about 3 percent, as of this writing.

    Soybean Futures2

    November_Market Updates Graph

    One factor that may turn out to be supportive to soybean prices is Argentina’s soybean planting delays. It is currently planting season there, and the planting weather has been less than ideal with excessive rain in the major growing regions. In addition, the Argentine government realigned its long-standing export tax program. Previously, all agricultural products were subject to taxes applied to exports of commodities. Several months ago, these export taxes were removed from virtually all commodities other than soybeans and soybean products. This seems to have resulted in increased acres of crops such as corn and wheat, and fewer acres of soybeans. These two factors would seem to result in less competition for the U.S. relating to export markets in the upcoming 18 months.

    Further supporting soybean oil prices, the USDA report forecast a lower soybean oil carryover—1,658 million pounds—versus the October report; a mere 27-day supply at the forecast usage rate, despite reducing both the forecast domestic usage and exports. Consequently, the report forecast the average year’s crude soybean oil price to be 32.5 to 35.5 cents per pound, 2 cents higher than the October forecast. Soybean oil refiners report robust business with strong demand for both edible supplies and biodiesel feedstock. Recent cash prices for fully refined soybean oil have been around 42 cents per pound. If USDA’s forecast bears out, expect fully refined soybean oil to trade at 40 to 45 cents per pound this year.

    1 U.S. Department of Agriculture. "World Agricultural Supply and Demand Estimates Report."
    http://www.usda.gov/oce/commodity/wasde/index.htm. November 2016.
    2 CME Group. "Soybean Futures Quotes." http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean.html. November 2016.

  • Excellent Weather For The 2016 Soybean Crop Continues Into Harvest

    November 04, 2016 6:38 PM

    According to the U.S. Department of Agriculture (USDA), 62 percent of the soybean crop was harvested as of October 16, 2016, compared to 73 percent on October 16, 2015. Wet weather over much of the soybean growing area has caused delays, but the crop condition is not a concern at this time. The condition of the crop was reported to be 74 percent good to excellent versus 64 percent good to excellent this time last year.1 

    On October 12, 2016, the USDA issued its crop production forecast. The soybean yield increased to 51.4 bushels per acre, which compares to 50.6 bushels per acre forecast last month. The total production continues to increase from report to report, and is now forecast to be a record 4,269 million bushels.2 

    The forecast soybean carryout for the September 30, 2017 stocks is 395 million bushels. While this is a more than adequate supply at crop’s end, it isn’t considered overly burdensome. The increase in carryout from the September report is just 30 million bushels, because USDA forecast an increase in soybean exports of 40 million bushels, which partially offsets the increased production forecast.3 

    The forecast of soybean oil domestic usage is unchanged from September, but soybean oil exports are forecast to be 25 million lbs. lower than that of the September report. Offsetting this is a lower forecast soybean oil carryover of 60 million lbs. for September 30, 2016. Soybean oil supplies from both the September and October reports are well in balance. Consequently, USDA’s forecast price for crude soybean oil free-on-board (FOB), Decatur, Illinois is unchanged from September at 30.5 to 33.5 cents per lb.

    Since the report, which was supportive—if not necessarily bullish—to soybean oil prices, palm oil prices have strengthened in global markets. This is driven by relative tightness in palm oil stocks available for sale. As the U.S. soybean harvest has progressed, the market for soybean meal weakened. Both poor international demand for U.S. soybean meal and heavy usage of dried distillers grain (a byproduct of ethanol production and a partial substitute for soybean meal, especially among swine feeders), has encouraged both speculative and commercial buying of soybean oil futures and selling of soybean meal futures.

    These two factors have strengthened soybean oil prices in recent days. Prices are now at the highs seen in August and near the highs seen in April. Can soybean oil prices continue above the previous points of price resistance or will they back away?

    Soybean Oil Futures4

    October Market Updates Graph

    1 U.S. Department of Agriculture. "Crop Progress." 
    http://usda.mannlib.cornell.edu/usda/nass/CropProg//2010s/2016/CropProg-10-17-2016.pdf. October 2016.
    2 U.S. Department of Agriculture. "Crop Production." http://usda.mannlib.cornell.edu/usda/current/CropProd/CropProd-10-12-2016.pdf. October 2016.
    3 U.S. Department of Agriculture. “World Agricultural Supply and Demand Estimates." http://www.usda.gov/oce/commodity/wasde/latest.pdf. October 2016.
    4 CME Group. "Soybean Oil Futures Quotes Globex." http://www.cmegroup.com/trading/agricultural/grain-and-oilseed/soybean-oil.html. October 2016.

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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...