This year’s U.S. soybean crop is tentatively estimated to be 7 percent below last year and 6 percent or 185 million bushels below total use of U.S. soybeans in the 2010-11 marketing year that ended on August 31, 2011. The U.S. average yield is tentatively forecast at 41.8 bushels per acre, down from 43.5 bushels last year and is modestly below the long-term trend yield. A small reduction in harvested soybean acreage is anticipated in the October or November USDA crop report that could reduce the size of the crop slightly. In addition, at this writing, frosts and a hard freeze are forecast for a large part of the northwestern Soybean Belt in mid-September. If it materializes, soybean production and oil content could be reduced a little more. With the smaller crop, livestock producers, biodiesel manufacturers, and other users of U.S. soybeans face questions about who will reduce their soybean product use and what prices will be needed to produce the required cuts. Soybean prices also will be influenced by a South American battle this fall between corn and soybeans for crop acres. Soybean prices will need to be high enough to compete with drought-impacted corn prices and avoid a sharp drop in soybean acreage in that part of the world. In this article, we briefly discuss the amount of adjustment in soybean product use likely to be needed in the current marketing year.
Distillers grains feeding and soybean meal use
In the last few years, increased distillers grains (DGS) production and feeding has lowered domestic soybean meal use, as shown in Figure 1. In the year ahead, early indications point to relatively steady use of corn for ethanol in contrast to the continual increases of recent years. Thus, livestock and poultry feeders should not count on increased distillers grains supplies for this marketing year. Hog numbers appear to be about equal to a year ago, but may decline slightly in the last part of the current marketing year. Hogs are major users of soybean meal, as are poultry. Recent poultry industry indicators suggest bird numbers may decline by four to six percent as an average for the current marketing year. If so, that should slightly reduce domestic soybean meal demand. These hog and poultry numbers changes along with possible small reductions in marketing weights will be part of the process of adjusting to tighter soybean supplies.
The international picture
In the international picture, South American soybean production substantially exceeds that of the U.S. Thus, the degree of tightness in world supplies depends heavily on the size of the South American crop to be harvested next spring, as well as Chinese demand. China is by far the largest foreign market for soybeans, accounting for nearly 2/3 of U.S. soybean exports. China’s soybean imports have increased by 121 million bushels two years ago and an estimated 91 million bushels in the marketing year just ended. For the year ahead, USDA projects a 165 million bushel increase. The accelerated increase in imports reflects a modest decline in China’s soybean production and its government’s efforts to accelerate meat production to slow the rapid increase in food prices.
Figure 2 shows protein meal use since 2003-04 in two of the three largest import markets for U.S. soybeans, as well as protein meal use in the U.S.1 The data are in soybean meal equivalent (SME) tons. China’s growth in protein meal consumption is projected to slow slightly from the past year, but to still increase by slightly more than 4.5 million (SME) metric tons. That’s equivalent to the meal from about 215 million bushels of soybeans. China plans to fill the difference between the projected increase in soybean imports and the projected increase in protein meal consumption through increased imports of other oilseeds and a reduction in its domestic soybean inventories. Along with increased meal use in China, USDA projects a small increase in EU. In contrast, protein meal use in the U.S. has declined as the livestock and poultry industry has increased its use of DGS.
China’s soybean oil imports are projected to increase by the oil equivalent of 180 to 200 million bushels of soybeans, also to help slow inflation in food prices that has been influenced by rising vegetable oil prices. In addition, China is projected to increase its imports of palm oil.
USDA’s latest world crop report indicates foreign soybean production will be down from last year by approximately 2% or about 190 million bushels. Figure 3 shows projected 2010-11 production in South America and total other non-U.S. soybean production. Total non-U.S. production of soybeans is projected to be only 29 million bushels larger than last year. Figure 4 shows additional detail including historical world production by major producing regions.2 The production short-fall is expected to be filled through a reduction in carryover stocks. It should be cautioned that the projected production is still quite tentative, in part because it assumes favorable weather for the South American crop, most of which has not yet been planted. Also, it should be noted that the National Oceanic and Atmospheric Administration recently indicated it expects the La Niña weather pattern to continue and possibly intensify. It so, that may increase the risk of dry weather in Argentina and southern Brazil, as happened in the 2008-09 marketing year. Further changes in the U.S. soybean crop estimate are another uncertainty in the global production outlook.
World soybean stocks, with favorable South American weather this fall and winter, should be adequate to avoid extreme supply tightness, although U.S. soybean carryover stocks are projected to be very tight by late August 2012.