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USDA Oil Crops Outlook

14 November 2012

USDA Oil Crops Outlook - November 2012USDA Oil Crops Outlook - November 2012

An increase in the estimated U.S. soybean yield to 39.3 bushels per acre raised USDA’s 2012 production forecast this month by 111 million bushels to 2.971 billion.
USDA Oil Crops Outlook

Smaller Decline in U.S. Soybean Yields Tempers Demand Reductions

The higher supply led USDA to raise its forecast of 2012/13 soybean exports this month by 80 million bushels to 1.345 billion. Similarly, the 2012/13 soybean crush is expected 20 million bushels higher this month to 1.56 billion. USDA revised down its forecast of the 2012/13 U.S. average farm price to $13.90-$15.90 per bushel from $14.25-$16.25 last month.

An increase in global supply led USDA to raise its forecast of China’s 2012/13 soybean imports by 2 million tons this month to 63 million and up from 59.2 million for 2011/12. Higher soybean imports could also prevent a larger reduction in China’s ending stocks, which are now seen dipping to 14.7 million tons from 15.9 million in 2011/12.

Domestic Outlook

2012 Yield Losses for Soybeans Less Than Previously Anticipated

USDA raised its forecast of the 2012 U.S. soybean yield this month to 39.3 bushels per acre from the previous forecast of 37.8 bushels. Most of the improvement in yield forecasts from October was for the Corn Belt region, particularly Illinois, Indiana, and Ohio. Objective yield data still confirms that pod counts were well below average this year due to a severe drought. However, considering the stress the crop endured, bean weights were exceptionally good overall. This outcome may reflect the beneficial impact of timely rainfall from late August to early September for parts of the Midwest. In addition, the national average yield was supported throughout the Southeast, where summer moisture conditions were consistently excellent. Record soybean yields are expected for Alabama, Arkansas, Louisiana, Mississippi, North Carolina, South Carolina, and Virginia.

A better soybean yield raised the 2012 production forecast this month by 111 million bushels to 2.971 billion. Much of the country had favorably warm and dry harvest-time weather in September and October. As of November 4, 93 percent of the U.S. soybean crop had been harvested, versus the 5-year average of 86 percent.

U.S. Supply Gains Calm Prices, Bolster Export Markets for Soybeans and Soybean Meal

More U.S. soybean supplies would support export demand and domestic crush this season. USDA raised its forecast of 2012/13 exports by 80 million bushels this month to 1.345 billion, still below last year’s total of 1.362 billion. Although soybean exports through November 1 were at a record high volume, the shortfall in this season’s supply will not let the strong pace of shipments continue for very long. Outstanding export sales commitments are still quite high (593 million bushels as of November 1), but a fast descent in each week’s new sales appears to have set in already. By next spring, shipments should start to fall behind last year’s pace.

Similarly, lower soybean costs would buoy crushing margins for a longer period. Domestic processors are now modestly more competitive and can extend the sales of soybean meal into foreign markets. U.S. soybean meal exports for 2012/13 are forecast up to 7.9 million short tons from 7.5 million last month. On this basis, the 2012/13 soybean crush is expected 20 million bushels higher this month to 1.56 billion, although still down sharply from the 2011/12 total of 1.703 billion bushels.

Even with better demand prospects for soybeans, USDA sees the improved supply not tightening season-ending stocks quite so much as before. Its 2012/13 stocks forecast increased to 140 million bushels this month from 130 million in October.

In October, the improving crop forecasts and the early harvest progress caused cash prices for soybeans to tumble about $1.50 per bushel. A slowing pace of export sales also contributed to the price decline. With soybean prices now down to their lowest level since June, USDA revised down its forecast of the 2012/13 U.S. average farm price to $13.90-$15.90 per bushel from $14.25-$16.25 last month. Prices may start inching back up now that the harvest is nearly complete.

Prices have also moderated for soybean meal and soybean oil since summer. In October, soybean meal prices averaged $488 per short ton compared to the August average of $565. This prompted USDA to lower its forecast of the 2012/13 average soybean meal price this month by $15 per short ton to $455-$485. Similarly, soybean oil prices fell 4.5 cents per pound over the last month to an October average of 49.3 cents. That led to a downward revision in the season-average price for soybean oil to 51-55 cents per pound from 53-57 cents last month.

Domestic and Export Demand for Peanuts To Benefit from Huge U.S. Harvest

There has never been a more spectacular rebound in peanut production than this year. After a decline in acreage reduced U.S. peanut output last year, the 2012 crop is forecast up 77 percent to a record 6.5 billion pounds. While most of this year's production gains for peanuts can be attributed to a 47-percent increase in harvested acreage, higher yields are providing a major boost, too. Nearly ideal growing conditions are expected to send the U.S.-average peanut yield soaring to 4,058 pounds per acre—well surpassing the previous high of 3,426 pounds in 2008. The production successes are widespread, with every major peanut-growing State setting a record yield except South Carolina and New Mexico.

This year's very large supply of peanuts will aid demand, with domestic food use expected to top 3 billion pounds for the first time in 2012/13. Even so, the supply glut may swell season-ending peanut stocks to a record 2.5 billion pounds. If realized, it would be the first increase in ending stocks in 4 years and well above the 2011/12 carryout of 1 billion pounds. Despite the abundance, farm and retail prices for peanuts will not drop immediately. Near-term prices will be supported by the contracts farmers signed with domestic processors prior to planting. Contract prices for peanuts (which may account for close to half of production) ranged from 32.5 to 37.5 cents per pound early this year. In contrast, peanut prices for export markets should fall more quickly and will help to stimulate new sales abroad. USDA forecasts an expansion in 2012/13 exports to a 17-year high of 800 million pounds.

International Outlook

Better Outlook for U.S. Soybean Supplies Will Facilitate Imports by China

Based primarily on expectations for a larger U.S. crop, global soybean production for 2012/13 was forecast up 3.3 million metric tons this month to 267.6 million. The production changes brighten the outlook for soybean imports. EU soybean imports for 2012/13 were forecast 300,000 tons higher this month to 11 million. But China may be the import market that is most affected.

China’s soybean imports for 2012/13 were expected to be boosted by a decline in domestic oilseed production and steady growth in meat production. An improved outlook for U.S. supplies should ease limitations on their near-term imports, as well. This month, USDA raised its forecast of China’s 2012/13 soybean imports by 2 million tons to 63 million, up from 59.2 million for 2011/12. Although recent purchases of U.S. soybeans have slowed, outstanding sales commitments as of November 1 were 2.7 million tons ahead of last year's sales due to a heavy round of buying last summer. Soybean crushing in China is expected to strengthen by 7 percent in 2012/13, leading to larger consumption gains for soybean meal and soybean oil. Higher soybean imports could also preclude a larger reduction of stocks, which are now seen dipping to 14.7 million tons from 15.9 million in 2011/12. More plentiful foreign supplies would ease the pressure to auction off more of China's state reserves.

Growing Palm Oil Surplus Tempers Global Vegetable Oil Prices

Global production of palm oil for 2012/13 is projected 1 million tons higher this month to 53.3 million tons. Higher palm oil supplies are forecast to boost global exports to 40.7 million tons in 2012/13 from 38.4 million in 2011/12, and would account for nearly all of the gains in global vegetable oil trade this year. In 2011/12, palm oil exports moderated due to a substantial rise for exports of sunflowerseed oil. But minimal production gains for competing oils in 2012/13 will mostly benefit palm oil. Despite prospective export gains, ever rising palm oil stocks are likely to raise global vegetable oil stocks to 15.3 million tons in 2012/13. This sets up a battle for market share in palm oil exports between Indonesia and Malaysia and a reshaping of policies in both countries.

For top producer Indonesia, palm oil output for 2012/13 is projected 1 million tons higher this month to 28 million, compared to a revised 2011/12 estimate of 25.9 million. The production increase is based on revised area data and a steady upward trend in oil yields, which are still well below Malaysian yields. Output gains are seen expanding Indonesian palm oil exports from 17.9 million tons in 2011/12 to 19.6 million in 2012/13.

Previously, Indonesia imposed the same export tax for crude palm oil that it had for refined palm oil. The export tax on palm oil had been used mainly as a mechanism for maintaining adequate supplies for domestic consumers. But rapid production growth for Indonesian palm oil in recent years has spurred a more intensive search for export markets. In August 2011, the Indonesian Government instituted a new regime where the export tax for refined palm oil (currently 3 percent) was set below the rate for crude palm oil (9 percent). This change led to a sharp expansion this year in Indonesian refinery capacity. The tax differential has now raised the share for refined palm oil exports to nearly 60 percent of all 2011/12 exports, compared to 43 percent in 2010/11. By next year, industry analysts expect a surge in palm oil refining capacity to 30 million tons, which would exceed Indonesia’s annual output. Yet, an underdeveloped transportation infrastructure in Indonesia is inhibiting its export potential and will contribute to a rapid amassing of palm oil stocks there.

In second-ranked Malaysia, 2011/12 season-ending stocks of palm oil accumulated to a record high 2.5 million tons due to a seasonal strengthening of output and sluggish exports. For 2012/13, rebounding yields are expected to improve Malaysian palm oil production—even with the start of a tree replanting program. The country’s output is forecast up to 18.5 million tons in 2012/13 from 18.2 million in 2011/12. A consequence of the rising palm oil inventories is that the benchmark Malaysian price has been pressured to a 2-year low. The current price discount for Malaysian crude palm oil compared to soybean oil has widened to about $280 per metric ton. Eventually, this will stimulate a recovery in Malaysian palm oil exports, which are seen rising to 16.7 million tons from 16.4 million in 2011/12.

In response to the revised Indonesian tax structure, Malaysia’s Government is adopting a lower variable-rate export tax for crude palm oil starting in January 2013. A duty-free export quota for crude palm oil will also be eliminated. Malaysia still imposes no export tax on refined palm oil. The intent of Malaysia’s new policy is to recover palm oil export share from Indonesian exporters, which had been underpricing Malaysian supplies, particularly in India. An improvement in Malaysian export competitiveness for palm oil could also help to slow the rise in the country’s stocks.

Changes in export tax policies are also affecting major importers of palm oil, particularly in India—the top global destination for the commodity. Imports of crude palm oil (primarily from Indonesia) have traditionally been the main Indian vegetable oil import. But Indian oil refiners are now being pressured by the growing Indonesian exports of refined palm oil. While Indian officials could protect their own industry with higher import tariffs on refined palm oil, they have been reluctant to impose a higher cost onto consumers when food inflation in the country is already so high. To avoid this, India has opted not to raise the 7.5-percent tariff rate for refined palm oil. Instead, in July it allowed its reference price (the price used for calculating the import tariff) to rise in alignment with international market prices. This action would close the formerly wide divergence between the reference price (which had been frozen since 2006 at $484 per metric ton) and market prices (currently around $900-$1,000 per ton). Thus, it effectively has doubled the tariff paid on refined palm oil imports and helped to restore a processing margin for Indian oil refiners.

Further gains in Indian palm oil imports are stalled for now because the country’s vegetable oil storage facilities are already filled near capacity. But within a few months, palm oil imports may accelerate once the soybean oil produced from its newly harvested domestic soybean crop is used up. Indian palm oil imports are forecast to increase to 7.7 million tons in 2012/13 from 7.3 million in 2011/12 and would account for 43 percent of the country’s total vegetable oil consumption. In contrast, Indian imports of soybean oil are seen slipping to 1.1 million tons (from 1.2 million in 2011/12) because of their comparatively higher cost.

November 2012

Published by USDA Economic Research Service

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