Examining U.S. oilseed trends

By Jessica Sobolik | June 17, 2008
Each month, the USDA releases its World Agricultural Supply and Demand Estimates, which include reports on oilseeds. Between each report, many factors can alter those numbers, but a broad look at the overall direction of oilseed supply and demand can be useful to biodiesel producers. Furthermore, it offers concrete statistics to those who say renewable fuel production is cutting into world food supplies.

The USDA projects U.S. oilseed production to increase 16 percent to 93 million tons in 2008-'09, mainly because of higher soybean production, which is expected to increase to 3.1 billion bushels this year. Production of sunflowers, canola and cottonseed are each projected to decline compared with 2007-'08 numbers.

Soybean crushing is projected to decrease slightly (less than 1 percent) to 1.85 billion bushels. Conversely, domestic consumption of soybean oil is projected to increase slightly through higher biodiesel use, which is mostly offset by a continued decline in food use. Keith Menzie, a chairman with the USDA's World Agricultural Outlook Board who prepares the oilseed report, stressed the food and fuel uses aren't necessarily related, however. "You have food processors and biodiesel manufacturers bidding for oil, and food processors are willing to pay more to get it," he said. "When McDonalds needs oil for French fries, for example, they're going to pay to get it. I think it's more of an issue of trans fats. Food processors are transitioning away from [oils high in trans fats]."

Approximately 45 percent of U.S. biodiesel plants are set up to exclusively use soybean oil as a feedstock. That's not including the nearly 40 percent of biodiesel facilities that are multi-feedstock capable. Biodiesel plants are projected to use 15 percent of the total U.S. soybean oil production for 2008-'09, compared with 14 percent in 2007-'08.

Farmers are slated to produce more soybeans in 2008-'09, and the U.S. season-average soybean price for that time frame is projected at $10.50 to $12 per bushel, compared with $10 per bushel during the previous growing season. Soybean oil prices are projected between 50 and 54 cents per pound. Last year's price averaged 52 cents per pound. "This is a straight-up, 12-month average, so it's a little bit misleading," Menzie said. "It doesn't indicate the months that were higher or lower. Right now, prices are still in the 60s."

What puzzles analysts such as Menzie is the fact that soy oil prices are high, but so is supply. "We certainly don't have a shortage of soybean oil," he said. "If you had 3 billion pounds of oil in any other given year, you could expect to see prices closer to 20 cents. Prices are disconnected from fundamental forces right now."
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