Soybean markets settle down, analysts watch exports, SA crop

By Susanne Retka Schill | May 11, 2009
In June 2008, the rains started to fall in the Corn Belt and the commodity markets began to take off a combination of the weather market influence, record oil prices and free-flowing money moving into the markets. Analysts were saying the corn/soybean relationship had been permanently altered by the new market influence of biofuel demand.

But what a difference a year made. High grain prices have settled back down, crude oil prices backed off, the booming biofuels business is struggling with poor or negative margins, and the free-flowing money that added market volatility has dried up. As a result, daily market moves have been in a more normal range in recent months, even as this season's market dynamics have played out.

The softening of both soybean and corn markets, plus increased fertilizer costs for the nutrient hungry corn crop, put the two crops back into balance. "The pendulum doesn't favor one crop over the other right now when you look at costs and what the market is offering," said Darrel Good, extension economist at the University of Illinois.

USDA's Prospective Plantings report issued March 31 indicated U.S. producers were planning to plant less acreage in 2009 compared to 2008, presumably because there will be less double cropping. "Producers cut soft red winter wheat acres quite a bit, which limits double cropping opportunities," Good said. However, while intentions for overall acres planted to all crops dropped from the previous year, producers were planning 206,000 more acres of soybeans for 2009 than 2008. The largest increase of 200,000 acres was planned in Kansas, with increases of 100,000 acres planned in Iowa, Mississippi, Nebraska, North Carolina, North Dakota and Ohio. Offsetting those increases were reductions in planned soybean acres of 150,000 in Missouri and South Dakota, 100,000 acres in Illinois and 50,000 acres in Indiana, Louisiana and Minnesota.

USDA factored those changes into the April 9 World Agriculture Supply and Demand report to project U.S. soybean ending stocks could be at their lowest at the end of the current marketing year since 2003-'04, due to strong exports and a reduced South American crop offsetting weaker domestic demand. Export demand was remaining strong, partly due to the Chinese buying soybeans to replenish depleted inventories along with less competition from the Argentine crop, which was significantly reduced due to drought. The news added strength to the soybean markets. Cash soybeans at Decatur, Ill., climbed nearly $2 from $8.35 on March 1 to $10.25 on April 24. "While soybean prices are still high from a historic standpoint, they're still not at the levels we saw last year, which motivated a lot of double cropping," Good commented. The third week of April, 2008, saw $13 soybeans, but new crop beans for harvest delivery were trading at only $8 a bushel.

In the soybean oil market, USDA projected 2.2 billion pounds of soy oil will be used for biodiesel in the current year, out of a total market of 18.4 billion pounds. That puts biodiesel use at 12 percent of the oil market, although Good pointed out that soybean oil is only 20 percent, while meal is 80 percent of the total soy market. Soy oil for biodiesel, Good said, "is really only 2 or 3 percent of the whole complex." Thus the impact of soy biodiesel is far less than that of corn ethanol which is now consuming nearly one-quarter to one-third of the nation's corn production.

Nonetheless, biodiesel is becoming a substantial market for soybean oil, Bob Wisner, biofuels economist at Iowa State University, wrote in an analysis of the biodiesel market, which was published in the May newsletter of ISU's Ag Marketing Resource Center. "In the past few years, its use has exceeded total U.S. soybean oil exports." The estimated use of soybean oil for biodiesel last year was equivalent to about 15 percent of domestic food and non-biodiesel soybean oil use. "This new surge in demand for soybean oil versus markets in 2001 is equivalent to a jump of 117 percent in the 2006-'07 U.S. soybean oil exports," he said. With the downturn in the biodiesel market, USDA is now projecting soybean oil use in biodiesel will decline by 26 percent for the 2008-'09 marketing year compared to the previous year.

Wisner also took a look at the potential impact from mandated blending of biodiesel in diesel fuel, which is scheduled to increase in the Renewable Fuels Standard to 1 billion gallons by 2012. "Blending at that level, if 80 percent of the feedstock is soybean oil, would be equivalent to about 37 percent of recent non-biodiesel domestic use of soybean oil," Wisner said. "Viewed from an international perspective, it would be equivalent to approximately 3.7 times the size of current U.S. soybean oil exports."

Wisner suggested that, given the inelastic demand in the vegetable oil market, the biodiesel industry and policy makers need to ask what impact that volume of added demand is likely to have on feedstock costs. In the May newsletter he said, "A highly inelastic demand means that a large price increase is needed to cause consumers to make small reductions in consumption when supplies are short. Conversely, if supplies become more plentiful, large decreases in price are needed in order to encourage consumers to increase use. The inelastic demand sets the stage for very volatile feedstock prices for the biodiesel industry. It also indicates that the biodiesel industry can expect pressure on biodiesel margins as production levels increase and a larger portion of the feedstock supply is used for biodiesel."
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