Oil Crops: Higher Foreign Supplies To Weigh on U.S. Export Demand

    Based on accelerating foreign competition, USDA trimmed its 2016/17 forecast of U.S. soybean exports by 25 million bushels this month to 2.025 billion. In contrast, strong year-to-date use prompted an increase in the 2016/17 forecast of the domestic crush this month by 10 million bushels to 1.94 billion.

    Season-ending soybean stocks for 2016/17 are then expected to edge 15 million bushels higher to 435 million bushels. On the basis of earlier priced sales, USDA revised its forecast of the U.S. season-average farm price to $9.30$9.90 per bushel from $9.10-$9.90 last month.

    Domestic Outlook

    Rising Competition Dims Prospects for U.S. Soybean Exports

    U.S. soybean exports typically go through a seasonal decline at this time of year. Compared to a month ago, the current weekly rate of shipments is down sharply. As of March 2, outstanding sales commitments are still comparatively high, though, which may moderate the decline in March exports.

    But with much brighter crop prospects in Brazil, the odds for a repeat of last summer’s unusually strong exports are diminishing. Even with an abundance of soybean stocks remaining, new export sales are now expected to shrink with the accelerating foreign competition.

    Provided there are no major logistical difficulties in shipping South American newcrop soybean supplies–which fueled last summer’s surge–the U.S. exports throughout the summer are unlikely to revive. As a consequence, USDA trimmed its 2016/17 forecast of U.S. soybean exports by 25 million bushels this month to 2.025 billion.

    In January, the domestic soybean crush held steady at 170.6 million bushels, compared to 169 million in December. The cumulative crush for September 2016January 2017 increased to 824.6 million bushels, exceeding the year-earlier pace by 3.3 percent.

    The data prompted USDA to raise its 2016/17 forecast of the domestic crush by 10 million bushels this month to 1.94 billion, versus 1.886 billion in 2015/16. Better-than-expected demand for soybean meal is largely responsible.

    USDA forecast domestic use of soybean meal 200,000 short tons higher this month to 34.3 million.

    Grain Commentary

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    The forecast reduction in U.S. soybean exports this month more than offsets a higher crush. So, season-ending stocks are expected to edge 15 million bushels higher to 435 million bushels. A rise in the expected carryout and the likelihood of an increase in 2017 soybean acreage could pressure prices going forward.

    Despite this, a large proportion of old-crop soybeans have already been marketed at higher prices. On this basis, USDA’s forecast of the U.S. season-average farm price is revised to $9.30-$9.90 per bushel from $9.10-$9.90 last month.

    Soybean Oil Prices Pressured By Higher Output, Slower Demand

    U.S. biodiesel production and imports surged in the final quarter of 2016 to take advantage of a $1-per-gallon blending credit, which had expired as of January 1. EPA reported that 2016 production of biomass-based diesel topped 2.6 billion gallons. While this level is well above the year’s requirement, biodiesel production can also help fulfill the law’s advanced fuels mandate.

    Prior to the end of 2016, EPA had also announced an increase for the 2017 Renewable Fuels Standard blending obligations for biomass-based diesel–to 2 billion gallons from 1.9 billion in 2016. Unused credits (RINs) produced in 2016 can be applied toward the 2017 blending requirement as well.

    Since January 1, however, biodiesel output has plunged in the absence of a blending credit and an abundant RIN carryover. Contrary to previous expectations, production cuts by crude oil exporters have not resulted in tightening inventories.

    In fact, U.S. crude oil stocks have now climbed to a record high, which has stalled the rise in prices. One indication of the associated effect on the biodiesel market is the decline in Iowa biodiesel prices, which have fallen 13 percent since December.

    Use of soybean oil in the production of biodiesel has correspondingly slumped. In January, a higher output and lower demand for soybean oil led to a rise in ending stocks for the month to 2.086 billion pounds from 1.872 billion in December. Season-ending soybean oil stocks for 2016/17 are also forecast higher this month to 1.772 billion pounds.

    An easing supply outlook is weighing on the current price level. Central Illinois soybean oil prices peaked in December at an average at 35.6 cents per pound but fell to a February average of 32 cents. Thus, the season-average price for 2016/17 is forecast at 32-35 cents per pound, compared to 34-37 cents last month.

    Higher U.S. soybean oil exports are anticipated with an increase in production and a more competitive price level. As of March 2, export sales commitments of soybean oil were 14 percent higher than a year ago. Late-season sales may not be as high in 2016/17 as in 2015/16.

    But there may be enough sales already booked this season to match the 2015/16 total (2.24 billion pounds). USDA raised its soybean oil export forecast for 2016/17 by 100 million pounds this month to 2.25 billion.

    Full report.

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