October 17, 2007
 

US soy production down 18.5 percent, soyoil stocks to drop to minimal levels

 

 

An 18.5-percent on-year drop in US soy production amid rising demand for soyoil for biodiesel production is going to shift market attention to the Brazilian soy market, an American Soy Association (ASA) report said in its soy export weekly update.

 

USDA's October estimates of US row crop production are arguably its first truly meaningful seasonal estimates, informed by harvest results, according to a follow-up report from the ASA.

 

The October estimates are not the final look at 2007 crops, but significantly narrow the range of outcomes, the ASA said.

 

USDA's latest estimates shifted more 2007 planted area from soy to corn, with soy acres down an additional 162,000 hectares and corn up 283,000 hectares.

 

The cut in acreage meant an 18.5 percent drop in soy production, to 70.7 million tonnes from 86.8 million tonnes last year, based on USDA's report.

 

Reduced acreage was largely responsible for the cut since yield remained unchanged at 2.78 tonnes per hectare. 

 

Beginning stocks of 15.6 million tonnes would offset the crop cut, leaving ending stocks at 5.85 million tonnes for 2007-08. 

 

This low level in relation to market demand highlighted the need for a large Brazilian 2008 crop, the ASA report said.

 

Soy farm prices are up 22 percent on-year, averaging US$7.85 - 8.85, compared to US$6.43 in 2006-2007, according to the USDA.

 

Oil use in bio-diesel was raised 90,700 tonnes due to ongoing strength in capacity and demand, with prices set at US$34.50 - US38.50. 

 

Meal prices were set at US$$220 - 250. 

 

Brazil's crop was raised to 62 million tonnes from 59 million tonnes last year, while Argentine production was set at 47 million tonnes, essentially unchanged.  Chinese imports remain at 33.5 million tonnes and last year, in a year of slow growth in demand, it was 28.5 million tonnes.

 

The drop in soy production comes at a time of fast rising soyoil demand from the biodiesel sector.

 

The Census Bureau reported that 378 million pounds of soy oil were used in biodiesel production in August, up from the previous month's 348 million and nearly double last year's 209 million.

 

Soy oil accounted for 87 percent of the fats and oils used so far in 2007.

 

The August data indicated that the biodiesel industry continues to fully employ new biodiesel capacity as plants come on line. Biodiesel capacity has increased from just over 700 million gallons annually at the start of 2007 to 1.2 billion in August.

 

While capacity went up 500 million gallons, unused capacity has increased by just 100 million gallons.

 

While it took eight months for capacity to rise 500 million gallons from January to August, it took just two months from August to October to add that amount in the last 2 months.  (August to October), reflecting the accelerated pace of plant construction.

 

Given the rapid rise of biodiesel production, America's soy oil stocks are expected to be depleted to minimal levels by the middle of the 2007-08 marketing year, the ASA said.

 

Biodiesel production thereafter is limited so that US soy oil stocks are maintained at or somewhat above a minimum level of around 1.7 billion pounds.

 

This means that it would only be months for soy oil stocks to be reduced from record stocks of 3.36 billion pounds in June to the minimal levels that the market will tolerate.

 

Although this may sound bullish for soy oil futures, the high soy oil prices have already eroded biodiesel margins to narrow or negative levels.

 

However, there may be soy stocks the escaped the monitoring of the Census Bureau.

 

Soy stocks reached record levels earlier this year and may have been stockpiled in non-traditional locations because of the unprecedented supplies. Now that demand is high, those stocks may be coming out of those places along with those that the Census Bureau monitors.

 

The cut in soy production in the US is also coupled with similar cuts in China.

 

China's soy acreage for 2007 was 5.17 percent down from 2006, according to the State Grain and Oil Information Centre. This meant a 9.8 percent reduction from production levels in 2006, mainly due to drought in north-east China.