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Oilseed Market Focusing on Brazilian Soy Prospects
Sunday, December 1, 2024
filed under: Marketing/Risk Management
By Mike Krueger*
The US corn and soybean harvests are done. The USDA did trim the corn and soybean national yields slightly in the November production updates. The corn yield was reduced from 183.8 bu/ac to 183.1 bu/ac. That cut production by 60 million bushels. Corn ending supplies were rescued by 61 million bushels. That is insignificant. The USDA did not revise the corn export estimate higher. Many analysts think they will eventually have to do that because the sales pace has been big.
USDA reduced the soybean yield from 53.1 bu/ac to 51.7. Production was cut by 121 million bushels, and ending supplies dropped from 550 million bushels in October to 470 million in this report. That compares to ending supplies of 342 million bushels in the last marketing year.
USDA made no changes to sunflower production numbers in the November report.
The USDA made no changes to their soybean production estimates for Brazil or Argentina. Their Brazil forecast is a record 169 million metric tons. Weather throughout Brazil was much improved during the month of October. The wet areas turned dry and the dry areas turned wet. That allowed planting to make good progress.
Oilseed prices strengthened the first week of November despite the overall bearish soybean numbers. World ending supplies are expected to increase significantly if Brazil harvests a record crop next spring. Strength in world vegetable oil markets is the reason for the rally in soybeans, canola and sunflower. The December Chicago soybean oil futures chart (below) shows the rally:
There are multiple reasons for the rally in soybean oil (and other vegetable oil prices):
• Palm oil production has been steady or declining. Plantations in Malaysia are getting past their prime. Urban encroachment is also trimming back production.
• The rapid expansion in renewable diesel production and consumption is tightening world vegetable oil supplies. This is a major shift in the long-term vegetable oil situation. Renewable diesel and SAF (Sustainable Aviation Fuel) use no petroleum. It is all vegetable oil.
• Indonesia has increased its bio-diesel blend to 40%. They also placed an export tax on palm oil.
• China has been exporting palm oil into the U.S. renewable diesel industry under the guise of “used” vegetable oil. It is likely the Trump Administration will put an end to that.
• U.S. soybean oil export sales have been soaring. The USDA is forecasting total U.S. soybean oil export sales for this marketing year at 600,000 metric tons (MT). Sales and shipments are already at 233,000 MTs, and we are just nine weeks into the marketing year. Sales and shipments last year at this time were just 25,000 MTs. Sales the second week in November alone totaled 114,000 MTs, 20% of the annual goal.
• U.S. soybean oil is now the cheapest vegetable oil in the world.
The U.S. soybean crushing industry has been operating at a record pace for the past several years. More processing plants are coming on line, and we assume they will quickly crank up to their maximum capacity.
The pace of corn export sales has also been very brisk. Mexico, the largest buyer of U.S. corn, has been an aggressive buyer. China has been an active buyer of U.S. soybeans over the past few months. The Trump election victory might be accelerating purchases from both countries as they move to purchase corn and soybeans before the Trump administration takes control on January 20, 2025, in anticipation of possible trade sanctions.
The world is still a geo-political mess. The Black Sea war is far from being resolved and could still impact trade. The situation in the Middle East is far from being resolved and could eventually impact crude oil supplies. The U.S. election is finally behind us. Markets immediately responded after the election, as predicted with a Trump victory. The dollar got stronger. Equity markets set record highs. Gold softened.
The strong dollar is an obvious impediment to U.S. agricultural exports — especially wheat. World wheat ending supplies among the six major exporting countries will be the smallest in several years. This should eventually push some export business back to the U.S. Russia, however, continues to be an aggressive wheat exporter despite potential winter wheat production problems.
The bearish threat to oilseed markets going forward is the potential for a record soybean crop in Brazil. Weather in Brazil and Argentina during the next two to three months will be important to price direction unless that is superseded by geo-political happenings we can’t predict today.
A secondary bearish factor in the soybean complex is how relations go with China during the upcoming Trump administration.
* Mike Krueger founded The Money Farm, and is now a senior analyst with World Perspectives, a Washington, D.C.-based consulting company. While the information in this article is believed to be reliable, marketing involves risk, and the author and The Sunflower assume no responsibility for its use.