Soybeans Outlook Relies On China’s Ravenous Appetite

April 27, 2015

 

 

Two Big Drivers Of Demand

GDP and population growth (on a global, regional country levels) can probably be considered as the two most important long-term drivers of demand for soybean meal and oil.

Therefore, any slowdown in China’s economic growth is likely to have some impact on both the global and the U.S. soybean market, not least in terms of a possible slowdown in the growth of its soybean imports. If the country maintains its appetite for soybeans, then one of the most important factors for domestic U.S. producers and U.S. exports will be the value of the U.S. dollar and the extent to which its competitors in the market can take advantage of this.

No brief look at some of the factors affecting the soybean market—in this case, soymeal and soybean oil—should omit two other areas. First dried distillers grains (DDGs): DDGs are the nutrient-rich co-product of dry-milled ethanol production, used extensively as a feed ingredient. They have, with varying degrees of effectiveness, been competitors to soymeal’s use in the U.S.

Second, canola, palm and sunflower oil have also been contenders against soybean oil. But depending on how the market’s looking at any particular time, soybean oil can also be seen by them as a contender.

 

USDA Prospective Plantings Report

The findings for soybeans were pleasantly surprising: “Soybean planted area for 2015 is estimated at record high 84.6 million acres, up 1 percent from last year. Compared with last year, planted acreage intentions are up or unchanged in 21 of the 31 major producing States.”

The 84.6 million acres figure was 1.3 million acres below the average trade estimate of 85.9 million acres. Some thought such a small increase a good sign for the crop.

Inventories at the beginning of March were 1.334 billion bushels. Albeit 34 percent, or 994 million bushels, up on the previous year, this figure was below analysts’ expected figure of 1.348 billion bushels—another encouraging sign.

One conclusion that could be drawn from the inventory figures is that the stronger U.S. dollar may not be hurting exports as much as it could. The big question going forward is whether China’s appetite for the bean remains unabated.

For a producer of which it can be said, once again, that “[t]hus far during the marketing year, nearly one out of every four bushels of soybeans produced, or 13 bushels per acre, has been shipped to China,” the country’s remaining ravenous is quite important.

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