Oilseed producers might want to be cautious about the potential for lower prices once seeding wraps up, but the longer term prospects look good.
Grain stocks are tight, but oilseed stocks are not and that would normally weigh down oilseed prices.
However, through late winter and spring, the corn rally acted like a rising tide lifting all boats. In the United States, soybean prices had to keep within range of corn to prevent a wholesale shift to the yellow grain.
But once the seed is in the ground, that competition will end and oilseed prices might trade more on their own merits of supply and demand.
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Immediate oilseed supplies look good.
Brazil and Argentina have blown past previous production records.
In its April 10 world supply and demand report, the United States Department of Agriculture raised its South American soybean production outlook by about four million tonnes.
That helped lift its forecast of global oilseed production for the current crop year to about 466 million tonnes, up five million from the March report.
USDA increased its world ending stocks estimate to 67.42 million tonnes.
The oilseeds stocks-to-use ratio at the end of the crop year will rise to 20.3 percent from 19.9 percent in 2005-06.
World coarse grain stocks-to-use ratio at the end of the crop year is much tighter at 12.1 percent.
This indicates oilseeds buyers might have a window of comfort at the beginning of the new crop year. But that security will soon erode.
The drop in U.S. soy acreage alone is likely to reduce global soy production by about 7.5 to 8.5 million tonnes. Global soy consumption climbs about five percent per year, meaning that 2007-08 demand will be up by a little more than 11 million tonnes.
Take these together and it means that somewhere outside of the U.S. an extra 18.5 to 19.5 million tonnes of soybeans have to be grown to keep supplies steady. South America can’t boost production that much in one year. Likely some buyers will turn to alternatives like canola, sunflower and palm. Indeed, production of these oilseeds is expected to climb in 2007-08.
But demand is likely to exceed production and stocks will decline.
If the U.S. continues to favour corn over soybeans next year, as it likely will, then the prospect of increasing tightness and strong prices for oilseeds will continue for another year.
