USDA U.S. Department of Agriculture - November 7, 2003
Oil Crops Situation and Outlook Yearbook. Market and Trade
Economics Division, Economic Research Service, U.S. Department
of Agriculture, October 2003, OCS-2003.
Contents
Summary
Outlook for 2003/04
U.S. Soybean Review, 2002/03
Situation for Other U.S. Oil Crops
Cottonseed
Peanuts
Sunflowerseed
Other Oilseeds
Other Fats and Oils Highlights
World Oilseed and Protein Meal Situation
World Vegetable Oil Situation
List of Tables
Report Coordinator
Mark Ash
(202) 694-5289
E-mail: MASH@ers.usda.gov
Principal Contributors
Mark Ash (Soybeans, Other Oilseeds, Vegetable Oils)
Erik Dohlman (202) 694-5308 (Peanuts)
Wilma Davis (202) 694-5304 (Statistics)
Editor
Dana Rayl West and Martha R. Evans
Graphics, Table Design & Layout
Wynnice Pointer-Napper
Approved by the World Agricultural Outlook Board. Summary
released October 23, 2003. Summaries and full text of Situation
and Outlook reports may be accessed electronically via the ERS
website at www.ers.usda.gov/. To order, call 1-800-999-6779 in
the United States or Canada. Other areas please call (703) 605-
6220. Or write ERS-NASS, 5285 Port Royal Road, Springfield, VA
22161.
Note: Due to a change in the report schedule, the next Oil Crops
Yearbook will be published in March 2005.
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Summary
The 2002 soybean harvest was determined to be 2,749 million
bushels from 72.4 million acres harvested. Record levels for
domestic crushing and exports in the preceding year had reduced
2002/03 beginning stocks to 208 million bushels, compared with
248 million a year earlier. Together, they cut the 2002/03
supply by 179 million bushels from 2001/02 to 2,962 million.
U.S. soybean exports to most countries (excluding China)
declined in 2002/03, slipping to 1,045 million bushels from the
record 2001/02 exports of 1,063 million. Processors could defend
profit margins from rising soybean costs only by scaling back
operating time at oil mills, which reduced the 2002/03 crush to
1,615 million bushels from 1,700 million in 2001/02. Even with
use rationed in the final quarter, season-ending stocks dropped
to 169 million bushels from 208 million in 2001/02. The
depletion of supplies strengthened the 2002/03 national average
farm price to $5.53 per bushel from $4.38 in 2001/02.
The season average price for soybean meal rose to $182 per short
ton versus $168 per short ton in 2001/02. Heavier use of
distillers' grains and corn gluten helped limit the domestic
consumption of soybean meal in 2002/03, which fell 3 percent to
32.2 million short tons. Greater domestic consumption and
foreign production of soybean meal depressed U.S. soybean meal
exports to 6.05 million tons in 2002/03 from 7.5 million in
2001/02.
Even with a smaller output of soybean oil, large carryover
stocks allowed U.S. soybean oil exports to remain relatively
high at 2,250 million pounds. Total soybean oil demand remained
constant in 2002/03. However, a reduction in the supply by
nearly 1 billion pounds sharply cut the ending stocks from 2,359
million to 1,486 million pounds for the smallest carryout in 4
years. The season average price strengthened to 22.0 cents per
pound compared with a 2001/02-average of 16.5 cents.
Domestic cottonseed output for 2002 dropped 17 percent from the
previous year to 6.2 million short tons. The shortfall raised
the season average farm price for cottonseed to $100 per ton
from $93 in 2001/02. Consequently, cottonseed crushing fell to
2.5 million short tons in 2002/03 from 2.8 million in 2001/02.
Domestic cottonseed oil output slumped in 2002/03 to a modern
era low of 725 million pounds. A large price premium stifled
both domestic and export demand for cottonseed oil, which
plummeted to 636 million and 110 million pounds, respectively.
U.S. sunflowerseed production in 2002 fell more than one-fourth
to 2,490 million pounds. Although sunflower planting declined
only 2 percent in 2002, harvested acreage fell 15 percent. The
season average farm price for sunflowerseed (all types) climbed
to 12.2 cents per pound, its highest level in 9 years. A severe
805-million pound reduction in the oil-type sunflowerseed supply
led to domestic processors consuming only 703 million pounds,
the least since 1978/79. Sunflowerseed oil exports, which
dropped by three-fourths to 110 million pounds, bore the brunt
of the supply shortage, although domestic consumption also fell
to 268 million pounds, down 28 percent from 2001/02.
World oilseed production rose to 328.9 million metric tons for
2002/03, from 324.4 million the previous year. Soybean
production gained 11.9 million metric tons to 196.4 million,
more than offsetting production declines for other oilseeds.
Larger crops from Brazil and Argentina accounted for nearly all
of the soybean increase. Brazilian soybean production surged to
52.5 million tons in 2002/03, up from 43.5 million the year
before. Argentine soybean production rose to 35.5 million tons
in 2002/03 from 30.0 million in 2001/02. China’s 2002/03 soybean
imports soared to 20.3 million tons from 10.4 million in 2001/02
after an extension of the transition period for its import
regulations on biotech crops.
Outlook for 2003/04
More Serious Damage to the U.S. Soybean Crop Discovered
The October Crop Production report indicated that the impact of
last summer’s drought was significantly worse than first
thought. New survey data for many States found lower counts of
pods with beans. Crop prospects were also diminished in many
areas by disease and pest problems. The United States Department
of Agriculture's (USDA) forecast the 2003 soybean yield at just
34.0 bushels per acre, down from the September forecast of 36.4
bushels and well below last year’s yield of 38.0 bushels. This
would be the smallest yield since 1993. The harvested area
estimate was shaved to 72.5 million acres based on 2003-crop
preliminary USDA administrative data, which (when combined with
the lower yield) cut the October soybean production forecast to
2,468 million bushels. That crop is 175 million bushels smaller
than the previous month’s estimate. If realized, it would be 281
million bushels less than the 2002 harvest and the smallest
soybean crop since 1996. As of October 26, 85 percent of the
U.S. soybean harvest had been completed, which is on par with
the 5-year average.
Total soybean supplies for 2003/04 were buoyed slightly by
findings from the latest Grain Stocks report that beginning
stocks (at 169 million bushels) were 29 million higher than the
previous forecast. That report also indicated a larger final
estimate (up 19 million bushels to 2,749 million) for the 2002
soybean crop. However, those results were dwarfed by the
magnitude of the reduction in the 2003 crop.
U.S. export sales of soybeans are strong this fall as foreign
buyers are securing their near-term supply requirements. As of
October 16, exporters had sold 470 million bushels of soybeans,
up from 360 million a year earlier. However, future sales should
slow as rising U.S. prices prompt foreign buyers to look for
signs of better buying opportunities next year from South
America. In addition, an unusually rapid rise in ocean freight
costs particularly to Asia (which is escalating because of heavy
demand by other types of bulk cargo) may encourage foreign
importers to postpone some near-term buying. The U.S. export
forecast for 2003/04 was lowered to 870 million bushels, down 70
million from the September forecast.
As in 2002/03, the rapid commitment of soybean supplies to
foreign buyers is exacerbating the plight of domestic crushers.
Compelled to bid more aggressively for this season’s smaller
domestic supply, U.S. processors must receive higher prices for
soybean meal and oil to maintain profitability. While values in
the vegetable oil market are strengthening, for soybean meal
there could be greater resistance to a higher price. Greater
availability of protein feed substitutes, both here and abroad,
will make them more favorably valued against U.S.-produced
soybean meal. These were reasons for another reduction in the
2003/04 crush forecast to 1,510 million bushels.
Year-ending stocks of soybeans could get very tight even with a
large reduction in use. The 2003/04 carryout is seen slipping to
just 130 million bushels. The only way to insure that there will
be even a minimal soybean carryover is for prices to increase.
Between August and September, soybean prices in central Illinois
rose sharply, about 80 cents per bushel. By mid-October, prices
were still rising to about $7.25 per bushel, their highest level
in 6 years. The expected season average soybean price was raised
to $6.05-$6.95 per bushel from $5.25-$6.15 previously.
The number of U.S. hogs and pigs on September 1 was 2 percent
lower than it was a year earlier. There should be some increase
in pig crops over the next year, however, as farrowing
intentions are down just 1 percent for the fall and they are
even with last year for the winter quarter. Poultry producers
are likely to increase the number of birds fed next year, also.
While these factors should help support total feed demand, the
comparatively higher cost of soybean meal could restrict its
consumption in 2003/04. Central Illinois soybean meal prices are
expected to rise to $185-$215 per short ton. Domestic
disappearance of soybean meal is again forecast lower for
2003/04 at 31.3 million tons. Foreign end users have even more
options and U.S. exports of soybean meal are seen sliding 17
percent to 5.0 million tons. The lack of domestic output is also
anticipated encouraging a record volume of soybean meal imports
near 340,000 tons.
Soybean oil prices have risen sharply since August (to nearly 28
cents per pound) because of the threats to potential supplies.
The reduced crush and stock carryover is expected to slash
2003/04 soybean oil supplies by 2.15 billion pounds. Apart from
the impact of last summer’s drought on the expected availability
of soybeans for crushing, a freeze in early October may have
hurt some late-planted fields in the northern Midwest and Ohio
River valley. This event may ultimately reduce oil yields and
quality for soybeans that did not fully mature by that time.
Average soybean oil prices in 2003/04 are projected to rise to
23.5-26.5 cents per pound. The last time that soybean oil prices
were as high was in 1997/98, although the reasons then were
primarily related to strong demand rather than a short supply.
Prices at this level will severely constrain the potential for
U.S. soybean oil exports in 2003/04, which would be down more
than 60 percent from the previous season. Ending stocks of
soybean oil do not have as much room to fall as they did in
2002/03, when nearly 800 million pounds were consumed from
storage. The projected 2003/04 carryout of 1,218 million pounds
would be less than a month’s rate of use. Therefore, the
tightening supply will most likely impose a reduction on the
domestic use of soybean oil, as well. U.S. disappearance is
forecast declining in 2003/04 to 16,600 million pounds, which
would be down more than 2 percent from the preceding year.
Greater use of canola oil, corn oil, sunflowerseed oil, and
cottonseed oil next year should offset the loss of demand for
soybean oil.
Soybean Shortage To Boost Domestic Demand for Other Oilseeds
As with soybeans, a dry summer in North Dakota and South Dakota
in 2003 also curtailed production of sunflowerseed. For the
second consecutive year, sunflowerseed yields were hurt by a
lack of rain. The national average yield was forecast at 1,152
pounds per acre, a slight improvement from 2002’s 1,142 pounds,
but still below average. Yields improved from last year in all
States except North Dakota (the national production leader).
Based on an expected harvested area of 2.3 million acres (up 4
percent from 2002), production for both oil type and confection
type sunflowerseed would total 2,619 million pounds. Progress of
the sunflower harvest in North Dakota was advancing more quickly
than usual, with about one-third complete by mid-October.
Despite the disappointing yields, quality of the crop is
reported to be generally good.
A comparatively comfortable level of carryover stocks (mostly
held by processors) will help boost total supplies. With a very
strong market anticipated for the oil, the 2003/04 sunflowerseed
crush is expected to nearly double to 1,370 million pounds. Yet,
exports of sunflowerseed oil are unlikely to expand greatly
because of an acute need to retain domestic sources of vegetable
oil. Although sunflowerseed oil exports could recover to around
200 million pounds in 2003/04, this would still be far below
annual volumes shipped abroad during the last decade. In
contrast, domestic disappearance could grow by 44 percent to a
record high 385 million pounds. A greater sunflowerseed crush
will also contribute more sunflowerseed meal to the country’s
protein meal supply.
Recent prices for sunflowerseed oil and oil-type sunflowerseed
have been pulled up along with soybean oil. Current bids for
oil-type seed range from $10.50 to $11.00 per hundredweight,
which is now only marginally lower than a year ago. At current
values of nearly 33 cents per pound, sunflowerseed oil prices
are still very high. But, once processors are replenished with
new crop supplies, the likely crush resurgence should somewhat
narrow the premium for sunflowerseed oil against soybean oil by
next year.
Domestic output of canola seed is estimated down just 0.4
percent in 2003 to 1,546 million pounds. In the upper Midwest,
there was a recovery from below-average 2002 canola yields, but
these were offset by a loss of 190,000 harvested acres. While
acreage abandonment was considerably lower in 2003, farmers
planted only 1.1 million acres versus 1.5 million last year.
Producers are likely to see 2003/04 canola prices above the
previous year and again well above the marketing loan rate.
The most prominent change to the 2003/04 canola outlook,
however, will be the improved supply availability from Canada. A
much better Canadian crop will allow domestic crushing to climb
back near full capacity. U.S. canola seed imports are expected
to increase nearly 50 percent to 639 million pounds. Even that
rebound in domestic oil production may not be sufficient,
however. A deficit of soybean oil supplies will likely prompt a
steady stream of canola oil imports from Canada, which encounter
no import duty. U.S. canola oil imports could exceed 1,200
million pounds. Domestic disappearance of canola oil could climb
to a record high 1,687 million pounds.
U.S. production of cottonseed is forecast up 4 percent in 2003
to 6.4 million short tons. The cotton area harvested is down 0.3
million acres from 2002, but an improved yield is responsible
for the bigger crop estimate. A larger Australian harvest should
boost U.S. imports of cottonseed, also. This extension of
supplies should help revive the domestic cottonseed crushing
industry. Processors have suffered from a lack of favorably
priced seed in recent years as cattle feeders have used
increasingly more cottonseed in their rations. But there should
be enough good quality cottonseed available in 2003/04 to permit
growth in cottonseed feeding as well as a recovery in crushing
to around 2.75 million tons. Like other oilseeds, strong
domestic demand for cottonseed oil will encourage as much
production of it as practical.
Stable Outlook for U.S. Peanuts in 2003/04
On the strength of good growing conditions throughout the main
peanut producing regions, U.S. peanut production in 2003 is
projected at 3.95 million pounds, up 631 million (19 percent)
from 2002. Although planted acreage was down about 3 percent
from 2002, production will rebound on the basis of a record
national average yield and a drop in abandoned acres from 61,300
acres in 2002 to an estimated 38,000 this year. The national
average yield is projected at 3,095 pounds per acre, an
improvement of 21 percent compared with 2002.
Despite a 631-million-pound production gain, overall 2003/04
supplies are projected just 20 million pounds higher, largely
due to lower carryover stocks that fell to 875 million pounds
from the previous year’s record level of 1,476 million.
Projected 2003/04 peanut use is down 180 million pounds to 3,817
million. Slightly increased domestic food use and exports are
more than offset by a lower crush and residual use. The 2003/04
season average farm price is projected to range from 16.25 to
19.25 cents per pound, compared with 18.24 cents in 2002/03.
Strong Expansion of South American Soybean Area Anticipated
The disappointing outcome from the 2003 U.S. soybean harvest
makes the world even more dependent on the success of the next
crop in South America. The strong price rally already underway
is encouraging farmers in Brazil and Argentina to expand their
planting intentions. In Brazil, internal prices for soybeans are
generally equivalent to a year ago, when producers increased
area by 13 percent. USDA now projects that Brazilian soybean
area will expand by 14 percent in 2003/04 to 21.0 million
hectares, up from the previous forecast of 20.0 million. A
soybean area that high would also raise projected output for
Brazil to 60.0 million metric tons, compared with the previous
forecast of 56.0 million and 2002/03 production of 52.5 million.
Although better prospects for the new Brazilian soybean crop are
doing little to calm current market prices, they are moderating
the rise of futures prices, particularly for March and May 2004.
As output heads in opposite directions for the two countries,
Brazil could surpass the United States in soybean exports for
the first time with projected 2003/04 shipments rising to 26.0
million tons. Brazil had long ago outstripped U.S. exports of
soybean meal and is projected to widen that gap by exporting
16.5 million tons over the next year.
Smaller Domestic Harvest Expected To Buoy China’s
Soybean Imports
The USDA estimate of China’s 2003 soybean production was lowered
to 16.2 million tons from 16.5 million previously. Although 2003
soybean area in China expanded by 8 percent, yields in the
northeast were knocked below average during a difficult growing
season.
Soybean imports by China for 2002/03 were expected to about
double from the previous year’s 10.4 million tons. Many
shipments had been scheduled to arrive before September 20, when
interim regulations on biotech imports were set to expire. Early
in September 2003, the government formally announced that the
interim period would be extended to April 20, 2004. But,
exporters could not apply for safety certificates on cargoes
bought for fall shipment until after September 20. So, the
inability to obtain the required documents in a timely manner
forced some contracts to be cancelled or deferred and will once
again interrupt China’s soybean imports during October and
November.
Yet, China’s soybean imports should resume soon as consumption
remains brisk. While there have been minimal shipments over the
last few weeks, U.S. export sales to China are up about one-
third from a year ago. USDA has projected 2003/04 soybean
imports by China up to 20.5 million tons, compared with the
September forecast of 19.0 million. A smaller domestic soybean
harvest will support import needs and the unpredictable
administration of China’s import regulations is encouraging
processors to accumulate stocks whenever possible. Although
China’s 2003/04 ending stocks should stay relatively high in
historic terms at 4.0 million tons, they could decline
moderately from the estimated 2002/03 carryout of 4.5 million
tons.
Imports of soybean oil by China have been accelerating for
several months and should stay active for some time because of
the higher cost for obtaining soybeans. USDA raised its
forecasts of China’s soybean oil imports to 1.5 million tons in
2002/03 and 1.3 million in 2003/04.
Favorable Outlook for Indian Oilseed Harvests
Firm prices and favorable weather are also encouraging Indian
farmers to seed more area to rapeseed starting this month.
Indian rapeseed area is expected to reach 6.6 million hectares,
which would be up 20 percent from the previous forecast. With
normal yields, Indian producers could be expected to harvest 5.5
million tons in 2003/04, up from just 3.6 million tons the year
before. Production gains from other summer-sown crops would
increase total oilseeds in India by 7 million tons to 25.8
million. As a consequence, domestic production of vegetable oil
could expand in 2003/04 by 1.4 million tons. While Indian
vegetable oil consumption could rebound by a robust 7 percent,
improved domestic supplies should curb import requirements.
Indian imports of palm oil in 2003/04 are forecast declining 7
percent to 3.7 million tons, while soybean oil imports are seen
slipping 5 percent to 1.5 million.
U.S. Soybean Review, 2002/03
Summer Drought and Heat Cut 2002 U.S. Soybean Yield
Based on the March 2002 Prospective Plantings report, U.S.
farmers intended to plant 73.0 million acres of soybeans, down
from 74.1 million acres planted the previous year. At the time,
many Corn Belt producers were reacting to considerably lower
fertilizer expenses for corn and a relative shift between the
new loan rates for corn and soybeans. However, soybean prices
had climbed sharply from early February 2002.
In addition, corn planting had fallen behind due to excessive
wetness in a band stretching between western Ohio and eastern
Kansas. The delays compelled farmers to switch intended corn
area to soybeans. In North Dakota, farmers expanded soybean
planting (mostly at the expense of wheat) by 520,000 acres.
Soybean acreage rose nearly a half-million acres in the South as
very low cotton prices discouraged cotton planting. In the Delta
region, extremely wet soil conditions also hampered planting of
corn and cotton and favored planting more soybeans. At the end,
there were 73.9 million acres of soybeans planted in 2002, only
slightly less than the previous year’s 74.1 million.
Warm July weather helped accelerate the soybean crop’s emergence
in the East following a lag in planting. But, the heat wave also
began a drying out of parts of the central Great Plains. The
dryness spread eastward during the summer with Missouri,
Illinois, Indiana, and Ohio each receiving less than half of the
normal rainfall. Throughout October, tropical storms in the Gulf
of Mexico pushed frequent and substantial rains up into the
South and Midwest, which further hampered and degraded the
soybean harvest.
A summer drought in the western Corn Belt and harvest-period
storms in the South caused the number of unharvested acres in
2002 to be larger than usual at 1.5 million acres. Yields fell
short in most States because of below-average moisture (except
for Minnesota, where abundant rains produced a record yield).
The national average yield dropped to 38.0 bushels per acre.
Besides the drought, the U.S. average yield was also held down
by a 1-million-acre reduction in the highest yielding States
(Illinois, Iowa, Nebraska, and Minnesota) while acreage
increased in some States with below-average yields (North Dakota
and Mississippi, in particular).
The 2002 soybean harvest was determined to be 2,749 million
bushels from 72.4 million acres harvested. Record levels for
domestic crushing and exports in the preceding year had reduced
2002/03 beginning stocks to 208 million bushels, compared with
248 million a year earlier. Together, they cut the 2002/03
supply by 179 million bushels from 2001/02 to 2,962 million.
Strong Foreign Demand Buoys Soybean Exports but Smaller Crop
Lowers Crush
U.S. soybean exports to most countries declined in 2002/03,
slipping to 1,045 million bushels from the record 2001/02
exports of 1,063 million. Trade with the European Union (EU) was
curtailed by a brisk pace of South American soybean meal
shipments. U.S. soybean exports to the EU dropped 76 million
bushels from the previous year and were the smallest in two
decades. Sluggish growth in EU livestock production and large
imports of feed wheat from the Black Sea region (as well as
greater domestic supplies of damaged wheat) also limited EU feed
requirements for protein meal.
China was the conspicuous exception to the contraction of U.S.
exports. China’s strong crush margins and a lack of rapeseed
supplies largely countered the losses from soybean markets
elsewhere in the world. U.S. soybean exports to China almost
doubled in 2002/03 to 284 million bushels to account for more
than one-fourth of total U.S. trade. U.S. shipments were also
supported by delayed harvests in Brazil and Argentina. Even with
a soybean supply that was nearly 200 million bushels lower than
the previous year, exports started strongly and kept up with the
record 2001/02 pace as late as July.
Eventually, higher U.S. prices began to ration demand
everywhere, although more so for the domestic than the export
market. The comparatively resilient export demand bled away even
more supplies from the domestic market. Competition with foreign
crushers for U.S. soybeans forced domestic processors to bid up
prices for soybeans, which put crushing margins under great
pressure. On average, the soybean price paid by Illinois
processors ballooned by $1.11 per bushel over the previous year.
Thus, processors could defend profit margins only by scaling
back operating time at oil mills, which reduced the 2002/03
crush to 1,615 million bushels from 1,700 million in 2001/02.
At the same time that supplies were tight, an abundance of
foreign soybean meal production crowded out U.S. meal exports
and a contraction in hog feeding suppressed domestic
consumption. While comparatively firm soybean oil demand helped
support processors, a large stock carryover and a high oil
extraction rate were also tempering the incentives to crush.
Capacity utilization rates had already begun a steep decline by
January 2003, although there was a temporary recovery for
processors in July. July was marked by waning soybean exports
and seemingly good prospects for the 2003 crop that helped to
weaken farm prices and bolster crush margins. In addition, there
was a brief resurgence of farm sales when 9-month marketing
assistance loans began to mature for soybeans placed under loan
in late 2002.
In line with the worsening crop conditions, soybean prices
started to rally strongly by July 2002. Prices were pushed back
down in October by harvest pressure, but relatively brisk export
sales soon signaled that stocks would rapidly tighten. Soybean
stocks as of June 1 (at 602.3 million bushels) were the smallest
since 1998 and significantly below the 684.9 million in stocks
the previous year. Even with use rationed the final quarter,
season-ending stocks dropped to 169 million bushels from 208
million in 2001/02. In absolute terms, this carryout was the
smallest since 1997. Such a carryout did not leave much of a
cushion for the price impact of a disappointing 2003 harvest.
The depletion of supplies strengthened the 2002/03 national
average farm price to $5.53 per bushel from $4.38 in 2001/02.
Total use outpaced total production, but a low level of U.S.
soybean stocks has less influence on the overall price level
than it used to. The main reason is the growing influence of
South American supplies, which no longer allow prices to rise to
the same level of a decade or more ago. U.S. stocks comprised
just 12 percent of the world carryover, compared with the early
1980s when U.S. stocks routinely accounted for approximately
three-fourths of world stocks. To illustrate the price impact of
that change, the ratio of soybean ending stocks to use fell to 6
percent in 2002/03, which was comparable to the 1996/97 ratio
but at an average price far lower than the $7.35 per bushel seen
for that season. Other factors, such as delivery time
improvements, are contributing to lower storage needs. U.S.
producers have been able to lock in farm commodity prices
through expanded use of loan deficiency payments and futures
options and thereby minimize their use of physical storage.
The higher market price and lower loan rate ($5.00 per bushel)
virtually eliminated loan deficiency payments and marketing loan
gains for the 2002 soybean crop. Counter-cyclical payments
(which were first introduced in 2002 farm legislation) also were
not required. A counter-cyclical payment would be triggered only
if the market price falls below $5.36 per bushel, which equals
the soybean target price ($5.80) minus the fixed direct payment
($0.44).
Soybean Meal Demand Encounters Stiff Competition
A large accumulation of meat stocks in early 2002 pressured
slaughter prices for both hogs and poultry, which consume most
of the country’s soybean meal. On August 31, 2002, U.S. stocks
of red meat and poultry in cold storage had ballooned by 30
percent and 28 percent, respectively, from a year earlier. By
mid-2002, much lower slaughter hog prices and sharply higher
feed costs were forcing a liquidation of the breeding herd,
which by early 2003 had curtailed the size of new pig crops.
There was nearly no increase in poultry production from the
previous year, either.
Although there were much smaller supplies of sunflowerseed meal
and canola meal available in 2002/03, heavier use of distillers'
grains and corn gluten helped limit the domestic consumption of
soybean meal. A strong expansion for U.S. ethanol production in
recent years has widened the availability of these mid-protein
feeds. An above-average protein value for the 2002 soybean crop
may also have trimmed feeding requirements. Each of these
factors dampened U.S. soybean meal disappearance for 2002/03 to
32.2 million short tons, down 3 percent from 2001/02.
Greater domestic consumption and foreign production of soybean
meal depressed U.S. soybean meal exports to 6.05 million tons in
2002/03 from 7.5 million in 2001/02. U.S. shipments of soybean
meal to major Asian markets (the Philippines and Thailand, in
particular) were down sharply.
Relatively high soybean meal prices were responsible for
curtailing both domestic and foreign demand. By July 2002, the
monthly average soybean meal price in central Illinois had
soared to $187 per short ton from $170 the previous month. Like
the prices for soybeans, soybean meal values softened following
the fall harvest but gained strength throughout 2003 as the rate
of crushing sagged. The season average soybean meal price rose
to $182 per ton versus $168 per ton in 2001/02. To ease
comparatively high costs in the Southeast, feed producers from
the region imported close to 100,000 tons of soybean meal from
Brazil.
Lower Output, Buoyant Demand Cut Surplus Soybean Oil Stocks
By the end of 2002/03, world vegetable oil stocks had fallen to
their smallest level in 5 years, which fueled a brisk rate of
foreign vegetable oil imports. Unlike soybean meal, U.S. exports
of soybean oil were able to stay competitive with a robust pace
of South American shipments. Even with a smaller output of
soybean oil, large carryover stocks allowed U.S. soybean oil
trade abroad to remain relatively high. Exports for 2002/03 were
2,250 million pounds, although down moderately from 2,519
million in 2001/02. In spite of increased U.S. exports to some
countries (notably China, Cuba, Canada, and Mexico) these market
gains were more than offset by lower shipments elsewhere
(principally Bangladesh, Turkey, India, and South Korea). The
U.S. share of global soybean oil exports declined to 10 percent
in 2002/03 from 13 percent in 2001/02.
An 800-million-pound reduction in supplies of sunflowerseed oil,
canola oil, and cottonseed oil from 2001/02 supported 2002/03
domestic consumption of soybean oil. Yet, higher prices
moderated the rate of soybean oil domestic disappearance. End
users were able to draw down inventories that had been
accumulated at lower costs earlier in 2002. Total soybean oil
demand remained constant. However, a reduction in the supply by
nearly 1 billion pounds sharply cut the ending stocks from 2,359
million to 1,486 million pounds for the smallest carryout in 4
years.
Substantially tighter soybean stocks and domestically available
soybean oil supplies helped boost soybean oil prices in 2002/03.
Prices were already edging up throughout the spring of 2002 and
rallied strongly throughout the summer and fall. When the
soybean oil price peaked in May 2003 at 23.2 cents per pound, it
was more than 60 percent higher than its February 2002 low. By
the spring, there was greater resistance to the price climb
because of assurances for an ample new South American harvest
and good prospects for the autumn U.S. crop. Palm oil was
becoming attractively priced against soybean oil in world
markets, which also slowed the rise of prices. The season
average price strengthened to 22.0 cents per pound compared with
a 2001/02-average of 16.5 cents. The high extraction rate and
price helped soybean oil to contribute a relatively high share
(38 percent) to the total value of crushing.
Situation for Other U.S. Oil Crops
Cottonseed
The harvested acreage of U.S. cotton declined 10 percent in
2002. In addition, adverse weather damaged cotton yields in 2002
throughout the Southeast. Domestic cottonseed output for 2002
dropped 17 percent from the previous year to 6.2 million short
tons. North Carolina, Georgia, Alabama, and South Carolina
accounted for 57 percent of the reduction in the national
cottonseed crop. The seed-to-lint ratio continued a 20-year
descent by slipping to 718 pounds per bale.
After the previous year’s near-record output, the smaller 2002
cottonseed crop tightened available supplies for processors. In
addition, U.S. cottonseed imports were scaled back with a
drought-reduced Australian harvest. Domestic crushers also
lacked access to supplies because of the unrelenting autumn
rains that delayed marketing and damaged quality of the U.S.
harvest. The shortfall raised the season average farm price for
cottonseed to $100 per ton from $93 in 2001/02. Consequently,
cottonseed crushing fell to 2.5 million tons in 2002/03 from 2.8
million in 2001/02. This was the smallest volume of cottonseed
crushed in the last century. Not only was there a lower rate of
crush, but the extraction rate for cottonseed oil dropped to 294
pounds per ton, among the poorest yields in U.S. history. With
these poor fundamentals, domestic cottonseed oil output slumped
in 2002/03 to a modern era low of 725 million pounds.
By February 2003, the output losses were driving cottonseed oil
prices up to nearly 50 cents per pound, more than 3 times higher
than a year earlier. The large price premium stifled both
domestic and export demand for cottonseed oil, which plummeted
to 636 million and 110 million pounds, respectively.
Peanuts
2002/03 Peanut Market Highlighted by Policy Change
In May 2002, the passage of the Farm Security and Rural
Investment Act (2002 Farm Act) substantially overhauled the U.S.
peanut program by replacing a marketing quota system with a set
of supports similar to those available to producers of other
program crops such as grains and cotton. The previous system--
based on marketing quotas and nonrecourse loans--supported
domestic prices of peanuts destined for domestic edible
consumption (quota peanuts), and required non-quota ('
additional' ) peanuts to be exported or crushed. Production for
domestic edible consumption was constrained by an annually
established marketing quota--set at 1.18 million short tons
(2.36 billion pounds) for the 2001/02 crop year. Quota peanuts
were eligible for the quota loan rate of $610 per ton (30.5
cents per pound) in 2001/02. Marketings of nonquota (additional)
peanut production were permitted only for export or domestic
crush, and were eligible for a lower loan rate of $132 per ton
(6.6 cents per pound) in 2001/02.
Under provisions of the 2002 Farm Act, all producers choosing to
grow peanuts are now eligible for marketing assistance loans at
a loan rate of $355 per ton (17.75 cents per pound) and face no
restrictions on marketing their peanuts for domestic edible
consumption. Producers with a history of peanut production are
also eligible for direct payments of $36 per ton and counter-
cyclical payments tied to a $495 per ton target price. Direct
and counter-cyclical payments are both based on historical acres
and yields. Historic peanut producers had until March 31, 2003,
to assign average peanut base and yield to cropland on a farm in
the same or contiguous State. In addition, quota holders were
eligible for a peanut quota buyout amounting to $1,100 per ton
(55 cents per pound), to be paid out in five annual installments
during fiscal years 2002-06, or the outstanding amount taken as
a lump sum at any time.
2002 Peanut Production Drops 22 Percent
Under the 2002 Farm Act, former quota owners producing peanuts
face lower prices and increased competition, whereas non-quota
owners and potential entrants would be eligible for increased
government support from the marketing assistance loan rate of
$355 per ton. At 3,320 million pounds, U.S. production of
peanuts in 2002 was down 22 percent from 2001, but slightly
above the 2000 crop of 3,266 million pounds. Given the timing of
the 2002 Farm Act’s passage in mid-May 2002, it is unclear to
what extent the program changes affected planting decisions.
However, the outcome was that planted acreage declined 12
percent from 2001 to 1.36 million acres and was the smallest
area since 1982. Harvested area totaled 1.30 million acres, down
8 percent from 2001. The U.S. yield averaged 2,561 pounds per
harvested acre, down 468 pounds from the record national average
yield of 2001.
In the largest producing region, the Southeast (Alabama,
Florida, Georgia, and South Carolina), planted area of 806,000
acres was down only 1 percent from the previous year, but
average yields dropped 702 pounds to 2,433 pounds per acre. That
resulted in the Southeast producing 1,909 million pounds of
peanuts, 24 percent below the 2001 level. Production from the
Virginia-North Carolina area totaled 330 million pounds, down 44
percent from 2001. Planted acres, at 159,000, were down 20
percent from 2001 and the average yield of 2,100 pounds per acre
was down 894 pounds from 2001.
Southwest peanut producers (New Mexico, Oklahoma, and Texas)
planted 25 percent fewer acres in 2002 than the previous year,
for a total of 393,000 acres. In contrast to the other producing
regions, yields in the tri-state area were strong, averaging
3,047 pounds per acre, 210 pounds above 2001. Production totaled
1.08 billion pounds, down 7 percent from the previous year.
Peanut Exports Plunge but Overall Use Relatively Steady
Although production in 2002/03 declined by nearly 1 billion
pounds from the previous year--and imports dropped 63 percent to
75 million pounds--supplies were bolstered by record beginning
stocks of 1,476 million pounds. Overall use remained relatively
steady at 3,997 million pounds compared with 4,100 million
pounds in 2001/02. Imports, which normally filled the tariff-
rate quota level of approximately 57,000 metric tons (shelled
basis) fell sharply as a result of lower domestic prices
following the passage of the 2002 Farm Act. Domestic food use
rose to 2.224 billion pounds, up 13 million pounds (less than 1
percent) from 2001/02, and processors crushed 779 million pounds
of peanuts, 88 million pounds more than the previous year and
the highest level since 1995/96. The most notable change in use
came in the export category, with shipments dropping to 490
million pounds, down 223 million pounds (31 percent) from the
previous year and the lowest level since 1975. Despite strong
prices in export markets (Rotterdam)--up more than one-third
from 2001/02--lower exports partly reflected reduced domestic
production, but also the first opportunity since the 1930s for
all peanut producers to market their crop for domestic food use
without restriction.
Although a tighter supply situation in 2002/03 would normally
indicate strengthening prices, the elimination of marketing
quotas increased the availability of peanuts for domestic food
use. The season average farm price in 2002/03 was 18.24 cents
per pound, the lowest nominal level since 1974, and down from
23.4 cents per pound in 2001/02. In 2002/03, about 668,000 short
tons (1.34 billion pounds) of peanuts were placed under loan,
with less than 1,000 tons being forfeited. This indicates that,
for most producers, prevailing or anticipated market prices
exceeded loan repayment rates (the lower of the marketing loan
rate plus interest, or the weekly repayment rate established by
USDA). Marketing loan gains amounted to $23.7 million, with an
average marketing loan gain of $36.21 per ton. In addition, loan
deficiency payments (LDPs) averaging $28.83 per ton were taken
on 909,000 tons of peanuts, for a total of $26.2 million in LDP
revenue. Based on the season average farm price, the final 2002-
crop counter-cyclical payment rate for peanuts was $95 per ton
of eligible base production.
With the increased crush, U.S. peanut oil production rose to 259
million pounds, up from 230 million pounds the year before.
Imports also climbed nearly 90 percent to 73 million pounds, but
peanut oil prices still strengthened to 46.7 cents per pound (up
45 percent) because of higher values throughout the vegetable
oil complex. Peanut oil exports rose to 44 million pounds in
2002/03, up from 8 million pounds in 2001/02 and the largest
since 1995/96. Similarly, peanut meal production increased
29,000 short tons to 177,000. In spite of the larger output, the
2002/03 average price climbed by $20 to $128 per ton along with
other protein meal prices.
Sunflowerseed
U.S. farmers planted 2.58 million acres of sunflowers in 2002,
or 73,000 less than the year before. Although the plantings of
oil-type sunflowers were up 280,000 acres in North Dakota, that
was offset by declines in oil-type and confection sunflower
acreage for nearly every other State. Confection-type
sunflowers, which tend to have lower yields than oil-type
varieties, accounted for 80 percent of the acreage reduction.
U.S. sunflowerseed production in 2002 fell more than one-fourth
to 2,490 million pounds. Although sunflower planting declined
only 2 percent in 2002, harvested acreage fell 15 percent. Most
of the severe reduction in output was due to a drought that hit
yields very hard. Yields were hurt badly in much of the Central
Plains region despite higher production by North Dakota and
Minnesota farmers. A widespread pest infestation by the spotted
stem weevil also damaged sunflowers. These factors reduced the
2002 national average yield to 1,133 pounds per acre, which was
the poorest since 1993. To further complicate matters, the
sunflowerseed harvest was also slowed by untimely wet weather.
Despite firm foreign demand, U.S. exports of sunflowerseed and
products fared poorly in 2002/03 because of a lack of domestic
supplies. The season average farm price for sunflowerseed (all
types) climbed to 12.2 cents per pound, its highest level in 9
years. A severe 805-million-pound reduction in the oil-type
sunflowerseed supply led to domestic processors consuming only
703 million pounds, the least since 1978/79.
At the end of December 2002, U.S. stocks of sunflowerseed oil
had peaked for the season but were already 40 percent lower than
a year earlier. Sunflowerseed oil exports, which dropped by
three-fourths to 110 million pounds, bore the brunt of the
supply shortage. The loss of foreign markets was most severe for
Algeria, Netherlands, Turkey, and Mexico. The tightness
maintained a very large (11 cents per pound) price premium for
sunflowerseed oil versus soybean oil. That also curtailed
domestic consumption to 268 million pounds, down 28 percent from
2001/02.
Other Oilseeds
U.S. farmers planted 1.46 million acres of canola in 2002, which
were 96,000 less than the 2000 record high. Despite a 19,000-
acre increase in canola planting, 2002 harvested area fell by
77,000 acres to 1.38 million acres. In North Dakota, which
accounts for 91 percent of national acreage, the average canola
yield fell to 1,230 pounds per acre versus 1,400 pounds in 2001.
The 2002 domestic harvest dropped 22 percent to 1,553 million
pounds. Cash market prices for canola seed strengthened to
$10.60 per hundredweight.
Similarly, a poor Canadian canola crop also restricted
availability of imported seed to 434 million pounds.
Consequently, the supply shortage scaled back 2002/03 domestic
canola seed crushing by 22 percent to 1,291 million pounds. A
reduction in the Canadian crush also trimmed U.S. imports of
canola oil to 929 million pounds. Therefore, aggregate U.S.
canola oil supplies declined nearly 300 million pounds in
2002/03. That hiked up the Midwest average canola oil price from
23.5 cents per pound in 2001/02 to 29.3 cents.
The only minor U.S. oilseed that had much of an expansion in
acreage for 2002 was flaxseed, for which plantings surged
200,000 acres to 785,000. This was the largest U.S. flaxseed
area since 1979, with nearly all of the acreage in North Dakota.
U.S. flaxseed production increased to 12.6 million bushels from
11.5 million in 2001. Although flaxseed plantings increased 34
percent, harvested acreage rose just 22 percent and yields fell
to a disappointing 17.9 bushels per acre because of poor
moisture conditions. Like the previous year, U.S. flaxseed
exports benefited from a poor Canadian harvest and increased to
a record high 2.9 million bushels.
The acreage planted to safflowers nationally rose 16 percent in
2002 to 219,000 acres. A 16-percent increase in acreage and
better yields improved 2002 safflowerseed production (to 298
million pounds) by 23 percent from the previous year. However,
the crop still fell well short of the average output level
during the 1990s.
Other Fats and Oils Highlights
Corn Oil
Domestic consumption of corn oil expanded strongly throughout
2003 as users sought an alternative for the deficit of oils
derived from sunflowerseed, canola, and cottonseed. Total
disappearance for corn oil in 2002/03 soared from 1,363 million
to 1,625 million pounds. However, there was no growth in corn
oil production either, which slipped 8 million pounds to 2,453
million. Thus, that stopgap in domestic needs limited the volume
of corn oil that could be exported. U.S. corn oil exports
dropped to 890 million pounds from 1,172 million in 2001/02.
Lower shipments to Turkey, Italy, and Mexico were largely
responsible. Prices for corn oil followed the rise in soybean
oil prices during the last half of 2002 and averaged 28 cents
per pound.
Imported Oils
Despite a 2-percent decline of world coconut oil production in
2002/03 to 3.17 million metric tons, prices peaked early in 2003
and subsequently declined. The import unit value for coconut oil
in fiscal 2003 was $334 per metric ton, down from $361 in fiscal
2002. An 8-percent increase in global output of palm kernel oil
(the other major lauric oil) to 3.36 million tons provided the
price resistance. U.S. coconut oil imports fell sharply from
1,093 million pounds in 2001/02 to 860 million. However, this
was largely offset by a rise in U.S. palm kernel oil imports
from 330 million to 470 million pounds.
World output of olive oil fell 22 percent in 2002/03 to 2.16
million tons. The reduction in global use was cushioned by a
substantial shrinkage of stocks. Therefore, there was a more
moderate 7-percent reduction in international olive oil trade to
0.38 million tons. Still, after two decades of strong growth,
U.S. olive oil imports registered a marginal 5-million-pound
increase in 2002/03 to 485 million pounds. This happened partly
because olive oil imports became more costly in 2002/03, with
the unit value rising 6 percent to 88 cents per pound. A
weakening of the dollar against the euro in 2003 also helped
imports become more expensive.
Animal Fats
Output of edible tallow expanded 7 percent in 2002/03 to 2,075
million pounds. Nearly all of that production increase was
domestically consumed. Although exports to Mexico (the leading
buyer of U.S. tallow) fell modestly, total shipments increased
by 10 million pounds to 485 million based on larger trade with
Turkey, Taiwan, and Russia.
Edible tallow prices began a strong climb by the fall of 2002.
In the spring, prices receded a bit but spiked again in June
after a Canadian cow had tested positive for BSE (mad cow
disease). Imports of tallow from that country were temporarily
banned by most countries. That included the United States,
although imports account for a negligible part of the total
supply. However, the discovery of no more cases helped to settle
the market. The marketing year average for edible tallow prices
was 17.5 cents per pound, compared with 13.9 cents in 2001/02.
U.S. lard production dipped by 5 million pounds in 2002/03 to
1,075 million. Consequently, total use of lard also changed
minimally. Lard exports improved slightly to 105 million pounds,
which was offset by an equivalent decline in domestic
consumption to 985 million pounds. Like tallow, lard prices
benefited from a rally in vegetable oil prices, increasing
sharply in 2002/03 to 18.1 cents per pound from 13.6 cents the
previous marketing year
World Oilseed and Protein Meal Situation
South American Exporters Begin Dominance of World Soybean Trade
World oilseed production rose to 328.9 million metric tons for
2002/03, from 324.4 million the previous year. The 11.9-million-
ton gain in soybean production to 196.4 million tons accounted
for most of the oilseed increase. With a cut in U.S. oilseed
output, nearly all of the 2002/03 expansion of world oilseed
supplies was divided between Brazil and Argentina. Paraguay’s
soybean production in 2002/03 also rebounded (to 3.9 million
tons) as yields recovered from severe dryness the year before.
Accordingly, soybeans and soybean products captured most of the
gains in world oilseed trade. For soybean imports, China was
responsible for nearly all of the world’s growth in 2002/03.
Despite a strong expansion in consumption, year ending global
stocks of soybeans surged 16 percent to 37.2 million tons.
Brazil had quite strong soybean prices in 2002 because of slow
farm sales, less U.S. acreage, and a summer weather rally. The
misfortunes for oilseed crops elsewhere in the world also
provided a healthy boost to Brazilian soybean values. In
addition, doubts about Brazil’s ability to service a large
public debt weakened its exchange rate to near a record low,
which only magnified the impact on the country’s farm prices.
Soybean prices in local currency increased 75-80 percent between
March and August 2002. In a repeat of similar circumstances a
year earlier, Brazilian farmers got favorable returns on their
previous harvest and on forward sales for the new crop. These
profits encouraged an expansion of Brazil’s soybean area for
2002/03 by 13 percent to 18.4 million hectares.
Most of the Brazilian expansion of soybean area again occurred
in the high-yielding Center-West states, including Mato Grosso
and Goias. Soybean planting in those states was held up by hot
and dry conditions during September and October. But, the
arrival of more precipitation in late October renewed planting
progress and farmers switched more land from summer corn into
soybeans. In southern Brazil, heavy rains stalled the start of
planting, although soybean yields there far surpassed the
drought-damaged 2001/02 crop. The frequent rains persisted
through April and May, which delayed harvesting.
Soybean yields were generally excellent throughout Brazil
because of good weather and a substantial improvement in farm
input use. Consequently, Brazilian soybean production soared to
52.5 million tons in 2002/03, up from 43.5 million the year
before. Still, there was some damage to the crop (mainly in Mato
Grosso and Bahia) from Asian soybean rust. Originating in East
Asia, this wind-borne disease can devastate many species of
legumes, including soybeans. Depending on the plant’s stage at
infection, the disease can cause catastrophic yield losses if
allowed to proliferate without several fungicide applications.
At the moment, there are no commercially available soybean
varieties with rust tolerance. Initially detected in a few
Brazilian farms in 2001, its fungal spores have since been
detected throughout the entire country. But, most Brazilian
farmers heeded warnings to spray their crops with fungicides.
These protective applications successfully limited crop damage
in 2003 but also significantly raised farm production costs.
In Argentina, a financial crisis in 2002 left farmers with
little cash or credit to purchase farm inputs. Like Brazilian
soybean producers have done for many years, Argentine farmers
managed to acquire inputs by putting up as collateral their
unsold old crop stocks and leveraging their new crop potential
with suppliers. Plantings of wheat and corn (which have higher
input expenses than soybeans) fell sharply as a result. Heavy
rains in the southern part of Buenos Aires province stalled
grain planting that helped shift even more area toward soybeans.
By default, more first-crop soybeans were sown, but a
strengthening of soybean prices in 2002 did not make this a
difficult decision. Argentine soybean area soared (as in Brazil)
by 11 percent to 12.6 million hectares.
Despite a shortage of inputs, a record-high Argentine yield was
achieved through mostly favorable weather. A spell of hot and
dry weather during January stressed crops in southern regions.
But, October-December precipitation had been 50 percent above
normal and the rain returned in February to ease the heat wave.
Productivity was also enhanced by a larger proportion (82
percent) of first-crop soybeans (which tend to yield about 30-
percent more than soybeans that are double-cropped following
wheat). Argentine soybean production rose to 35.5 million tons
in 2002/03 from 30.0 million in 2001/02.
Brisk trade by both Brazil and Argentina developed in 2002/03
because of a lag in old crop marketing, record new crops, lower
U.S. supplies, and still competitive exchange rates. This was
the first year that soybean exports from South America had
exceeded U.S. shipments. Brazil’s soybean exports increased
sharply from 15.0 million to 21.1 million tons. Likewise,
Argentine exporters used their advantages to ship a record 10.1
million tons of soybeans. Most of the export gains by Brazil and
Argentina came not from their traditional market in Western
Europe, but instead featured the emerging markets in Asia, the
Middle East, and North Africa.
However, shipments from both countries could have been even
larger. By mid-2003, Brazil’s currency had gained to its
strongest level against the dollar since July 2002, and the
Argentine peso was at a 12-month high. Soybean prices in Brazil
plunged after January, yet mid-2003 cash values were still about
30 percent higher than they were a year earlier. Farmers had
captured very attractive terms on forward sales made in 2002 and
their needs for cash flow were being met by sales of other
commodities. Thus, both Brazilian and Argentine producers
postponed sales to let prices strengthen prior to the U.S.
harvest. That turned out to be a sound strategy when the
difficulties for the U.S. crop after spiked prices again in
August 2003. South American farmers took advantage of that price
windfall to resume old-crop marketing. However, the backlog of
stocks from the region carried over was about 18 percent higher
than the previous year.
Argentina is predominantly an exporter of soybean products and
its crushing expanded by 12 percent in 2002/03 to 23.4 million
tons. Even with robust gains in both exports and domestic use,
Argentina has accrued much larger soybean stocks in recent
years. September 2003 ending soybean stocks in Argentina were
approximately 11.2 million tons, or double the level just 3
years earlier. The financial crisis made soybean stocks a far
more secure store of value for farmers than any bank account.
Formerly, there had always been a constraint on Argentine grain
storage that forced producers to accept lower prices for newly
harvested crops. Now, however, Argentine farmers can exploit
better pricing opportunities by their use of relatively
inexpensive plastic storage bags for soybeans. With elimination
of the peso’s peg to the dollar in early 2002, their ability to
hedge against unpredictable economic and political events has
become even more valuable.
China’s Soybean Imports Surge Following Trade Disruptions
Unlike the previous season, China did not head into 2002/03 with
a large cushion of oilseed stocks. These stocks had allowed
China to maintain consumption during a stoppage of soybean
imports in early 2002, but the carryover was quickly reduced to
mere pipeline supplies.
Domestic crops of soybeans, peanuts, and sunflowerseed increased
minimally in 2002 and could not materially ease a growing supply
deficit. In spite of efforts by China’s Government to encourage
domestic soybean production, most of the country’s farmers have
responded more to revenues from their last crop than from
planting-time prices. Farmers in China had already sold the 2001
soybean crop before the spring 2002 price rally. Because corn
planting was more attractive, the 2002 soybean area declined 8
percent to 8.7 million hectares. With a return of more favorable
weather to the main growing region in northeastern China,
improved yields lifted 2002 production to 16.5 million tons from
15.4 million. Another key factor for the robust soybean imports
by China was a lack of rapeseed supplies to crush. The domestic
rapeseed harvest was disappointing and poor harvests by Canada
and Australia depressed rapeseed imports.
Soybean purchases by China accelerated rapidly during 2002/03
because there was still rebuilding of supplies drawn down
previously by a shutdown of imports. Importers were also likely
expanding their soybean stocks prior to December 20 when China’s
safety certificate regime was to take effect. Importers are
still obtaining provisional safety certificates issued by the
Ministry of Agriculture that are based on assessments of the
biotech crops by foreign governments. After December 20, China’s
Government was to issue safety certificates for biotech crops
based on its own field trials. Yet, there was uncertainty about
how long China’s approval process would take. The interim policy
allowed just 30 days for approvals, but after December 20 the
new policy was to extend the approval period up to 270 working
days. Thus, importers were being prompted to secure stocks to
postpone the same kind of shortages experienced in prior months.
Shortly before the December 2002 deadline, China’s agriculture
ministry extended its interim rules through September 2003 but
was recognizing only safety certificates from the country of
origin, not third countries. Soybean exporters from the United
States and Argentina (which have both officially approved
biotech varieties) were able to obtain certificates from China.
But, Brazil had not sanctioned production of such crops at that
time and had no documented safety claims for them. The Brazilian
Government would later agree with China on a protocol for its
supplies that were grown illegally and that ended up in export
shipments.
Temporarily unimpeded by any disruptions from regulations on
biotech imports, China bought soybeans at a rapid pace between
March and early September. Switching between U.S. and South
American origins began by late spring. Speculative buying had
accelerated in the spring because China’s Government had made no
official announcement on an extension of interim policies for
biotech imports beyond the September 20 expiration. Also, the
Ministry of Agriculture had not been accepting safety
certificate applications for forward purchases. Bookings slowed
in the summer because of the uncertainty of taking delivery
before the September 20 deadline. Citing phytosanitary problems,
the Government of China’s inspection bureau stepped up its
scrutiny of the quality of soybean imports. Difficulties in
obtaining inspection permits caused a number of stranded cargoes
at Chinese ports. Without these permits from the government’s
Administration of Quality, Supervision, Inspection, and
Quarantine, ships cannot discharge any biotech soybeans at
ports. Most of the stranded cargoes were from Brazil, as U.S.
soybean exports to China had already come to a seasonal end.
Yet, crushers in China were generally able to secure soybean
imports better than they did in 2001/02 because of the extension
of the transition period for its import regulations on biotech
crops. China’s soybean imports soared to 20.3 million tons for
2002/03 from 10.4 million in 2001/02. This was the first year
that China’s soybean imports exceeded domestic production.
Despite disruptions in the inspection process, the late surge of
shipments had approximately doubled China’s soybean stocks from
the previous year’s carryout.
Higher Prices Moderate Global Soybean Meal Demand
Consumption of soybean meal grew solidly in 2002/03 throughout
Asia, the Middle East, Eastern Europe, Mexico, and Russia. In
contrast, there was limited demand growth for the three markets
(the United States, EU, and Japan) that account for about half
of world soybean meal consumption. Global soybean meal exports
for 2002/03 increased 1.5 million tons for 2002/03 to 43.8
million, with South American suppliers accounting for all of the
increase. Greater crushing boosted soybean meal exports from
Argentina to 18.2 million tons from 16.1 million in 2001/02. The
rise in Brazilian soybean meal exports (from 12.0 million to
13.8 million tons) was more moderate because of strong
competition from Argentina and rapidly expanding consumption by
domestic livestock.
Conversely, India had a production shortfall for both soybeans
and peanuts in 2002. Indian crushers had trouble obtaining
soybeans from farmers at a price that could guarantee a profit.
To compensate for lost peanut meal production, India also needed
to consume more of its own soybean meal for its rapidly growing
poultry sector. This further cut into India’s 2002/03 soybean
meal exports, which were nearly halved to 1.3 million tons.
Although China is a relative newcomer to the world export market
for soybean meal, it remained an active participant again in
2002/03. China has many relatively new coastal processing plants
that are well situated to crush imported soybeans into meal for
either domestic users or for re-export to nearby Asian buyers.
While exports by China’s processors declined from 1.05 million
to 0.8 million tons, they benefited from the decline in Indian
soybean meal shipments.
In May, Japan temporarily banned imports of poultry from China
after authorities detected the avian influenza virus in a
shipment of duck products. This highly infectious disease can
inflict serious economic damage on a country’s poultry
producers. Domestic meat demand in China was also being subdued
by the deadly virus causing Severe Acute Respiratory Syndrome
(SARS), which for months ruined tourism and minimized visits to
public places such as restaurants and food markets. In spite of
any proof, some consumers also feared that they could contract
the disease by eating poultry. That far into the marketing year,
China’s soybean meal consumption was only marginally affected,
which increased nearly 30 percent from 2001/02 to 19.7 million
tons.
Demand for soybean meal was also growing strongly in other Asian
countries. China’s exclusion from the Japanese poultry market
provided a windfall to other exporting nations, particularly
Thai
