Tight Soybean Supplies and Implications for the Livestock and Biofuels Industries

AgMRC Renewable Energy & Climate Change Newsletter
September 2011

Dr. Robert Wisner
University Professor Emeritus
Iowa State University

This year’s U.S. soybean crop is tentatively estimated to be 7% below last year and 6% or 185 million bushels below total use of U.S. soybeans in the 2010-11 marketing year that ended on August 31, 2011. The U.S. average yield is tentatively forecast at 41.8 bushels per acre, down from 43.5 bushels last year and is modestly below the long-term trend yield. A small reduction in harvested soybean acreage is anticipated in the October or November USDA crop report that could reduce the size of the crop slightly. In addition, at this writing, frosts and a hard freeze are forecast for a large part of the northwestern Soybean Belt in mid-September. If it materializes, soybean production and oil content could be reduced a little more. With the smaller crop, livestock producers, biodiesel manufacturers, and other users of U.S. soybeans face questions about who will reduce their soybean product use and what prices will be needed to produce the required cuts. Soybean prices also will be influenced by a South American battle this fall between corn and soybeans for crop acres. Soybean prices will need to be high enough to compete with drought-impacted corn prices and avoid a sharp drop in soybean acreage in that part of the world. In this article, we briefly discuss the amount of adjustment in soybean product use likely to be needed in the current marketing year.

Distillers grains feeding and soybean meal use

In the last few years, increased distillers grains (DGS) production and feeding has lowered domestic soybean meal use, as shown in Figure 1. In the year ahead, early indications point to relatively steady use of corn for ethanol in contrast to the continual increases of recent years. Thus, livestock and poultry feeders should not count on increased distillers grains supplies for this marketing year. Hog numbers appear to be about equal to a year ago, but may decline slightly in the last part of the current marketing year. Hogs are major users of soybean meal, as are poultry. Recent poultry industry indicators suggest bird numbers may decline by four to six percent as an average for the current marketing year. If so, that should slightly reduce domestic soybean meal demand. These hog and poultry numbers changes along with possible small reductions in marketing weights will be part of the process of adjusting to tighter soybean supplies.

Estimated DGS Replacement of U.S. Soybean Meal

The international picture

In the international picture, South American soybean production substantially exceeds that of the U.S. Thus, the degree of tightness in world supplies depends heavily on the size of the South American crop to be harvested next spring, as well as Chinese demand. China is by far the largest foreign market for soybeans, accounting for nearly 2/3 of U.S. soybean exports. China’s soybean imports have increased by 121 million bushels two years ago and an estimated 91 million bushels in the marketing year just ended. For the year ahead, USDA projects a 165 million bushel increase. The accelerated increase in imports reflects a modest decline in China’s soybean production and its government’s efforts to accelerate meat production to slow the rapid increase in food prices.
Figure 2 shows protein meal use since 2003-04 in two of the three largest import markets for U.S. soybeans, as well as protein meal use in the U.S.1 The data are in soybean meal equivalent (SME) tons. China’s growth in protein meal consumption is projected to slow slightly from the past year, but to still increase by slightly more than 4.5 million (SME) metric tons. That’s equivalent to the meal from about 215 million bushels of soybeans. China plans to fill the difference between the projected increase in soybean imports and the projected increase in protein meal consumption through increased imports of other oilseeds and a reduction in its domestic soybean inventories. Along with increased meal use in China, USDA projects a small increase in EU. In contrast, protein meal use in the U.S. has declined as the livestock and poultry industry has increased its use of DGS. 

Protein Meal USe 

China’s soybean oil imports are projected to increase by the oil equivalent of 180 to 200 million bushels of soybeans, also to help slow inflation in food prices that has been influenced by rising vegetable oil prices. In addition, China is projected to increase its imports of palm oil.

Global production

USDA’s latest world crop report indicates foreign soybean production will be down from last year by approximately 2% or about 190 million bushels. Figure 3 shows projected 2010-11 production in South America and total other non-U.S. soybean production. Total non-U.S. production of soybeans is projected to be only 29 million bushels larger than last year. Figure 4 shows additional detail including historical world production by major producing regions.2 The production short-fall is expected to be filled through a reduction in carryover stocks. It should be cautioned that the projected production is still quite tentative, in part because it assumes favorable weather for the South American crop, most of which has not yet been planted. Also, it should be noted that the National Oceanic and Atmospheric Administration recently indicated it expects the La Niña weather pattern to continue and possibly intensify. It so, that may increase the risk of dry weather in Argentina and southern Brazil, as happened in the 2008-09 marketing year. Further changes in the U.S. soybean crop estimate are another uncertainty in the global production outlook. 

South American Soybean Production

World Soybean Production 

World soybean stocks, with favorable South American weather this fall and winter, should be adequate to avoid extreme supply tightness, although U.S. soybean carryover stocks are projected to be very tight by late August 2012.

Price situation

The current world supply and use projections, along with a very likely need for more U.S. corn acres in 2012 and a probable increase in South American corn plantings this fall and early winter are likely to be significant market support underlying soybean, soybean meal, and soybean oil prices in the year ahead. USDA’s September 12 soybean meal balance sheet is shown as Table 1.3 Domestic soybean meal feeding is projected to decline by 0.8% from last season, with exports declining by 5.5%. With steady to possibly slightly smaller DGS production in 2011-12 and a likely increase in DGS exports4, U.S. livestock and poultry producers should expect slightly tighter protein meal supplies than in the previous marketing year. If weather and yields are favorable for the South American soybean crop, some easing of protein meal supplies is possible next spring after that region’s soybean harvest and as U.S. poultry and hog numbers begin to decline.

Table 1. USDA Soybean Meal Balance Sheet 9/12/11
000 short tons   Prelim. Proj.  
  2009-10 2010-11 2011-12 % Change
Beginning Stocks 235 302 350 15.9
Production 41,707 39,658 38,835 -2.1
Imports 160 190 165 -13.2
     Supply, Total 42,101 40,150 39,350 -2.0
Domestic Use 30,640 30,750 30,500 -0.8
Exports 11,160 9,050 8,550 -5.5
     Use, Total 41,800 39,800 39,050 -1.9
Ending Stocks 302 350 300 -14.3
Avg. Decatur Price, $/ton $311.27 $347.50 $375.00 7.9

Soybean oil supply-demand balance -- Table 2 shows USDA’s latest soybean oil balance sheet. Production is expected to be down slightly with a smaller domestic soybean crush due to tightening soybean supplies. Soybean oil use for biodiesel is projected to increase by 50% from last season in response to the increased government mandate for biodiesel blending5. Soybean oil exports are projected to decline very sharply as domestic supplies tighten. With this supply-demand balance, the midpoint of the projected price range is up 7% from last season. Whether the price increase will be limited to that relatively modest amount while exports are reduced very sharply remains to be seen. Higher soybean oil prices might permit slightly lower soybean meal prices.

Table 2. USDA Soybean Oil Balance Sheet 9/12/11
Mil. Lbs.   Prelim. Proj.  
  2009-10 2010-11 2011-12 % Change
Beginning Stocks 2,861 3,406 2,841  
Production 19,615 19,075 18,670 -2.1
Imports 103 160 185 15.6
     Supply, Total 22,578 22,641 21,696 -4.2
Domestic Use 15,814 16,600 17,750 6.9
     Biodiesel 1,680 2,400 3,600 50
     Food, Feed & other Industrial (3) 14,134 14,200 14,150 -0.4
Exports 3,359 3,200 1,800 -42.8
     Use, Total 19,173 19,800 19,550 -1.3
Ending Stocks 3,406 2,841 2,146 -24.5
Avg. Decatur Price, $/ton $35.95 $53.25 $57.00 7.0


Soybean supply-demand -- Our latest soybean balance sheet projections from AgMRC are available at the following web site.


1  Data are from FAS, USDA, Oilseeds: World Markets and Trade, Circular Series
FOP 09 – 11 September 2011
2 Data are from Ibid. and FAS, USDA, Production, Supply, and Distribution on-line data set
3 Balance Sheet data are from USDA, World Agriculture Supply Demand  Estimates (WASDE) report, September 12, 2011
4 See R. Wisner, “Distillers grain price relationships and  export developments”, Renewable Energy Newsletter, Ag Marketing Resource Center, December 2010
5 See R. Wisner, “Proposed biofuels  mandates for 2012 and the blend wall”,  Renewable Energy Newsletter, Ag Marketing Resource Center, July 2011