Global oilseed market: Soybean oil prices have been booming, boosting oilseed prices

 

January 2023 soybean futures on the Chicago Board of Trade (CBOT) closed at about $14.
6225/bu on Friday, up 4.
4% from a week ago; The average spot price of No.
1 yellow soybeans for November shipping in the US Gulf was $16.
715 per bushel, up 6.
1 percent
from a week ago.
CBOT's December soybean meal was reported at $420.
40 a short tonne, down 1.
2 percent from a week ago; December soybean oil futures closed at 77.
17 cents a pound, up 7.
5 percent from a week ago; Euronext's February 2023 futures closed at around €664.
75/mt, up 4.
1%
from a week ago.
Intercontinental Exchange (ICE) canola for January closed at C$898.
40/mt, up 4.
0% from a week ago; Argentina's Upper River soybean FOB spot quote was $614 a tonne (including 33% export tax), up 3.
4%
from a week ago.
The ICE dollar index closed at 110.
774 points on Friday, up 0.
15%
from a week ago.

 

International crude oil futures rose
for the third consecutive week this week.
Against the backdrop of uncertain prospects for future interest rate hikes by the Federal Reserve, the dollar exchange rate fell sharply and the stock market rose, indicating an improvement in investors' risk appetite; EU sanctions on Russian crude oil are imminent, and the hazy outlook for Chinese demand also supports
oil prices.
The New York Mercantile Exchange (NYMEX) West Texas Intermediate (WTI) December contract closed at $92.
61 a barrel, up 5.
4 percent
from a week ago.
The global benchmark January Brent crude futures were at $98.
57 a barrel, up 5.
1 percent
from a week ago.

 

The Fed raised interest rates by 75 basis points as scheduled, and may slow down the pace of rate hikes in the future

 

On Wednesday (November 2), the Fed raised interest rates by 75 basis points for the fourth time in a row, raising the benchmark rate to the target range
of 3.
75% to 4%.
Fed Chairman Jerome Powell said he might lower each rate hike in the future, but would eventually raise borrowing costs to a higher level
than previously expected of 4.
6 percent.
Friday's U.
S.
nonfarm payrolls report, which showed a slowing pace of job growth and rising unemployment, signaled some easing of labor market tensions, which also helped cement hopes that the Federal Reserve would shift to smaller rate hikes starting in December, sending the dollar tumbling 1.
8 percent on Friday, with strong gains from gold to base metals and soft commodities to grain and oilseed futures
.
Global equities also posted strong gains, with emerging market indexes posting a 5 percent weekly gain, their highest weekly gain in more than two years, also driven
by expectations of a Chinese easing of restrictions and optimism surrounding U.
S.
-China relations.

 

U.
S.
diesel supplies are extremely tight and soybean oil inventories are low, supporting soybean oil prices to a five-month high

 

Chicago soybean oil futures have led the gains in the past week, hitting a five-month high, and deservedly become the leading rally
in the agricultural futures market.
So far this year, Chicago soybean oil is up 40.
3%, compared with soybeans up 15.
2% and soybean meal up 10.
6%; Canadian canola futures rose 16.
4 percent, while Malaysian palm oil futures fell 7.
1 percent
.
Such a strong trend in soybean oil is inseparable
from the strong demand for biofuels in the United States.

 

The high price of soybean oil in the United States is related to
the current unusually tight diesel inventory in the United States.
In fact, U.
S.
diesel supply is now at an all-time low
.
Although gasoline prices in the United States have fallen recently, diesel prices remain high
.
According to GasBuddy, the average retail price of a gallon of diesel in the United States is more than $1.
50 higher than
the retail price of a gallon of regular unleaded gasoline.
U.
S.
diesel prices rose more than 8 percent in October, while gasoline prices were unchanged over the same period, the EIA reported this week that the average U.
S.
diesel price was $5.
32 a gallon, up $1.
59 year-on-year
.
The latest diesel price increase has been spurred by global and U.
S.
diesel shortages, with U.
S.
diesel inventories particularly low
.
In New England, located in the northeast, diesel supplies are severely inadequate, as New England states have the highest concentration of
households using heating oil.
U.
S
.
distillate supplies, including diesel and heating oil, stood at 106.
8 million barrels in the week ended Oct.
28, 19 percent below the five-year average and the lowest since data became available in 1982.
Refineries shut down capacity as the U.
S.
government tried to abandon fossil fuels in recent years; Since last year, global natural gas supplies have been tight and prices have soared, prompting the switching of feedstock from natural gas to distillates in power plants, which has additionally boosted the latter's demand growth
.
So while the U.
S.
government has dumped nearly 200 million barrels of strategic crude oil reserves this year and crude oil and gasoline supplies have improved, the supply of diesel, heating oil, jet fuel and kerosene has been significantly tight, with prices ranging from $150 to $200 per barrel and crude oil at around
$90 per barrel.
U.
S.
distillate demand is currently about 5.
4 million barrels per day, and domestic stocks are about 106 million barrels, which equates to only meeting 19 days of demand
.
Globally, diesel stocks are also in the worst shortage in decades
.
Outside China, the three major diesel storage centers, namely the United States, the Amsterdam-Rotterdam-Antwerp hub in Europe and Singapore, diesel stocks combined at 132 million barrels, compared to the 10-year average of 174 million barrels
.
At the same time, demand is relatively strong and inelastic because even in a recession, people need to buy groceries and accept Amazon's delivery service, all of which are shipped
by diesel.
With winter approaching, diesel supply shortages and high prices are driving traders to raise pricing expectations for alternative fuels, including soybean oil-based B100 diesel
.

 

U.
S.
soybean oil inventories are at a 23-month low

 

U.
S.
soybean oil stocks stood at 1.
999 billion pounds at the end of September, down from 2.
103 billion pounds at the end of August and down from 2.
131 billion pounds at the end of September last year, the lowest in 23 months
, according to the USDA monthly crush data released Tuesday.

 

U.
S.
biofuels capacity reached 21.
37 billion gallons in August, down from 21.
469 billion gallons in July but up from 20.
853 billion gallons
in August 2021, according to data released by the U.
S.
Energy Information Administration (EIA) on Monday (Oct.
31).
Among them, the production capacity of renewable diesel increased, while the production capacity of ethanol and biodiesel decreased slightly
.

 

Renewable diesel capacity reached 2.
134 billion gallons in August, up from 2.
089 billion gallons in July and 1.
014 billion gallons in August last year, and biodiesel production capacity reached 2.
084 billion gallons in August, down from 2.
089 billion gallons in July and down from 2.
431 billion gallons
in August last year 。 U.
S.
soybean oil use for biofuel production reached 925 million pounds in August, down from 956 million pounds in July but up from 823 million pounds in August, and rapeseed oil used 132 million pounds, unchanged from July and down from 142 million pounds
in August.

 

The surge in demand from the U.
S.
renewable diesel industry could lead to a soaring premium for U.
S.
soybean exports in the future

 

Considering the demand outlook for renewable diesel in the United States, US soybean oil demand will increasingly shift to localization, thereby squeezing export supplies, and the possibility
of US soybeans being used exclusively for domestic consumption is not even ruled out in the future.

 

CoBank, a U.
S.
agricultural cooperative bank, reported in early October that the recent surge in U.
S.
investment in renewable diesel capacity, with new soybean crushing and refining plants to be built over the next two years, will increase U.
S.
renewable diesel production capacity to 6.
5 billion gallons
by 2030.
Soybean oil is the most common raw material
for the production of renewable diesel.
CoBank said 17.
9 million acres of soybean acreage in the U.
S.
would need to be added to fill the supply gap
created by renewable diesel production.

 

According to CoBank's latest forecasts, the U.
S.
renewable diesel boom could lead to disruptions
to U.
S.
soybean exports until 2030.
U.
S.
renewable diesel capacity is expected to reach 24.
6 billion liters in 2030, up from 5.
7 billion liters
in 2022.
Kenneth Zuckerberg, an analyst at the bank, said reaching the target would mean the U.
S.
would need to squeeze another 3.
4 billion bushels of soybeans
.
Considering that U.
S.
soybean production is currently at 4.
5 billion bushels, that's a staggering crushing figure
.
To meet this demand, the U.
S.
needs to stop exporting soybeans while planting an additional 17.
9 million acres of soybeans, a 21 percent
increase from 2022.
Looking ahead to 2030, corn farmland will be the main source of new soybean acreage, especially if the rollout of electric vehicles eventually leads to a decline in corn ethanol demand
.
In that scenario, soybeans would account for 38 percent of U.
S.
farmland, up from 31 percent today, and corn's share would shrink from 29 percent to 27 percent
.
CoBank alleges that ways to prevent large amounts of maize farmland from converting to soybeans include large-scale planting of rapeseed and sunflower seeds, increasing imports of other vegetable oils, or using other feedstocks such as tallow to produce renewable diesel fuel
.

 

While Cobank's prediction that U.
S.
soybean exports could be completely disrupted is too sensational, one direction proposed in the report deserves industry attention: competition for arable land in the U.
S.
will intensify
as more renewable diesel plants come online.
While the U.
S.
won't stop soybean exports entirely, buyers are likely to have to pay a premium to compete with renewable diesel buyers for limited supply
.
This may be partly the reason why
China recently announced plans to scale back its soybean meal consumption.
At the same time, crushing demand for alternative oilseeds such as rapeseed is expected to rise
.
The Canadian canola industry seems to agree with this expectation, with Canada's canola crushing capacity increasing by 5.
7 million tonnes to 16.
8 million tonnes by 2025/26, according to the Canadian Association of Oilseed Processors (COPA); By 2030, the North American biofuels industry will consume 6.
5 million mt of canola, up from 1.
8 million mt
in 2020.

 

The U.
S.
soybean harvest is nearing completion, and there is uncertainty about the export outlook

 

As of Oct.
30, the U.
S.
soybean harvest was 88 percent, compared with 78 percent a year ago and a five-year average of 78 percent
.

 

US net soybean sales in 2022/23 were 830,000 mt in the week ended Oct.
27, down from 1.
03 million mt a week ago; Net sales to China were 750,000 mt, down from 1.
12 million mt last week and 1.
21 million mt
in the same period last year.

 

Total U.
S.
soybean export sales (both shipped and unloaded) so far in 2022/23 were 32.
3 million mt, up 0.
9% year-on-year, compared with a 4.
7%
year-on-year increase in the previous week.
Among them, sales to China were 18.
49 million tons, an increase of 7.
2% year-on-year, compared with a year-on-year increase of 10.
6%
in the previous week.

 

The USDA expects U.
S.
soybean exports in 2022/23 to be 55.
66 million mt, down 5.
23%
year-on-year.
In contrast, US soybean exports in 2021/22 decreased by 4.
77%
year-on-year.

 

With low water levels in the Mississippi River blocking the most efficient route to U.
S.
soybeans to export hubs in the U.
S.
Gulf, traders are turning their attention to alternative export routes
from Puget Sound to Texas and the Great Lakes.
Usually more than half of the soybeans exported from the United States are transported down the Mississippi River, loaded from the Gulf terminal, and crossed the sea
.
But chronic rainfall in the Midwest has caused water levels in the river artery to drop, and barge costs have soared to record highs, prompting traders to switch to southeast Texas ports to export soybeans
.
Typically, these ports process less than 5% of exported soybeans
.
Mike Sternhoke, executive director of the American Soybean Transportation Alliance, said the logistics situation is getting worse
.
A lot of people are looking for alternatives
.

 

At the same time, China's soybean import demand is likely to grow due to low
domestic inventories.
China's commercial soybean stocks fell to 3.
64 million mt at the end of October, down 38 percent from the five-year average, largely due to weak purchases due to thin crush margins or even losses earlier this year, while low water levels in the Mississippi River have slowed
the pace of loading of U.
S.
soybean exports since October.
Arlan Sudman, principal analyst at StoneX, believes China will need to restock soybean stocks
at some point in the future.
If Brazilian soybean production reaches the expected record level, China may choose to source cheaper Brazilian soybeans
.

 

U.
S.
soybean crush demand

 

U.
S.
soybean crush was 168 million bushels (5.
03 million short tons) in September 2022, down 4 percent month-on-month and the lowest monthly crush in 12 months, but up 2 percent
from 164.
1 million bushels a year earlier, the USDA monthly crush data released on Tuesday.
For comparison, National Association of Oilseed Processors (NOPA) showed that its members crushed 158.
109 million bushels of soybeans in September, down 4.
5% from August but up 2.
8%
from September 2021.
Since September was a month when soybeans were green and yellow in the United States, the slowdown in crush seasonality was in line with expectations
.
Given the high margins of soybean crush in the United States, soybean crush is likely to rebound
strongly in October.

 

The situation in Brazil is unstable, and soybean planting is threatened by weather

 

Brazil's presidential election ended at the end of October, with leftist former President Lula narrowly defeating incumbent far-right President Jair Bolsonaro
.
Supporters of the latter staged mass demonstrations throughout the country from October 30, blocking roads, blocking the main access to the port of Paranagua, the second largest port, and even going to the barracks to demand a military takeover, which affected fuel distribution, meat production and the export of agricultural products
.

 

At present, the sowing progress of soybeans in Brazil is about to pass the halfway point, and the yield prospects are generally good
.
StoneX this week raised its 2022/23 Brazilian soybean production estimate to 154.
35 million mt from 153.
8 million mt previously
, as plantings were revised up in some states and weather conditions were favorable.
But given concerns about demand from top buyer China, StoneX lowered Brazil's 2022/23 soybean export forecast to 96 million mt, 4 million mt lower than its earlier forecast of 100 million mt
.

 

However, analysts at HedgePoint warned that Brazilian soybean production in the 2022/2023 crop could fall below
150 million mt due to the La Nina weather phenomenon.
La Niña will be active between December and January, which tends to lead to drought
in southern Brazil.

 

China plans to import Brazilian soybean meal

 

China is preparing to import soybean meal from Brazil to diversify its supply and alleviate the recent supply shortage
.
Brazil's agriculture ministry said Nov.
2 that Brazil had sent China a list of
companies that could export soybean meal to China.
At least 30 companies have applied for exports to China, and 14 have been approved
.

 

Brazil has exported 17.
7 million mt of soybean meal from January to October this year, exceeding the 16.
8 million mt
exported in 2021, according to data from the National Association of Grain Exporters (ANEC).
Among them, soybean meal exports reached 1.
817 million tons in October, up from 1.
337 million tons
in the same period last year.

 

Drought leaves Argentina's soybean planting progress 45% less than in the same period last year

 

The Rosario Grain Exchange said in a Nov.
4 report that soybean cultivation in Argentina's core agricultural belt is far behind last year
due to a lack of rain.
Unless weather conditions improve, farmers may reduce soybean planting
.
The exchange said the extreme drought had led to soybean planting progress of just 5 percent, down from about
50 percent in the same period last year.
There are no rainfall forecasts
for the coming week.
It was also the most difficult and uncertain planting season
in 12 years.
The exchange warned that the weather forecast for the first two weeks of the first half of November was not optimistic, and the rains in recent weeks, while helping to improve soil moisture in some areas, were not enough to reverse the drought
.
Extreme drought means that the precipitation gap remains significant
.

 

As of Oct.
26, Argentine farmers sold 31.
28 million mt of soybeans in 2021/22, accounting for 71 percent
of the total production of 44 million mt, Argentina's agriculture ministry said on Wednesday.
Between Oct.
20 and 26, farmers sold 323,100 mt of soybeans, almost double the previous week's 164,000 mt but still down from 483,600 mt
a year earlier.

 

Pay attention to next week's supply and demand report, soybean production may be revised upward

 

On Wednesday (November 9), the USDA will release a supply and demand report
.
Analysts expect the report could raise U.
S.
soybean production to 4.
322 billion bushels, up from 4.
313 billion bushels
forecast last month.
U.
S.
soybean yields are expected to be 49.
9 bushels/acre, up from 49.
8 bushels/acre
forecast last month.

 

Notably, Informa expects U.
S.
soybean production to rise to 4.
360 billion bushels, up 0.
47 billion bushels from last month's forecast, and yields could rise to 50.
3 bushels/acre, up from 49.
9 bushels/acre
forecast last month.