Soybean Oil Pricing Is Still Soft And World Market Remains Weak

15 November 1999 00:00  [Source: ICB Americas]

By Jim Papanikolaw

US soybean oil prices remain weak because of strong global oilseed supplies and lagging export demand. Domestic consumption remains solid and this year's crop was limited by poor weather, but those factors have not been enough to offset lower exports and the global glut.

"It's a very inexpensive oil right now," says Dale Gustafson, an analyst for Salomon Smith Barney. "In the case of the oil, the problem continues to be that we have not seen new foreign buying demand in the US for some time."

USDA expects US exports of soybean oil to reach 910,000 metric tons in 1999-2000, down from 1.1 million metric tons in 1998-99.

Strong global supplies of soybean and other oilseed products have hurt the US market. Palm oil production continues to be strong and crushers throughout the world are gearing up to process oilseeds that have been harvested from successful crops, including rapeseed and sunflowerseed.

In October, USDA raised its 1999-2000 world oilseed crushing forecast by 680,000 metric tons, taking it to 245.25 million metric tons, up from the 1998-99 total of 236.99 million metric tons.

"World stocks have continued to increase for just about all of the oilseed products," a trader notes.

South America's supply of soybean oil has yet to run out, though analysts suspect that the South American crop was smaller than originally reported.

USDA says that although sparse rainfall in central Brazil during September and October has provided good conditions for that country's wheat harvest, which usually runs from September through November, soybean planting has been hampered.

Central Brazil is a major soybean region, and its planting window extends into December. As a result, the dryness is more likely to affect the timing of the country's harvest rather than its eventual size.

Another factor that has reduced exports of soybean oil is China's emphasis on oilseed crushing rather than buying oilseed products. "This may spark demand for oilseed, but oil and meal export demand has been hurt," an industry source notes.

In October, USDA increased its world soybean oil production estimate for 1999-2000 by 90,000 metric tons to more than 24 million metric tons, partly because of an estimated 8 percent increase in China's soybean oil production to 1.9 million for 1999-2000. As a result, USDA lowered its 1999-2000 forecast for China's soybean oil exports by 100,000 metric tons to 1.1 million metric tons.

Between October 1998 and July 1999, the US exported 159,153 metric tons of soybean oil, way down from 423,806 metric tons during the same period a year earlier. This comes despite Asia expanding its share of US soybean exports from 41 percent in 1997-98 to 50 percent in 1998-99, according to USDA.

Dryness has hurt US soybean production. As a result, USDA lowered its 1998-99 US soybean production forecast by 2.24 million metric tons to 73.38 million metric tons, down from 74.6 million metric tons in 1998-99.

USDA also lowered its 1999-2000 US soybean oil production forecast by 20,000 metric tons to 8.32 million metric tons, a level that is still higher than the 1998-99 total of 8.21 million metric tons.

Although dry weather during the summer reduced production in the US, the harvest was still above average. "The weather has affected the market, but because we had such a large area, it was an offset," says an analyst.

"The US soybean crop is not as big as they thought it would be in June, but it is still large enough with the oil that is currently available worldwide, so markets are soft," says another trader. "Based on this, things should stay the way they are."

Soybean oil prices have remained in the 14-to-18-cent-per-pound range since the end of May. Analysts expect pricing to remain at this level through the rest of the year. Pricing may be sensitive to the size of the South American crop, but analysts consider such speculation premature. They note that any potential rallies may be tempered by the large US supply.

The FDA recently approved claims that soy protein included in a diet low in saturated fat can reduce the risk of coronary heart disease by lowering blood cholesterol levels. Analysts expect the FDA ruling to boost demand from consumers who are becoming more health conscious.

However, analysts caution that consumers may favor non-genetically modified soy-derived protein, which could strengthen demand for material from countries other than the US.

Analysts also note that animal feed remains the largest market for soybean meal, and the FDA's announcement is unlikely to change this dramatically. "Although the market for soy protein for human consumption seems to be growing it is still a niche industry," says an analyst.

GLYCERINE--Henkel Corporation will raise its prices for all grades of glycerine by 5c. per pound, effective immediately or as contracts allow.

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