USDA projections for US soybean crush is up 3.6% year-over-year, to 1.97 billion bushels. In order to reach this projection, US soybean crush needs to total 776.8 million bushels during the last five months of the year.
The increased projection came with poor production forecasts in Argentina, and a strengthening crush margin.
The current forecast for the 2018 Argentina crop dropped 654 million bushels and may continue to fall further.
Soymeal prices climbed from $327 USD / metric tonne to $390 USD / metric tonne in the past month. In turn, the crush margins went from $1.63 to $2.63 USD!
Soymeal is the driving force behind the strong crush margins and the record US soybean crush levels as domestic consumption continues to climb, up 4.5% year-over-year.
US livestock production indicates that demand for US soymeal will be maintained. Red meat and poultry production was up 2% in the first quarter and is projected to increase 4.4% in the second quarter.
Demand for soymeal, coupled with rising prices, is strengthening the crush margins.
Along with the poor production forecasts in Argentina, US soybean crush levels are slated for an upward trend. This will be especially true if China does in fact enact tariffs on US soybean imports, as they could instead opt to import American soymeal as a side-hustle.
U.S. SOYBEAN CRUSHING LEVELS ARE CRUSHING IT
Soybean crush levels picked up substantially over the last few months, due to strong crush margins.
Driven by production issues in Argentina, the increase in crush margin recently is attributed to rapid growth in soybean meal prices. For the 2017-08 marketing year, the USDA currently projects the domestic crush at 1.97 billion bushels, up 3.6% from last marketing year. Soybean meal use needs to build on recent progress to meet or exceed the current crush projection.
Soybean crush during the first half of the marketing year from September 2017 through February 2018 equaled 1010.6 million bushels, 3.5% greater than the total of the previous year. The USDA’s current projection indicates a 3.6% increase for the year and implies that the crush during the last half of the year will be 3.7% larger than the crush during the previous marketing year.
The Census Bureau estimated the March 2018 crush level at 182.2 million bushels, 13% larger than the crush during March 2017. The March estimate implies that the crush during the last five months of the year must total 776.8 million bushels, 1.7% higher than the crush of a year ago, to reach the USDA projection of 1.97 billion bushels.
The pace of domestic crush accelerated in February and March on a substantial uptick in crush margin. The strengthening of the crush margin coincided with changing expectations regarding Argentinian soybean production.
Current forecasts of Argentine production reflect the poor growing season and sit at 1.47 billion bushels for the 2018 crop year, down 654 million bushels from last year’s production. The potential for an additional 80-million-bushel decline in production is a distinct possibility.
Soybean crush projections for Argentina fell 1.95 million tons to 45.4 million tons and continued issues associated with soybean crushing in the region may lower this number over the next few months.
The growth in soybean meal prices associated with potential shortfalls saw crush margins in Decatur move from an average of $1.63 during September through February 7 to the current level of $2.63. Soybean meal prices in Decatur expanded from $327 per ton in early February to an average of $390 per ton over the last month.
Soybean oil prices continue to show weakness with soy oil stocks growing to 2.44 billion pounds in March, up 0.8% from last year. Lower projections in the April WASDE report for biodiesel use of soybean oil and the growth in production increased marketing year-ending stock projections. Soybean oil prices declined from 31.6¢ per pound in early February to an average of 29.5¢ per pound over the last month in Decatur. The continuation of crush strength in 2018 is dependent on solid soybean meal markets.
The April WASDE report increased domestic consumption of soybean meal by 250,000 tons and expanded exports by 100,00 tons. Total use is forecast at 47.05 million tons in April, up 4.5% from last year.
Domestically, large livestock supply indicates continued consumption of soybean meal throughout the spring and summer as beef, pork, and broiler production look to expand over last year’s levels on recent positive feeder and packer margins. Red meat and poultry production came in 2% higher during the first quarter of 2018. USDA projections set second-quarter production increases at 4.4%. Despite the recent rise in soybean meal price, a continuation of strong domestic consumption appears feasible for 2018.
While domestic consumption of soybean meal gives added weight to continued strong crush margins, soybean meal export markets need to provide support as well.
Through the first half of the soybean meal marketing year (October 2017 – March 2018), soybean meal exports increased 3.2% over last year, to 6.92 million short tons. The USDA’s current projection indicates a 7.8% increase for the year and implies that the exports during the last half of the year will be 14% larger than second-half exports during the previous marketing year.
The Census Bureau estimated the March 2018 export level at 1.414 million short tons, 3% lower than during March 2017. Soybean meal exports during the last six months of the year must total 5.577 million tons to reach USDA projections.
While soybean exports continue to disappoint, soybean crush levels maintain a pace to set record levels of use associated with crush this marketing year. Domestic use of soybean meal appears set to maintain support for strong crush margins. The progression of soybean meal exports through the remainder of the spring and summer will provide insight into the potential for crush levels as we move into next marketing year and merit monitoring.