As crude oil prices surge to near historical highs, the quest for renewable energy sources from field crops is picking up speed. The most widely used renewable feedstock in the United States (U.S.) so far has been maize, and the effect on coarse grains markets has been dramatic.
Oilseeds demand for biodiesel use, already strong in the European Union (E.U.), is forecast to increase some in the U.S., although ideas are mixed as to the extent of the expansion. Even so, renewable energy issues already are influencing the soybean market.
Based on soaring maize prices linked to demand for ethanol, U.S. farmers are expected to boost maize plantings sharply for the 2007-08 crop season, at the expense of soybean area. Consequently, the U.S. Department of Agriculture (USDA) in late March announced U.S. farmers intended to plant 26.9 million hectares of soybeans for the 2007-08 season, down 11% from the previous season and the smallest U.S. soybean area since 25.7 million ha were sowed in 1996-97.
In its first preliminary production forecast for 2007-08, the USDA said the U.S. soybean crop could fall by 15% from a season ago. Specifically, the USDA projected 2007-08 U.S. soybean output at 73.5 million tonnes versus 86.8 million in 2006-07, a year of aboveaverage yield.
If realized, the 2007-08 crop would be the smallest since 66.8 million tonnes were harvested in the drought year of 2003-04. But actual area often turns out higher than March indications, usually because soil or weather conditions can force maize planting delays, hurting maize yield potential and favoring a switch to soybeans.
This year, conditions in the U.S. Corn Belt did force planting delays, leading to predictions of an increase in soybean sowing. In addition, hard freezes in early April across the southern U.S. damaged winter wheat, which could encourage replanting other crops, including soybeans.
The potential for higher soybean area has helped to temper soybean prices, along with an estimated record high 2006-07 U.S. carryover of 16.6 million tonnes. Also exerting pressure on prices are the record large 2006-07 soybean harvests in South America and high ocean freight costs that have weakened import demand from China, a top market for that region.
Brazil is estimated to harvest 58.8 million tonnes of soybeans for the 2006-07 season, with Argentina forecast to see a 45.5-milliontonne crop. Carryovers in both countries also are forecast to reach record highs, with Argentina’s ending stocks at 20.2 million tonnes and Brazil’s at 18.1 million.
Based on the world’s three largest producing nations, the USDA forecasts global soybean stocks at the end of the 2006-07 season at a record 61.9 million tonnes. Supplies are likely to be drawn down considerably during the 2007-08 marketing year, with U.S. ending stocks expected to be shaved by nearly half, to 8.7 million tonnes.
U.S. biodiesel capacity by the end of calendar 2007 will expand by as much as 6.5 billion liters, a near tripling from January, and soybean oil use for biodiesel should climb by 41% from 2006-07, the USDA said. But that expansion is unlikely to have a severe effect on soybeans because carryover stocks of soybean oil are expected to meet much of the new demand during the next marketing year, the USDA said.
The impact on soybeans over the longer term remains unknown. Much depends on future U.S. growth in soybean-based biodiesel, which in turn, depends on political and economic support.
Some observers note U.S. soybean biodiesel currently is barely profitable and cannot compete with maize-based ethanol, primarily because ethanol has benefited from greater tax breaks and other economic incentives. Without similar support, these observers say, soybean-based biodiesel will be constrained from further expansion. WG