Soybean plants in a field from a previous year

Soybean experts say a tights stocks-to-use ratio leaves little room for error producing this year's soybean crop. (Photo: Iowa Soybean Association)

Soy stocks tighten; biofuel demand strong in May report

May 13, 2021 | Bethany Baratta

The U.S. Department of Agriculture’s monthly scope of world demand and supplies presented a seemingly lackluster report this week for the soybean complex. However, a new line item in the report shows strengthening demand for soy-based biofuels.

The World Agricultural Supply and Demand Estimates (WASDE) report for new-crop soybeans shows lower supplies, lower exports, higher crush, and higher ending stocks compared with 2020/21 old-crop soybeans. The soybean crop is projected at 4.4 billion bushels, up 270 million bushels from last year on increased harvested area and trend yields.

U.S. soybean crush for 2021/22 is projected at 2.2 billion bushels, up 35 million from the 2020/21 forecast, reflecting favorable crush margins.

“Soybean oil is expected to hold a higher share of the crush value as prices are buoyed by increased use of soybean oil as a feedstock in an expanding renewable diesel industry,” the USDA said in its report.

The soybean oil balance sheet line entitled “Biodiesel” was replaced by “Biofuel” this month, reflecting recent changes to the monthly biofuels data reported by the U.S. Energy Information Administration. The biofuel line includes soybean oil used for both biodiesel and renewable fuels as reported in the U.S. Energy Information Administration’s Monthly Biofuels Capacity and Feedstocks Update, which replaced the Monthly Biodiesel Production Report. Prior year estimates for renewable fuel are based on data from the U.S. Environmental Protection Agency, the California Air Resource Board, and capacity information from industry.

Domestic U.S. soy oil consumption is set to rise 7.6% on the year to 25.4 billion pounds (11.52 million mt), driven by a 26% increase in biodiesel demand – to 12 billion pounds – while demand from the food sector is expected to fall by 5%. That dynamic will prompt U.S. soy oil ending stocks for 2021/22 to drop by 17% on the year to 1.513 billion pounds.

Global oilseed supplies for 2021/22 are projected to increase 3% from 2020/21 to 732.4 million tons, with higher prices incentivizing an expansion of oilseed area.

Arlan Suderman, chief commodities economist for StoneX, says his team is working with global customers who want renewable fuels made from soy oil and other oils.

“Because of some of the green initiatives, especially in Europe, they have to be able to show they’re using ‘green’ fuels. They’re willing to pay virtually any price for that fuel. That means the processors are willing to pay virtually any price for that feedstock in order to produce it. We are anticipating that renewable fuels pulling the oils up in market share and we are going to be crushing it for oil,” Suderman said.

That means expansion of soybean crushing for the oil, leaving the soybean meal byproduct an economical choice for livestock feeders.

Stocks tighten

Mac Marshall, vice president of market intelligence for the United Soybean Export Council and United Soybean Board, joined Suderman for a conversation surrounding the May WASDE report on Wednesday.

The USDA forecast old-crop ending stocks at 120 million bushels, vastly different than the May 2020 WASDE report, where USDA projected the 2020/21 soybean ending stocks at 405 million bushels. Prices reflect the tightened stocks-to-use ratio, which sits at 2.6%.

USDA’s projects soybean prices at $13.85 per bushel, up from $8.20 in May 2020.

“With how tight this balance sheet looks, we can’t have any production hiccups here even with a crop at 4.4. billion bushels,” Marshall said. Growth in domestic demand is being increasingly driven by soy oil, he said.

Global demand is also growing as economies continue to see growth post-Covid19 and China continues to rebuild following African swine fever.

“We’re looking at the tightest stocks and percent of usage that we’ve seen in the modern era,” Suderman said. “We’re seeing a push around the globe to plant more oilseed. The United States is really leading the way in renewable fuels, but this is not just a U.S. situation, it’s really a global situation. It’s just that the U.S. is really ahead of the curve in moving in that direction.”

With lower beginning stocks, soybean supplies are projected down 3% from 2020/21.