All year Cornbelt farmers have been watching soybean prices that reflect changing demand scenarios in 2008, despite our current record carryover. Supplies may diminish and prices may strengthen if the analysis in USDA’s latest Oil Crops Outlook comes to fruition.

When the August 1 Crop Report was recently released, USDA indicated the smaller planted acreage this year would yield about 2.625 billion bushels of soybeans, a crop that will be small enough for demand to draw down some of the 590 million bushels of beans left over at the end of the month when the marketing year shifts to 2007/08. The current surplus has not been a burden to the futures market with $8 and $9 beans since last winter. However, the surplus has been a burden to the cash market which has sometimes been $1 or more under the futures price.

But that is changing, and while it will take a year to work through the current surplus, most market observers say the market fundamentals will be driven by demand next year, and now USDA says the market will be driven by supply as well.

USDA’s World Agricultural Outlook Board and the Commerce Department’s Census Bureau have continued to make minor revisions in stocks and use, including exports. The latest statistics call for a 1.1 billion bushel export demand for soybeans that are $3 higher than what a nearly 600 million bushel surplus would indicate. Current meal demand is more robust than expected by both domestic and foreign buyers. Additionally, soy oil demand has been robust because of international shortages. For the marketing year that begins in September, the average farm price for soybeans is expected to within 50¢ of either side of $7.75, thanks to the demand.

Within the soybean oil market there is a dynamic that is shifting use away from food and toward fuel. USDA says the loss of food demand will cut consumption back to 18.65 billion pounds, and ending stocks will rise about 120 million. Biodiesel will expand total use of soybean oil this year and next, but not enough to offset the reduced consumer demand.

However the dynamics are even stronger in the international market for soybeans and other oilseeds. China has been a significant customer, and while their soybean crop withers in drought this year, there are expectations for fewer US exports to China. The Chinese issue is not supply, but a decline in demand caused by a weaker feed use from swine diseases that have reduced the herd size.

Weather has been the issue for Western and Eastern Europe. In brief:
• Global rapeseed production is down about 3% from hot weather and flooding; and rapeseed prices are at a near record high.
• Global sunflower seed production is down about 10% due to heat and dryness in Europe.
• Adverse Canadian weather has also curtailed canola production, which has suffered from hot temperatures and lack of precipitation.

Summary:
While soy oil, sun oil, and canola have long been staples of consumer foods, increased demands by other uses have reduced the supply and raised prices on these vegetable oils that have long been in surplus. US domestic production of soybeans will diminish for the new crop, and with the help of strong prices for 2008 production, is expected to draw increased acres for soybeans.