USDA Soybean Baseline, 2004-13
The role of the U.S. soybean sector within world markets
has undergone a significant transformation over the last
two decades. Each year, USDA updates its 10-year projections
of supply and utilization for major field crops grown
in the United States, including soybeans (see Overview
of the USDA Baseline Process for more information).
The commodity projections are used to forecast farm program
costs and to prepare the President’s budget. One
key use of the projections is as a “baseline”
from which to analyze the impacts of potential policy
changes affecting U.S. agriculture. This discussion summarizes
the analysis underlying the soybean baseline projections
for 2004-13. Details about the baseline projections for
the U.S. macroeconomy, other U.S. crops, U.S. livestock,
the U.S. agricultural sector, and global agricultural
trade can be found in the Agricultural
Baseline briefing room.
The U.S. soybean industry could become more domestically
oriented in the next 10 years as foreign suppliers are
better situated to compete in the global market for soybeans
than for feed grains. Lower net returns for soybeans compared
to corn will likely limit U.S. acreage available to grow
soybeans. Soybean production increases gradually as a
modest improvement in yields offsets smaller area planted.
The expected growth in U.S. soybean supply should allow
for a moderate increase in domestic use, although U.S.
exports and ending stocks may remain steady. Exporters
from South America are expected to garner most of the
expansion in global trade for soybeans and soybean products,
much of which will center on meeting a rapidly rising
demand from China.
Supply
Several factors underlie the long-term trends that will
determine the size of U.S. soybean crops during 2004-13.
U.S. soybean planted area has slipped.
U.S. soybean acreage expanded throughout the 1990s as
farm program changes increased planting flexibility and
encouraged more farmers to incorporate the crop into their
rotations. However, planted soybean area has declined
slightly since its 2000 peak of 74.3 million acres. Corn
yields have generally outperformed soybean yields for
the last several years, leading producers to favor corn.
Although soybean plantings have become modestly less
advantageous throughout the traditional Corn Belt, they
continue to expand in areas—the Northern Plains
in particular—that were historically dominated by
small grains production. Stagnant spring wheat yields
and the development of better yielding short-season soybean
varieties adapted to the northern climate have facilitated
the shift to soybeans. For instance, the soybean acreage
planted in North Dakota has increased by two-thirds in
the last 3 years. Soybeans have been welcomed into Northern
Plains crop rotations to help break the cycle of wheat
diseases and, unlike in the more traditional soybean producing
regions, returns per acre favor soybeans over many other
Northern Plains crops.
Recent soybean yields disappointing.
While soybean acreage is still expanding into northern
and western parts of the country, those areas generally
have lower yields than the core midwestern production
region. This expansion has slowed an upward trend in the
national average yield as has the progressively smaller
yield gains available from narrow-row planting. Narrow-row
planting benefitted soybean yields throughout the 1990s,
as it usually increased the number of pods per acre. In
more recent years, there has been a clear shift away from
7- to 8-inch rows toward 15-inch rows in an effort to
improve air circulation and combat disease-related yield
losses. During the last several years, unfavorable weather
has reduced soybean yields throughout the country. A rising
problem from a new pest, the soybean aphid, has also exacerbated
output losses in recent years.
Demand
Over the next 10 years, there are several long-term trends
that can determine domestic and foreign demand for U.S.
soybeans and soybean products.
Exports from South America expanding rapidly.
South American soybean harvests have set record highs
every year for almost a decade. Exports from the region
surpassed U.S. foreign trade for the first time in marketing
year 2002/03 (September-August for the United States and
October-September for Brazil). For 2003/04, shipments
from Brazil alone are expected to make that country the
top world exporter. U.S. soybean exports are forecast
down in 2003/04 because poor weather cut domestic output.
Yet, a recovery in U.S. trade for 2004/05 may only stave
off Brazil’s export supremacy for a short time.
Brazilian soybean producers are remarkably competitive
in terms of relative production costs. Soybean yields
in Brazil have exceeded U.S. yields in each of the last
5 years and are still rising as new areas come under cultivation.
Further improvements in Brazil’s transportation
infrastructure are needed to help the country fully realize
its massive agricultural potential.
Domestic soybean use not dynamic. Intense
competition from soybean processors in Brazil, Argentina,
and, more recently, China has eroded foreign soybean meal
markets away from U.S. crushers. China has also imported
large amounts of U.S. soybeans that would otherwise have
been available for crushing. Domestic crush margins have
suffered from a declining supply and comparatively weak
prices for soybean meal and soybean oil. In addition,
domestic consumption of these products has not grown very
much. Consequently, the domestic crushing pace is starting
to slow down even earlier in the year.
Baseline Projections for U.S. Soybean Supply
and Use
The following section highlights key findings from the
U.S. soybean baseline analysis for 2004-13. Annual projection
details can be obtained from the baseline's supply and
use table for U.S.
soybeans and soybean products.
After an initial increase, soybean area declines.
Planted soybean area is projected modestly higher in 2004/05
(to a record 74.5 million acres) as producers are expected
to respond to attractive prices in spring 2004. Carryover
stocks are forecast to fall to a very low level because
of the drought-reduced 2003 crop. Yet, concerns over yields
and the higher costs of protecting against soybean aphids
are likely to limit acreage gains in some regions. Once
supplies return to a more adequate level, soybean prices
should ease. By 2005/06, projections of planted acreage
would start to head lower again toward 73.3 million acres.
Producers in the Northern Plains will continue to add
soybeans to their rotations, although that shift could
be offset by lower acreage in other soybean producing
areas. Comparatively larger net returns for corn over
the next 10 years, particularly in the Corn Belt, will
expand corn acreage. While U.S. corn prices are expected
to strengthen, further expansion of South American soybean
production would limit a large rise in U.S. soybean prices.
These factors will likely crowd out more soybean planting
in the traditional Corn Belt and total area slips to 72.5
million acres by the end of the baseline period.
Steady yield gains provide growth in production.
U.S. soybean yields are projected to rise on average by
0.4 bushels per year, based on regional yield trends for
1960-2002. A return to the soybean yield trend for 2004/05
(the first year of the baseline) would start the national
average projection at 40 bushels per acre, indicating
a recovery from the drought-damaged 2003 yield of 33.4
bushels per acre. With soybean acreage expected to shrink,
rising yields (to 43.7 bushels per acre by 2013/14) provide
for all of the output expansion during the baseline period.
Limited output growth and domestic requirements
curtail exports. Provided that the 2004 soybean
crop recovers as anticipated, 2004/05 domestic crushing
and exports should also be able to rebound toward 1,635
million and 1,060 million bushels, respectively. In subsequent
years, however, the growth in soybean yields would just
offset the loss of acreage. The relatively slow increase
for soybean production would barely cover the expected
growth in domestic use, and supplies available for export
gradually tighten. Domestic use is projected to rise 25-35
million bushels per year, based mainly on a steady increase
in domestic soybean meal and soybean oil consumption.
Considerably smaller output slashed 2003/04 exports but
they are projected to recover in 2004/05 with a more normal
crop. However, even modest growth in domestic use would
then begin to squeeze supplies available for export. Larger
price differences between U.S. and foreign competitors
could develop and soybean exports could drift down to
1,040 million bushels by 2013/14. Within 10 years, a strong
expansion of foreign exports could reduce the U.S. global
market share to 29 percent, compared with 45 percent in
2002/03. U.S. export shares of the world soybean meal
and soybean oil markets will also tend to sink after 2004/05.
Prices for both commodities should ease in 2004/05-2005/06
and could encounter resistance to higher values beyond
that period.
Soybean prices could inch up gradually.
Soybean importers will be able to turn to foreign competitors
to supply the exports that U.S. producers cannot make
available. That could allow domestic soybean stocks to
level off at around 7 percent of total use, which would
be moderately above the 2003/04 forecast of 5 percent.
U.S. average farm prices for soybeans edge up toward $5.70
per bushel by 2013/14 and stay above the $5.00 loan rate
throughout the baseline projection period. But given a
rise of production costs and comparatively slow yield
growth, such a price level may be insufficient to encourage
additional acreage.
Baseline Projections for World Soybean Trade
During 2004/05-2013/14, world soybean trade gains will
probably moderate from a robust 9-percent growth rate
seen in 19994/95-2003/04; but the upward trend is far
from peaking. Global
soybean trade is projected to rise nearly 4 percent
annually to 97 million metric tons in 2013/14. In the
European Union, consumption of soybean meal is expected
to increase slowly over the baseline period, which would
moderate world imports for both soybeans and soybean meal.
Leading that growth should be China, which could account
for nearly three-fourths of the total gain in global soybean
imports by 2013/14. The countries that should tally most
of the remaining import gains are in Latin America, North
Africa, and the Middle East. Sometime during the next
decade, the volume of soybean crushing in China could
surpass that of the United States, the world’s current
leader. Consequently, that development would likely promote
a faster growth rate for global soybean imports than for
soybean
meal and soybean
oil. However, a disparity between the consumption
paces for protein meal and vegetable oil in China could
temper that expansion. Depending on its domestic needs
for soybean meal and its willingness to re-export possible
surpluses, China could remain a significant importer of
soybean oil in the future. India will continue to be the
largest importer of soybean oil, however.
After 2004/05, virtually all of the projected growth
in global soybean exports is expected to be met by South
American exporters. Brazil may become the world’s
leading soybean exporter in 2003/04 and could retain that
title for some time. Argentina will continue to dominate
world exports in soybean meal and soybean oil, although
Brazil could gradually close the gap between the two countries.
Many Challenges Lie Ahead
Soybean farming in the United States faces many competitive
challenges over the next decade from other crops as
well
as foreign soybean suppliers. It will not be a simple
matter to turn the very tight supply situation that
exists
in 2003/04 into a long-term scenario featuring both strong
demand and high prices. Comparatively slower yield
growth
and rising production costs for soybeans will make producing
corn a more profitable alternative for many U.S. farmers.
Although world demand for soybeans should expand steadily,
the capability of U.S. producers to fulfill more foreign
needs than they currently do is in doubt. Supply constraints
will hinder U.S. exports and most future trade gains
will
probably be reaped by foreign producers.
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