USDA Soybean Projections, 2007-16
The role of the U.S. soybean sector in world markets has been transformed 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). One key use of the projections is as a reference from which to analyze the impacts of potential policy changes affecting U.S. agriculture. This discussion summarizes the analysis underlying the soybean projections for 2007-16. Details about the 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 Projections briefing room.
The U.S. soybean industry could become more domestically oriented over the next 10 years as foreign suppliers become better situated to compete in the global soybean market, and as U.S. farmers shift additional acreage into feed grains. Although net returns for soybeans might rise uncommonly high, they could be low relative to corn and gradually limit U.S. soybean acreage. In the projections, soybean production falls initially (2007-08) and then increases incrementally as a modest improvement in yields offsets a smaller area planted. The expected growth in U.S. soybean supply should allow for a moderate rise in domestic use, although U.S. exports and ending stocks could decline. 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 in China.
Supply
Several factors underlie the long-term trends that will determine the size of U.S. soybean crops during 2007-16.
U.S. soybean planted area has likely peaked. 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. In 2006, crop rotations and favorable relative prices prompted farmers to sow a record 75.5 million acres of soybeans.
Although planting soybeans is becoming modestly less advantageous throughout the Corn Belt, it continues to expand in areas historically dominated by small grains (the Northern Plains in particular). Stagnant spring wheat yields and the development of better yielding short-season soybean varieties adapted to the northern climate have facilitated a shift from wheat toward soybeans. For instance, soybean acreage planted in North Dakota has nearly doubled over the last 5 years. Soybeans have been welcomed into Northern Plains crop rotations to help break the cycle of wheat diseases and, unlike in more traditional soybean producing regions, returns per acre favor soybeans over many other crops.
Recent soybean yields have been excellent. While soybean acreage is still expanding into northern and western parts of the country, those areas tend to have lower yields than the core midwestern production region. This expansion and a tapering off of the yield gains from narrow-row planting have slowed the upward trend in the national average yield. Throughout the 1990s, adoption of narrow-row planting practices benefited soybean yields 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. Between 2004 and 2006, nearly ideal weather led to three consecutive yield records for many States. Asian soybean rust has been limited to Southern States, where losses have been minimized by timely application of fungicides.
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 are expanding rapidly. South American soybean harvests have set record highs nearly every year for almost a decade. Over the past 5 years, exports from the region have surpassed U.S. foreign trade in soybeans. In the 2006/07 marketing year (September-August), U.S. exports are expected to benefit temporarily from a low stock carryover in Brazil. Recently, soybean area in Brazil has been constrained by a high accumulation of farm debt, which was brought about by poor yields, increased production costs, and a drop in the local currency value of soybeans. Once the financing problems ease, Brazil will likely attain export supremacy again as its soybean producers are still very competitive in terms of relative production costs. High fuel prices that raise transportation costs to export markets and fungicide expenses to control Asian soybean rust will still dampen soybean profits in Brazil. The exchange rate against the U.S. dollar will also be a factor in determining the growth of Brazil’s soybean area. Long-term improvements in Brazil's transportation infrastructure are needed before the country can fully realize its massive agricultural potential. .
Domestic use of soybean meal is not dynamic. The low rate of domestic soybean meal consumption is determined by the comparatively low growth of U.S. meat production and a rising supply of substitute protein feeds. Also, over the last decade, intense competition from soybean processors in Argentina and Brazil has gradually cut into foreign markets for soybean meal and soybean oil from U.S. crushers. China's processors have also imported large amounts of U.S. soybeans that could otherwise have been available for domestic use. Lackluster domestic use and the pressure of foreign competition kept U.S. prices for soybean meal and soybean oil relatively weak. Thus, whenever the soybean supply fell, profit margins of domestic processors would stagnate.
Over the past 3 years, however, the economic conditions for U.S. processors have improved with record domestic supplies of soybeans and disappointing harvests in Brazil. In addition, the expansion of biodiesel production throughout the world is raising the value of soybean oil relative to soybean meal. In order to produce soybean oil for a growing biodiesel industry, its joint output with soybean meal is creating a larger exportable surplus of meal.
Biodiesel is leading consumption gains for soybean oil. For the past 3-4 years, food demand for soybean oil has stagnated as food manufacturers have sought out vegetable oils that are low in trans-fatty acids. Offsetting this are rapid gains in the production of biodiesel, which has used soybean oil as its primary feedstock. New construction of biodiesel production facilities was accelerated by passage of a Federal tax incentive starting on January 1, 2005. The exemption, which has been extended through 2008, provides a Federal excise tax credit (at 1 cent per gallon for each percent that is used in a fuel blend) to biodiesel producers using new vegetable oil. Biodiesel is also contributing to the lubricity needs of low-sulfur diesel fuel, as required under newly implemented emission standards. In only a few years, biodiesel has grown to 15 percent of total soybean oil use.
However, rising domestic demand of soybean oil for biodiesel will likely occur at the expense of U.S. exports. The United States has been a net importer of all vegetable oils since 2003/04.
Projections for U.S. Soybean Supply and Use
U.S. soybean projections for 2007-16 include the following highlights.
Soybean acreage is projected to decline. Planted soybean area is expected down in 2007/08 as producers respond to attractive prices for corn next spring. Most of the switch from soybeans to corn will be made by producers throughout the traditional Corn Belt. However, the total reduction could be moderated by higher soybean acreage in the Northern Plains as more producers expand its role in rotations there. Total 2007/08 soybean supplies are projected to remain high because of a record carryover from 2006/07. For several years to come, it is likely that Corn Belt farmers will continue to expand corn acreage at the expense of soybeans. While U.S. corn prices are expected to strengthen, U.S. soybean prices are seen being dampened by further expansion of South American soybean production. These factors will likely crowd out more soybean acreage throughout the Corn Belt. Starting in 2007/08, sowing of soybeans is projected to drop from 71.0 million acres to 68.8 million acres by 2016.
Steady yield gains allow for modest growth in soybean production. U.S. soybean yields are projected to rise on average by 0.45 bushels per year, based on regional yield trends for 1960-2006. The national average soybean yield is projected at 41.5 bushels per acre in 2007. With soybean acreage expected to shrink, rising yields (to 45.6 bushels per acre by 2016) provide for all of the output expansion during the period. The projections assume no extensive outbreaks of soybean rust, which could reduce yields and raise production costs.
Limited output growth and domestic requirements could curtail U.S. exports. Given a record large stock carryover from the 2006 crop year, 2007/08 domestic crushing and exports should be able to initially strengthen toward 1.82 billion and 1.15 billion bushels, respectively. In subsequent years, however, the growth in soybean yields just barely offsets the loss of acreage. A slow increase in soybean production is expected to accommodate the growth in domestic use. The soybean crush is projected to rise by 20-25 million bushels per year based mainly on a steady increase in domestic demand for soybean meal and soybean oil.
However, after soybean exports rise in 2007/08, sharply lower supplies and modest growth in domestic use begins to squeeze the amount available for export.As price differences between U.S. and foreign competitors widen, soybean importers will be encouraged to source from foreign competitors and U.S. soybean exports could drift down to 875 million bushels by 2016/17. Within 10 years, a strong expansion of foreign exports could reduce the U.S. share of the global market to 23 percent—just half of the 2004/05 market share.
The U.S. export share of the world soybean oil market will also tend to shrink after 2007/08 as domestic users take more of the available supplies (particularly for biodiesel). Foreign import demand for soybean oil will be robust, though. Vegetable oil imports by the European Union (EU-25) are expected to rise rapidly to meet ambitious targets for biodiesel production. (The EU expanded from 25 to 27 countries on January 1, 2007, with the accession of Romania and Bulgaria, but the projections in this analysis pertain to the EU-25.) South American soybean processors will be better situated to capture the gains that are available in the soybean oil export market, although they too will soon discover growing domestic markets for biodiesel.
In contrast, ample supplies of soybean meal should improve the U.S. share of global exports for a few years before it starts to gradually erode.
Strong soybean prices gradually weaken. Domestic soybean stocks should decline quickly and level off at around 9 percent of total use—significantly below the 2006/07 forecast of 19.5 percent. The U.S. average soybean farm price is expected to strengthen to $7.15 per bushel by 2009/10. Such a price level may not be sufficient encouragement to raise U.S. acreage, given the potential comparative strength for corn returns. The prices could, however, eventually bring about a strong supply response from South American producers, who would find them comparatively attractive. Following an initial increase in 2007/08, soybean meal values could continue to weaken (lacking stronger gains in anticipated demand). Processors would be compensated with rising prices for soybean oil to maintain their crush margins. Soybean oil prices will be supported by a worldwide tightening of the vegetable oil market, accelerated by expanding biodiesel production..
Projections for World Soybean Trade
During 2007/08-2016/17, gains in world soybean trade will probably moderate from the 7-percent annual growth in 1995/96-2005/06, but the upward trend is far from peaking. Global soybean trade is projected to rise 3.5 percent annually to 102 million metric tons in 2016/17.
China will dominate world soybean imports. The growth in China’s soybean imports should dwarf all other countries, accounting for more than three-fourths of the projected gain in world trade by 2016/17. Sometime over the next decade, the volume of soybean crushing in China could surpass that of the United States, the world's current leader. That development would likely promote a faster growth rate for global soybean imports than for soybean meal and soybean oil. However, a disparity in the rates of consumption between protein meal and vegetable oil in China could temper that expansion. China's imports of vegetable oil will likely rise provided that its consumption continues to grow faster than its domestic demand for protein meal (and including its ability to re-export possible meal surpluses). China will likely even surpass India as the world's largest importer of soybean oil.
The regions that should tally most of the remaining import gains for soybeans are Latin America, North Africa, and the Middle East. In contrast, EU consumption of soybean meal is expected to increase slowly over 2007-16, prompting only modest growth in EU imports of soybean meal and a moderate reduction in soybean imports. Due to weak gains for feed demand, Japan and Taiwan could see minimal growth in soybean imports.
Brazil is likely to be the top soybean exporting country.
The United States, Brazil, and Argentina collectively
account for more than 90 percent of world exports of
soybeans, soybean meal, and soybean oil. While the
composition of that group will not change, virtually
all of the projected growth in global soybean exports
is expected to be satisfied from Brazil alone. By 2008/09,
Brazil may surpass the United States as the world's
leading soybean exporter and perhaps retain that title
permanently. Argentina will continue to dominate world
exports of soybean meal and soybean oil, as the country's
modest domestic use and differential export taxes make
it the most competitive place to process soybeans.
Argentina taxes soybean exports at a higher rate than
the exports of soybean meal and soybean oil, which
favors demand by domestic processors. However, as Argentina
closes in on its practical limits for productive farmland
and production of soybeans, Brazilian processors may
gradually close the gap between the two countries.
Argentina may see its soybean exports drift lower (and
imports increase) in order to operate the country’s
large crushing industry near its full capacity.
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