USDA Soybean Baseline, 2005-14
The role of 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 2005-14.
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
Projections 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. soybean acreage.
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, particularly in 2009/10 and
later years. 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.
Several factors underlie the long-term
trends that will determine the size of U.S. soybean crops
during 2005-14.
U.S. soybean planted area has 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.
Between 2001 and 2003, planted soybean acreage declined
slightly. Corn yields have generally outperformed soybean
yields during that period, leading producers to favor
corn. Despite that, high prices in 2004 prompted farmers
to sow a record 75.2 million acres of soybeans.
Although soybean plantings have become modestly
less advantageous throughout the traditional Corn Belt,
they continue to expand in areas that were historically
dominated by small grains production (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 the shift to
soybeans. For instance, soybean acreage planted in North
Dakota has nearly doubled over the last 4 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.
Soybean yields have been 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 benefited 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 relatively
new pest, the soybean aphid, has also exacerbated output
losses in recent years. However, in 2004, there was nearly
ideal weather that led to record yields in many States.
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. Exports from the
region surpassed U.S. foreign trade for the first time
in 2002/03 and 2003/04. For 2004/05, a much improved domestic
harvest is sparking a recovery in U.S. trade. Eventually,
Brazil will attain export supremacy as its soybean producers
are remarkably competitive in terms of relative production
costs. Soybean yields in Brazil have exceeded U.S. yields
in 4 of the last 5 years and are still rising as new areas
come under cultivation. Nevertheless, further improvements
in Brazil's transportation infrastructure are needed to
help the country fully realize its massive agricultural
potential. Also moderating the short-term expansion of
soybean area in Brazil is a relatively flat trend for
domestic prices (due to exchange rate appreciation against
the U.S. dollar) and rising fungicide costs for the control
of Asian soybean rust.
Domestic soybean use is not dynamic. Intense competition
from soybean processors in Brazil, Argentina, and more
recently China has gradually eroded foreign soybean meal
markets away 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. Under
pressure from foreign competition, domestic crush margins
have suffered from a declining supply and comparatively
weak prices for soybean meal and soybean oil. Domestic
consumption of these products has not grown very rapidly,
either. 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 2005-14.
Soybean area is expected to decline. Planted soybean
area is projected modestly lower in 2005/06 as producers
are expected to adjust to falling prices this spring.
Even with stronger projected use, carryover stocks are
forecast to rise to a very large level because of the
bumper 2004 crop. By 2006/07, projections of planted acreage
slip toward 73.8 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, should expand corn acreage. While U.S.
corn prices are expected to strengthen, further expansion
of South American soybean production would limit the increase
in U.S. soybean prices. These factors will likely crowd
out more soybean planting in the traditional Corn Belt
and total area slips to 72.8 million acres by the end
of the baseline period.
Steady yield gains provide for 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
1960-2004. A soybean yield trend for 2005 (the first production
year of the baseline) starts with the national average
projection at 40.0 bushels per acre. With soybean acreage
expected to shrink, rising yields (to 43.6 bushels per
acre by 2014) provide for all of the output expansion
during the baseline period.
Limited output growth and domestic requirements
curtail exports. Given a large amount of stocks expected
to remain from the 2004 soybean supply, 2005/06 domestic
crushing and exports should be able to strengthen toward
1,725 million and 1,100 million bushels, respectively.
In subsequent years, however, the growth in soybean yields
just barely offsets the loss of acreage. The relatively
slow increase of soybean production would accommodate
the expected growth in domestic use, and supplies available
for export gradually tighten. After an initial surge in
2005/06, domestic use is projected to rise 15-30 million
bushels per year based mainly on a steady increase in
domestic soybean meal and soybean oil demand.
After the initial rise in soybean exports
through 2007/08, the modest growth in domestic use begins
to squeeze supplies available for export. Larger price
differences between U.S. and foreign competitors could
develop and soybean exports could drift down to 1,030
million bushels by 2014/15. Within 10 years, a strong
expansion of foreign exports could reduce the U.S. share
of the global market to 31 percent, compared with 46 percent
in 2002/03. Likewise, U.S. export shares of the world
soybean meal and soybean oil markets will also tend to
shrink after 2005/06.
Soybean prices could inch up gradually.
Soybean importers will be able to turn to foreign competitors
to supply the soybeans 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 significantly below the 2004/05 forecast of 16 percent.
Soybean prices are expected to start off from a 4-year
bottom in 2005/06. By 2008/09, the U.S. average farm price
would again rise above the $5.00 loan rate and edge up
toward $5.70 per bushel by 2014/15. But given rising production
costs and comparatively slow yield growth, such a price
level may be insufficient to encourage additional acreage.
Prices for both soybean meal and soybean oil should ease
in 2004/05-2005/06 and could encounter resistance to higher
values beyond that period.
Baseline Projections for World Soybean
Trade
During 2005/06-2014/15, world soybean trade gains will
probably moderate from a robust 9-percent growth rate
seen in 1994/95-2003/04, but the upward trend is far from
peaking. Global
soybean trade is projected to rise nearly 4 percent
annually to 92 million metric tons in 2014/15.
Leading that growth should be China, which could account
for about three-fourths of the total gain in global soybean
imports by 2014/15. The regions that should tally most
of the remaining import gains are Latin America, North
Africa, and the Middle East. Consumption of soybean meal
in the European Union is expected to increase slowly over
the baseline period, which would moderate world imports
of both soybeans and soybean meal.
Sometime during 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 could even surpass India to become the
world's largest importer of soybean oil.
After 2005/06, virtually all of the projected growth in
global soybean exports is expected to be met by South
American exporters. Within 3-4 years, Brazil may become
the world's leading soybean exporter and could retain
that title for a long time thereafter. Argentina will
continue to dominate world exports of soybean meal and
soybean oil, as the country's comparatively small domestic
use and policy of differential export taxes make it the
most competitive place to process soybeans. With Argentina
taxing soybean exports at a higher rate than exports of
soybean meal and soybean oil, it favors demand by domestic
processors. However, Brazilian processors may gradually
close the gap between the two countries as Argentina closes
in on its practical limits for productive farmland and
total soybean production.
Many Challenges Lie Ahead
Soybean farming in the United States faces many competitive
challenges over the next decade from other crops as well
as from foreign soybean suppliers. Comparatively slower
yield growth and rising production costs for soybeans
will make producing corn a more profitable alternative
for many U.S. farmers. The recent discovery of Asian
soybean
rust in the southern United States will compound the
challenges. For further discussion of this subject, see
the box "Asian
Soybean Rust Could Permanently Alter the U.S. Agricultural
Sector" in the crops chapter of the Agricultural
Baseline Projections briefing room. Although world
demand
for soybeans should expand steadily, the capability
of U.S. producers to fulfill more foreign needs than
they
already do is in doubt. Supply constraints will hinder
U.S. exports and almost all future global trade gains
will probably be reaped by foreign producers.
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