Milling & Baking News - November 9, 2004 - 24

N E W S F E AT U R E

year was projected at a record 17,250 million
lbs, up 350 million lbs from 2003-04.
"The domestic disappearance of 17,250
million lbs would be a bit high except for the
potential for non-food use, with bio-diesel
taking a bigger portion," Mr. Crawford said.
"I understand that last year, bio-diesel may
have accounted for 200 million to 250 million
lbs use of soybean oil. New legislation could
add another 200 million lbs of soybean oil
for bio-diesel this year. If you consider food
use of 16,800 million lbs and 450 million lbs
of use as bio-diesel, you can see how the
U.S.D.A. comes up with 17,250 million lbs in
use. It's not an unreasonable number."
Soybean oil exports were projected at
1,150 million lbs, up 225 million lbs from
925 million in 2003-04 but down sharply
from 2,261 million lbs in 2002-03. The largest U.S. soybean oil outgo was set in 1997-98
at 3,079 million lbs.
Ending stocks of soybean oil in 2004-05
were projected at 1,191 million lbs, up 130
million lbs from the previous year but well off
the 1,491 million lbs in holdings at the end of
2002-03. The recent five-year average soybean
oil ending stocks were 1,957 million lbs.
"The U.S.D.A.'s soybean oil carryover
projection for 2005 might prove too low,"
Mr. Meyers said. "I think the 2005 carryover
could be 1.5 billion lbs or more. Domestic
usage might turn out lower than forecast.
Palm oil and other oils could be substituted
for quantities of soybean oil in food industry
efforts to lower trans fatty acid content of

24 / Milling & Baking News, November 9, 2004

products. South American soybean oil exports could reduce our shipments more than
the U.S.D.A. currently projects. We could
import more soybean oil than projected, as
the cash basis on South American soybean
oil is pushed lower. It's not unusual to have
a buildup in stocks in a year like this."
Mr. Freed said the 2005 carryover could be
higher or lower than the current projection,
depending largely on the final size of the
2004 crop and the impact of potentially increased use of soybean oil in bio-diesel fuel.
"High demand for energy and high prices of alternative fuels could help bio-diesel
be much more successful," Mr. Freed said.
"But much of the demand for bio-diesel to
date has been satisfied with animal fats and
recycled vegetable oils. But if we add 200
million to 500 million lbs of demand to soybean oil because of bio-diesel, stocks could
be drawn down. This would happen later in
the marketing year, though."
Mr. Freed pointed out that additional
capacity to produce bio-diesel was under
construction and would require some time
before being brought on line.

crushed. The Decatur basis has dropped to
2.25@2.5c over futures. As we go forward,
the basis in November-December should dip
below 2c a lb, and in the first quarter, down
to 1.25c to 1.5c a lb over futures. The basis
should continue to weaken through AprilMay, with levels depending on how much
soybean oil stocks have been built up."
Mr. Freed noted that while the soybean
oil cash basis has pulled back, it remained
higher than a year ago.
"Last year, the basis was at 1.25c a lb
over futures in Decatur; this year, it is at
2.5c over," Mr. Freed said. "I assume if we
get the soybeans we need to crush from the
producer and see stocks building, both flat
price and the basis would get a little softer.
If bio-diesel kicks in, stocks might not build
as high as some expect. But for now, the
path of least resistance is down."
Mr. Crawford added, "I think the cash
basis definitely will moderate from last year's
levels but will remain higher than normal. We
saw +2.5c as the Illinois cash basis routinely
late last crop year. The basis is relenting some
now, and we may see additional weakening
in the first quarter of calendar 2005. The numbers at Decatur might be 0.75@1c over futures
at the lower end of the premium range during
the first quarter. The tendency then would be
for the cash basis to rise as we get later into the
year and stocks decline."

South American crop caveat
Brazil was projected to harvest a record
64.5 million tonnes of soybeans this year,
compared with 52.6 million tonnes in 200304. Argentina was expected to turn out a
record 39 million tonnes of soybeans, 5 million tonnes more than in 2003-04.
While there was no reason to suspect that
South America would fail to produce another
record soybean crop this year, and by a wide
margin, the weight of the U.S. crop on world
prices and higher input costs has tempered
planting enthusiasm in Brazil and Argentina.
In fact, the U.S.D.A., in its October Oilseeds:
World Markets and Trade, reduced by 500,000
hectares (about 1,200,000 acres) its projection
for area planted to soybeans in Brazil, to 23
million hectares. With that reduction, the
projected increase in planted area from 200304 was estimated at 1,550,000 hectares, or 7%,
the smallest year-to-year increase since 200102, when area increased 334,000 hectares
from the year before.

Palm oil production also sets record
Cash basis moderating
The cash basis on soybean oil throughout
2003-04 had been historically high.
"Because of extremely tight oil stocks in
the summer, the Decatur basis had risen to
3c a lb over soybean oil futures," Mr. Meyers
said. "In the last month, the basis has begun
to weaken as new crop was harvested and

Palm oil holds only a minor share in the
U.S. market for shortening, but it remains
the edible oil with the largest share in international trade, competing with soybean
oil in several world markets. Additionally,
palm oil and palm kernel oil increasingly
have been looked to as possible alternatives
to soybean oil in applications where the goal

bakingbusiness.com / world-grain.com

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Milling & Baking News - November 9, 2004

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