USDA Soybean Projections, 2008-17
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 2008-17. 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 discussion is divided into four sections:
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 acreage into feed grains. Although net returns for soybeans might rise to uncommonly high levels, they could be low relative to corn and gradually limit U.S. soybean acreage. In the projections, soybean production rises initially (2008-09) and continues to increase incrementally as a modest improvement in yields offsets smaller planted area. 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 rapidly rising demand in China.
Supply
Several factors underlie the long-term trends that will determine the size of U.S. soybean crops during 2008-17.
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. However, 2007 plantings fell sharply—to 63.6 million acres—as crop returns favored corn production.
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 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 in North Dakota has more than doubled since 1999. 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 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. From 2004 to 2006, nearly ideal weather led to three consecutive yield records for many States. Incidences of Asian soybean rust have been mostly limited to Southern States, where losses were 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 have expanded 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 2007/08 marketing year (September-August), U.S. exports are expected to decline due to a lower supply. In 2006, soybean area in Brazil was 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. A better harvest and much higher prices in 2007/08 are improving the debt situation. Brazil should soon attain export supremacy as the production costs of its soybean farmers are very competitive relative to U.S. producers.
Tempering the profitability of growing soybeans in Brazil are high fuel prices that raise transportation costs to export markets and fungicide expenses to control Asian soybean rust. And, the rate of exchange between the Brazilian Real and the U.S. dollar is a factor in determining the growth of Brazil's soybean area. Long-term improvements in Brazil's transportation infrastructure are also needed before the country can fully realize its massive agricultural potential.
Growth in domestic soybean meal use is gradual. The low rate of growth in U.S. soybean meal consumption is determined by a 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 with U.S. crushers has gradually cut into their foreign markets for soybean meal and soybean oil. 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 comparatively low. Thus, whenever the soybean supply fell, profit margins of domestic processors would stagnate.
Over the past 4 years, however, the economic conditions for U.S. processors have improved with record domestic supplies of soybeans and slow production growth in Brazil. In addition, expanding 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. Eventually, a wider distribution of low-linolenic and high-oleic varieties of soybeans will diminish these disadvantages. Compensating for the weak food demand are rapid gains in U.S. production of biodiesel, which uses 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. Although biodiesel is contributing to the lubricity needs of low-sulfur diesel fuel, as required under recently implemented emission standards, a majority of current output is being exported. Within only a few years, biodiesel has grown to nearly 20 percent of the domestic use of soybean oil.
Rising demand for soybean oil by domestic biodiesel producers will likely constrain U.S. exports of soybean oil for several more years. Since 2003/04, the United States has been a net importer of all vegetable oils and a continued expansion of biodiesel output would amplify the trend. However, considerably higher costs for vegetable oils and competition from biodiesel imports are likely to slow the industry's growth.
Projections for U.S. Soybean Supply and Use
U.S. soybean projections for 2008-17 include the following highlights.
Soybean acreage is projected to decline. In 2008, planted soybean area in the United States is expected to increase as producers respond to attractive prices in the spring of 2008. Most of the gain will come from producers switching from corn to soybeans in the traditional Corn Belt, although some will be in the South due to additional double-cropping with wheat and substitution for cotton. Total 2008/09 soybean supplies are projected to remain tight because of a low carryover from 2007/08. For several years afterward, it is likely that Corn Belt farmers will continue to expand corn acreage at the expense of soybeans. U.S. corn prices are seen staying high, while U.S. soybean prices would be dampened by further expansion of South American soybean production. These factors will likely crowd out more soybean acreage throughout the Corn Belt. Starting in 2008, sowing of soybeans is projected to drop from 71 million acres to 68 million acres by 2017.
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 1960-2007. The national average soybean yield is projected at 42.1 bushels per acre in 2008. With soybean acreage expected to shrink after 2008, rising yields (to 46.2 bushels per acre by 2017) 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 in any year.
Limited output growth and domestic needs could curtail U.S. exports. Given a low stock carryover from the 2007 crop year, there would still be a small decline in the 2008/09 supply even with additional acreage sown. Domestic crushing could increase moderately to 1.87 billion bushels. However, those circumstances would further curtail potential of soybean exports. In subsequent years, the growth in U.S. soybean yields would just barely offset 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.
Lower soybean supplies and modest growth in domestic use further squeezes the amount available for export in 2008/09 to 905 million bushels. Price differences between U.S. and foreign competitors could widen, and soybean importers would be encouraged to source more supplies from foreign competitors. After 2011/12, the U.S. dollar is expected to appreciate slightly, which would further dampen export potential. By 2017/18, U.S. soybean exports could drift down to 825 million bushels. Within 10 years, a strong expansion of foreign exports could reduce the U.S. share of the global market to 21 percent—just half of the 2006/07 market share.
The U.S. export share of the world soybean oil market will also tend to shrink for several years as domestic users take more of the available supplies (particularly for biodiesel). Foreign import demand for soybean oil will stay robust, though. Vegetable oil imports by the European Union (EU-27) are expected to rise rapidly to meet ambitious targets for biofuel production. South American soybean processors will be better situated to capture the gains that are available in the soybean oil export market, although their own growing domestic markets for biodiesel will compete for soybean oil supplies.
In contrast, ample supplies of soybean meal in 2008/09 should improve the U.S. share of global exports before it starts gradually eroding in subsequent years. U.S. soybean meal exports are projected edging up to 9.1 million short tons by 2017/18, up from 8.4 million for 2007/08.
Soybean prices stable at a historically high level. Over the next decade, there should only be a slight increase in domestic soybean stocks—rising to no more than 7 percent of total use in any year. The U.S. average soybean farm price is expected to remain close to $9 per bushel throughout the next 10 years. Such a price level may not be sufficient encouragement to raise U.S. soybean acreage given the likely superior comparative returns for growing corn. The prices could, however, eventually bring about a strong supply response from South American producers, who would find them attractive. After the strong increase in soybean meal values for 2007/08, prices could ease the next year and remain steady thereafter. Processors will likely be compensated for any decline in soybean meal prices with rising prices for soybean oil, which would maintain their crush margins. Soybean oil prices will be supported by a worldwide tightening of vegetable oil markets, accelerated by expanding global biodiesel production.
Projections for World Soybean Trade
During 2008/09-2017/18, gains in world soybean trade will probably moderate from the 7-percent annual growth in 1997/98-2007/08, but the upward trend is far from peaking. Global soybean trade is projected to rise 3.5 percent annually to 106 million metric tons in 2017/18.
China will dominate world soybean imports. The growth in China's soybean imports should dwarf all other countries, accounting for 80 percent of the projected gain in world trade by 2017/18. Within a few years, 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, any 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 (including its ability to re-export possible meal surpluses). China has already surpassed India as the world's largest importer of soybean oil.
The regions that should account for most of the remaining import gains for soybeans are Latin America, North Africa, and the Middle East. In contrast, improved EU grain crops are expected to cut back soybean meal consumption in 2008/09. Demand in the following years should erode gradually, prompting only modest growth in EU imports of soybean meal and a moderate reduction for soybean imports. Also, weak gains for feed demand in Japan and Taiwan (a consequence of rising meat imports) could elicit minimal growth in the soybean imports of both countries.
Brazil becomes the top soybean producing and 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. In 2007/08, Brazil should surpass the United States as the world's leading soybean exporter and could 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, soybean oil, and biodiesel, which favors demand by domestic processors. However, as Argentina closes in on its economic 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 so that the country's large crushing industry can operate near full capacity. In addition, Argentine soybean imports are likely to increase (mainly from Paraguay) to supplement domestic supply.
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