In the October Crop Production report, USDA reduced its forecast of 1997 soybean production to 2,722 million bushels, down 24 million from the previous forecast. Although the U.S. average yield was shaved to 39.0 bushels per acre, it still stands as the second-highest yield ever. Most of the soybean yield reductions were made for Iowa, Minnesota, and Nebraska. Persistent summer dryness cut yields in several southeastern States as well.

As of October 5, 37 percent of U.S. soybeans had been harvested, compared to the 5-year average of 23 percent. The swift harvest pace this year has been advanced by quicker soybean maturity and nearly ideal dry weather, although an absence of frost in some areas has delayed the drydown to desired moisture levels. The faster the harvest, the greater the pressure on soybean prices. Since late August, central Illinois cash soybean prices have already fallen as much as $1.50 per bushel to around $6.10. USDA forecasts a 1997/98 average soybean farm price of $5.75-$6.85 per bushel.

USDA's Grain Stocks report indicated that 132 million bushels of soybean stocks remained in all locations on September 1. The larger than anticipated carryover stocks affected the 1996/97 balance sheet mostly by a downward revision in the residual use category, to 47 million bushels.

Despite the low carryover, the early 1997 harvest progress allowed a significant gain in the September crush pace. This raised the estimate of 1996/97 (October/September) production of soybean meal and oil to 34.2 million short tons and 15.7 billion pounds, respectively. Projected 1997/98 crush remains at 1,495 million bushels.

U.S. 1997/98 soybean exports are forecast at 960 million bushels up from 882 million a year earlier. Even with record soybean production expected in South America next year, currently tight world supplies and brisk foreign demand will generate about 6 months of heavy export trade from the United States. Export sales of soybeans were at an all-time high of 381 million bushels as of October 2, and are 81 percent higher than a year ago. Current sales to the EU and China have been very active.

Total 1997/98 soybean supplies will increase 283 million bushels from 1996/97, nearly double the gain in total demand. Although the decline in production from last month trims projected year ending stocks from last month, a year-to-year increase is still expected, to 270 million bushels.

Projected U.S. exports of soybean meal are 7.4 million short tons, up from 7.1 million in 1996/97. Larger soybean crush and meal exports by Argentina and India will constrain U.S. exports, offsetting gains in Chinese soybean meal consumption.

With a larger U.S. livestock population and considerably lower soybean meal prices, 1997/98 domestic disappearance is anticipated to rise to 28.2 million short tons from 27.2 million in 1996/97. This season's high protein soybean meal price is projected to average $190-$210 per short ton, considerably less than the $271 per ton 1996/97 average. The recent Hogs and Pigs report suggests that a solid expansion in hog production is underway. The 1997 summer pig crop increased a robust 7 percent from a year earlier. Despite more modest growth in the breeding herd, farrowing intentions for the coming fall and winter quarters are up 7 and 8 percent, respectively, from a year earlier.

Soybean oil stocks as of September 1 sharply declined to 1.7 billion pounds due to recent expansion of domestic offtake and exports. Stocks are expected to slide to 1.55 billion pounds by the end of the marketing year on September 30, 1998. The recent upsurge in demand lifts the 1996/97 estimates of U.S. domestic disappearance and exports to 14,215 million and 2,050 million pounds, respectively. Domestic soybean oil prices reacted by creeping back up above 23 cents per pound in September, even with impending harvest pressure. For 1997/98, soybean oil is expected to average 23-26 cents per pound.

Declining supplies and rising prices in China for vegetable oils will buoy the current wave in imports through 1997/98. Despite an increase in the soybean oil tariff, smaller 1997 Chinese oilseed production will extend the oil deficit and attract imports for some time. China will account for more than one-fourth of the world's soybean oil imports. The United States is well positioned to take advantage of this opportunity. U.S. 1997/98 soybean oil exports are expected to swell to 2,400 million pounds, largely in anticipation of the growing Chinese market. Outstanding U.S. export sales of soybean oil are well ahead of last year's pace, although a majority to unknown destinations.

Global oilseed production in 1997/98 is projected at a record 276.4 million metric tons, up 7 percent from last season. Substantially larger oilseed crops in the United States and Argentina would more than offset projected declines in China (peanuts) and India (peanuts and cottonseed). World soybean production is forecast up 16 million metric tons from last season, with foreign production accounting for 42 percent.

China's soybean crop for 1997/98 is expected to reach 13.5 million tons, slightly higher than in 1996/97. China is expected to import 3.0 million tons of soybeans and 4.0 million tons of soybean meal in 1997/98. These record imports are the result of more favorable world prices for soybean meal and a shortage of domestic protein resources. Efforts by the Chinese crushing industry to convince the government to adopt higher tariffs and smaller import quotas are not expected to succeed, as China is making a serious bid to join the World Trade Organization by lowering trade barriers on all goods.

Forecast soybean production in India for 1997/98 was raised this month from 4.5 million metric tons to 5.0 million. This was based on higher expected area of 5.5 million hectares, which is up from 5.0 million in 1996/97. Timely monsoon rains produced an excellent growing season. The first cuttings from this harvest began in early October. This year's larger output will increase crushing to 4.5 million tons. Asian demand for protein meal should be quite active, which would raise forecast Indian soybean meal exports to 3.0 million tons.

The Brazilian soybean crop for 1997/98 is forecast to reach 28.0 million tons, up 1.5 million from 1996/97 assuming average yields. The wet September weather in southern Brazil has boosted topsoil moisture for the upcoming planting season. Higher- than-normal seed and fertilizer sales to date support the projection for greater 1997/98 soybean area.

A Brazilian government commission recently agreed to reverse a stance on imports of genetically modified soybeans. The commission's decision still prohibits planting genetically modified seed. However it would allow Brazil to import 1.55 million tons of soybeans this year to be crushed under the drawback plan, which requires reexporting the products. The imports will allow Brazilian soybean crushers to continue operating through the new-crop harvest next year, although the 1997/98 crush is expected only to be slightly above last season's.

The welcome return of rain to Argentina should prepare soils for planting of sunflower seed. Planting of sunflowers is now proceeding on schedule and soybean planting should begin in early November. Argentina's 1997/98 sunflower crop is estimated at 6.0 million tons, up 15 percent from 1996/97. Total oilseed production for Argentina is estimated at 21.4 million tons, up 22 percent from a year earlier.

Argentina's 1997/98 soybean crush was forecast higher this month to 11.85 million tons, which would be down slightly from the estimated 1996/97 volume of 11.95 million. This was based on higher expected Argentine imports that are needed to bridge a deficit until the new crop arrives. Although the infrastructure is not well suited to import soybeans (which include sales to date of 60,000 tons from the United States), low supplies mandate imports to maintain minimum crushing margins. Record high production of cottonseed and sunflower seed should also help use more of the ample Argentine crush capacity.

Global trade for major oilseeds and products is expected to reach a peak of 50.3 million tons in 1997/98, surpassing last season's total by 3.4 million tons. Soybeans will remain the undisputed leader with more than 38 million tons traded in 1997/98. Rapeseed trade is expected to remain almost unchanged at around 5.5 million tons. Sunflower seed trade is expected to substantially increase to 3.7 million tons, exceeding the 1996/97 volume by 34 percent.

Major beneficiaries of the increased trade in oilseeds and products in 1997/98 are the United States, where soybean exports are expected to reach 25.8 million tons (up 8 percent), and Argentina (with soybean exports to increase 100 percent to 1.5 million tons). China is anticipated to remain a large net importer of soybeans and soybean meal.

World trade in protein meals is expected to reach a high of 51.3 million metric tons in 1997/98. The gains in protein trade are expected to be made by: the United States with 6.7 million tons of soybean meal exports (up 4 percent from last year); Argentina with 9.15 million tons (up 6 percent); and India with 3.0 million tons (up 20 percent).

Global vegetable oil trade in 1997/98 is projected to be 28.1 million tons. Soybean oil will constitute 6.2 million tons of this trade, up from 5.9 million in 1996/97. World exports of palm oil will grow more slowly.

October 14, 1997 Economic Research Service

USDA, Washington, D.C.

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