 "Even though biodiesel production continues to grow, profit
margins are narrow and production would not be profitable at all
without the current large subsidies," said Darrel Good."Much
of the strength in soybean prices since the fall of 2006 has
been provided by soybean oil prices, even though U.S. soybean
stocks have been record large. The strength in soybean oil
prices has been associated with rising world biodiesel
production."
Good noted that the cash price of soybeans in central
Illinois averaged $7.82 during August 2007. That price is 42
percent higher than the average during September 2006, when a
record U.S. crop was being harvested. The average price of
soybean oil and soybean meal at central Illinois processing
plants increased by 48 percent and 28 percent, respectively,
over that same period.
"The higher soybean oil prices came in the face of record
large soybean oil inventories being held at U.S. processing
plants," he said. "New record large month-end soybean oil stocks
have been reported every month since June 2006. Year-over-year
increases in monthly stocks averaged 29 percent from October
2006 through June 2007. Month-end stocks reached a record 3.362
billion pounds in March 2007.
"Stocks remained extremely large, at 3.246 billion pounds, at
the end of July 2007. Soybean oil stocks are large due to the
record pace of the domestic soybean crush in order to meet
record consumption of soybean meal. Use of U.S.-produced soybean
meal, domestic plus exports, during the period October 2006
through July 2007 was a record 36.05 million tons, almost 6
percent more than consumed during the same 10 months in the
previous year."
Even though U.S. soybean oil stocks have been increasing,
consumption of soybean oil has been record large as well.
Domestic use plus exports of U.S. soybean oil reached a record
16.93 billion pounds in the 10 months from October 2006 through
July 2007, an 8 percent year-over-year increase.
"Percentagewise, the large increase -- 13 percent -- was in
exports," he said. "Still, domestic use of soybean oil was
nearly 5 percent larger than during the same period last year.
That is well above the long-term growth rate of about 2 percent
per year.
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"Much of the increase in domestic soybean oil consumption was for
the production of methyl esters, which are used in the production of
biodiesel."In January 2006, the U.S. Census
Bureau started reporting the amount of once-refined soybean oil used
in the production of methyl esters. Beginning in January 2007, the
Census Bureau included estimates of crude soybean oil and all fats
and oils used in the production of methyl esters.
"In January 2007, it was estimated that about 168 million pounds
of soybean oil and 202 million pounds of all fats and oils were used
to produce methyl esters," he said. "That use accounted for 10
percent of the consumption of U.S. soybean oil and nearly 8 percent
of the consumption of oil fats and oils during the month.
"In July 2007, the Census Bureau reported that about 346 million
pounds of soybean oil and 392 million pounds of all fats and oils
were used in the production of methyl esters. That use represented
almost 19 percent of the consumption of U.S. soybean oil and 13
percent of the consumption of all fats and oils during the month."
Good added that the use of soybean oil to support biodiesel
production will remain sensitive to the price of soybean oil and the
price of diesel fuel, but further increases are expected.
"Use was very large during July 2007, when the average soybean
oil price was nearly 10 cents higher than the average in July 2006
and only slightly below the record average monthly price in May
1983," he said. "As the production of distillers grain increases and
as South America expands soybean production, soybean oil demand will
become increasingly important in determining the magnitude of the
domestic soybean crush.
"Currently, the crush is still being determined by the demand for
soybean meal. If the size of the crush in the future is determined
by soybean oil demand, meal could be in surplus. Since soybean meal
is not easily stored, the surplus would have to be consumed,
potentially driving soybean meal prices lower."
[Text from file received
from the University
of Illinois College of Agricultural, Consumer and Environmental
Sciences]
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