With U.S. soybean carry-out approaching unsustainable levels (sub-100 million bushels), questions are being asked as to whether or not soybean meal prices are at a point where demand rationing is starting to take place.
While past performance is not necessariliy inidcative of future results, the two graphs below attempt to give some historical perspective on what soybean meal price levels are required to initiate the rationing process, as well as the potential impact on soybean crush.
July soybean meal prices are approaching the $460/short ton level, already exceeding the 2012/13 crop year when July soybean meal eventually went off the board at $535+ per ton. Likewise, this year’s July contract is currently near 2008’s July soybean meal expiration value of $453.50.
The second graph shows historical annual U.S. meal use (blue line, left vertical axis) along with the average price of 48% Decatur soybean meal year-to-year (right axis, red shaded area; 20-F (2020 through January 2021) price is from last Thursday’s cash report).
Recent years in which there have been significant cuts to domestic meal use would include 2007/08; 2008/09 and 2012/13. These crop years experienced year-to-year percentage reductions of 3.3%, 7.5% and 8.1%, respectively.
The insert in the graph “Price about to Ration Domestic SBM Use?” indicates by how much the USDA domestic meal use forecast fell from the January WASDE report and the end of the marketing year. Or in terms of lower domestic use on crush, these years saw declines of 87, 36 and 31 million bushels accordingly.
Note also that the 2008/09 year ended with carry-out of 138 million, not to far from this month’s USDA forecast of a 128 million bushel ending stocks figure.
What’s it mean to you
First, keep in mind the USDA’s 2.23 billion bushel export forecast implies a balance of the year total of around 720 mbu; that’s down 110 from last year. And perhaps all the more impressive, it would be the lowest January-August shipment total since 2014/15 and 200 mbu LESS than the 5-year average.
Other supportive elements for a still higher export total would include the fact Brazil’s harvest will get off to a delayed start due to the slow pace of planting last fall and the fact that China is still buying U.S. beans.
As an aside, Dalian futures prices for corn, soybeans and soybean meal all made new contract highs last week. This suggests China may be in serious need of additional feed-grain and protein-based oilseeds. As a result, the final U.S. export total could go higher, along with Soybean and Soybean Meal prices as the soybean meal futures price chart might suggest above.
Second, these factors along with the general “Soybean price tendency” in prior tight years suggests meal consumers will very likely face higher prices in the months ahead or at least until the market is comfortable with South AND North American supplies heading into 2021-22.
As far as getting the final U.S. carry-out up to a more workable level, the market could probably start with getting 30-50 mbu of “cushion” from reduced crush/domestic meal demand as the remainder of 2020-21 unfolds.