USDA’s October estimates of U.S. row crop production are arguably its first truly meaningful seasonal estimates, informed by harvest results.And, markets have focused on rumors of potential acreage estimate adjustments based on USDA’s program certification process or insurance data.Last week’s estimates are not the final look at 2007 crops, but significantly narrow the range of outcomes.

USDA did shift more 2007 planted area from soybeans to corn, with soybean acres down an additional 162,000 hectares and corn up 283,000 hectares.Soybean production was estimated at 70.7 million tonnes, down from 86.8 million tonnes last year.The cut in planted area dominated the production adjustment from September with yield unchanged at 2.78 tonnes per hectare.With already reported beginning stocks of 15.6 million tonnes offsetting the crop cut, USDA left ending stocks at 5.85 million tonnes for 2007-08.That is quite low in relation to demand and spotlights the need for a large Brazilian 2008 crop.

USDA boosted soy farm prices to $7.85 – 8.85, up $0.50 from September and compared to $6.43 in 2006-07.Oil use in bio-diesel was raised 90,700 tonnes due to ongoing strength in capacity and demand, with prices set at $34.50 – 38.50 cash Decatur.Meal prices were set at $220 – 250 cash Decatur.Brazil’s crop was raised 1 million tonnes to 62 million tonnes from 59 million tonnes last year, while Argentine production was set at 47 million tonnes, essentially unchanged.Chinese imports remain at 33.5 million tonnes versus a slow growth 28.5 million tonnes last year.

The Census Bureau reported that 378 million pounds of soybean oil were used in biodiesel production during August, up from the previous month’s 348 million that was revised by 2 million pounds and last year’s 209 million. Soybean oil comprised 83 percent of all the fats and oil used in biodiesel production in August and 87 percent of the fats and oils used so far in 2007.

The August data indicated that the biodiesel industry continues to fully employ new biodiesel capacity as those plants come on line. Biodiesel capacity has increased from just over 700 million gallons annually at the start of 2007 to 1.2 billion in August. The amount of biodiesel capacity that is unused has increased by just 100 million gallons over the time period. More than 500 million gallons of biodiesel capacity has been completed in the last 2 months.

Given the biodiesel industry’s propensity to use new capacity, analysts have further accelerated the ramp up of biodiesel production so that soybean oil stocks are depleted to minimal levels by the middle of the 2007-08 marketing year. Biodiesel production thereafter is limited so that U.S. soybean oil stocks are maintained at or somewhat above a minimum level of around 1.7 billion pounds. The market may be comfortable at a level that is lower than 1.7 billion pounds or may require something larger. In any case, it appears to be only a matter of months before soybean oil stocks are depleted from record stocks of 3.36 billion pounds in June to the minimal levels that the market will tolerate.

This is not necessarily bullish for soybean oil futures because soybean oil prices already have eroded biodiesel margins to narrow or negative levels. However, if much of the industry has extended feedstock coverage and supplier agreements are in place, margins likely will have to erode further to restrain biodiesel production so that adequate vegetable oil supplies are available for food purposes.

The August increase in biodiesel production was surprising given the scant year-over-year increase in overall domestic soybean oil disappearance that month. Non-biodiesel disappearance of soybean oil during August was 11 percent below last year and 12 percent below the 5-year average. The tendency in recent months for non-biodiesel disappearance to be disappointing may be due to the depletion of soybean oil stocks that may have been stored in locations not picked up by the Census Bureau. Soybean stocks reached record levels earlier this year and stocks may have been stockpiled in non-traditional locations because of the unprecedented supplies and the attractive returns to storage. Now that demand is running ahead of production, those stocks may be coming out of those places along with those that the Census Bureau monitors.

Rep. Baron Hill (D-Ind.) on Oct. 9 sponsored a bill (HR 3781), along with nine co-sponsors, including House Ag Committee Chairman Collin Peterson (D-Minn.), that would create a federal mandate for biodiesel, beginning with 450 million gallons in calendar year 2008, with increases to 1.25 billion gallons by 2012. The proposal includes waiver provisions under specified conditions. The legislation, the “Biodiesel Promotion and Quality Assurance Act of 2007,” would amend the Clean Air Act.

Proponents of the measure say a federally implemented biodiesel standard would result in “the most efficient pricing for biodiesel across the United States.” They further note that 1 billion gallons of biodiesel would reduce current life cycle greenhouse gas emissions by 16.12 billion pounds, the equivalent of removing 1.4 million passenger vehicles from U.S. roads. In 2006 alone, biodiesel’s contribution to reducing greenhouse gas emissions, proponents note, was equal to removing 350,000 passenger vehicles from America’s roads.

China’s soybean sowing area is 8.8 million hectares in 2007, a decrease of 480,000 hectares or 5.17 percent from the 9.28 million hectares in 2006, according to the latest statistics published by the State Grain and Oil Information Centre.

Based on this, it is expected that the country’s soybean output will be 14.4 million tonnes in 2007, a decrease of 1.57 million tonnes or 9.81 percent from the 15.97 million tonnes reported in 2006, mainly due to the drought in northeast China.

The soy complex closed higher on October 11 amid speculative buying ahead of USDA’s October crop report that was released the following day. November bean futures closed up $4.87, finishing at $360.64; January gained $5.24, closing at $367.80; and March was up $4.59, ending at $371.38. October meal increased $3.53 closing at $299.83; December was $3.53 higher, finishing at $306.55; and January meal closed up $3.64 ending at $308.86. October oil closed $11.02 higher to finish at $868.61; December was up $11.02, closing at $881.18; and January gained $11.02, closing at $892.42.

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