The rally of crude oil above $90 per barrel and heating oil futures rising above $2.40 per gallon have pulled soyoil futures to the highest level since 1974. Heating oil futures and soyoil futures have been linked very closely since the beginning of the year. Although U.S. soyoil stocks have exceeded 1.36 million tonnes until they dropped to 1.33 million tonnes in September, the threat of expanding biodiesel production to deplete soyoil stocks has taken most of the margin out of biodiesel production. As a consequence, the fate of soyoil futures has been dominantly determined by heating oil futures, which are closely correlated with diesel and biodiesel prices.

The U.S. biodiesel industry has been able to rapidly expand production because of record large soyoil stocks and a record large soybean crush. Biodiesel production capacity now has expanded to the point that soyoil stocks likely will be quickly depleted during the 2007-08 marketing year. Soyoil prices eventually will have to rise relative to biodiesel and heating oil to further erode biodiesel margins so that biodiesel production will be reined in to match the quantity of soybean oil that can be spared for biodiesel production. There are nearly 16 billion pounds of soyoil used for non-bio-diesel (mostly food) purposes annually. The biodiesel industry will be allowed to use whatever soyoil is left over after the highly inelastic food demand has been satisfied.

In related news, 205,917 tonnes of biodiesel were produced in August 2007, up from a revised 180,136 in July, U.S. Census data showed. Of the August production, some 171,726 tonnes (83.4%) were made from soyoil and 9,599 (4.66%) from inedible tallow and grease. The remaining 24,592 tonnes (11.94%) were produced from other feedstocks such as rapeseed or cottonseed oil. Domestic biodiesel production in January/August stands at 1,054,216 tonnes, of which 913,742 made from soyoil, 37,522 from inedible tallow and grease and 102,952 from other feedstocks. According to Census data, some 442,105 tonnes of biodiesel were produced in January/August 2006. However, the 2007 figures include all fats and oils consumed for biodiesel production while the 2006 are data based on once-refined soyoil. Thus, these figures are not comparable.

September soyoil stocks were revised 9,070 pounds lower to 1.32 million tonnes in the latest Census fats and oils report. Soyoil used in biodiesel dropped rather sharply during September to 127,000 tonnes from 171,000 tonnes in August. That puts soyoil usage in biodiesel for the 2006-07 marketing year at 1.35 million tonnes. Biodiesel production declined seasonally from August to September last year as well. But, more importantly, it appears that slim profit margins (which declined even further in October) are finally tightening on the biodiesel industry as capacity utilization of just 40% in September was the lowest in 18 months.

Democratic leaders want to begin the debate the afternoon of November 5, with no votes until Tuesday, November 6. However, Sen. Jim Bunning (R-Ky.) may hold up the matter unless leaders settle differences he has regarding the Finance Committee package for the farm bill – the matter concerns language regarding a coal-to-liquid provision.

Senate Majority Leader Harry Reid (D-Nev.) earlier last week stopped short of making any guarantees about a time frame for finishing the farm bill. “I would hope we could finish it in a week, but as we know, in that week it could be interspersed with an appropriations conference report,” Reid said. “I can’t imagine our finishing the farm bill very quickly.”

Senate Agriculture Committee Chairman Tom Harkin (D-Iowa) wants to preserve the bill’s delicate budgetary balance during the upcoming floor debate. “My goal is to maintain the strong bill created in the committee,” he said. “We were supportive of pay-as-you-go rules in committee...and I’m going to encourage my caucus to be responsible about this on the floor.” Some sources inform there still could be some funding issues relative to Congressional Budget Office (CBO) scoring.

President George W. Bush last week nominated former two-term North Dakota Governor Ed Schafer, 61, to head up USDA once his nomination is confirmed by the Senate, as is likely. Bush, in making the announcement, said Schafer “understands the challenges” faced by U.S. agriculture and consumers, and touted Schafer’s efforts to oversee development of North Dakota’s biofuel industry and his efforts to expand trade for the state. “Ed has shown wisdom, foresight, and creativity and that will make him a valued and trusted friend for America’s farmers and ranchers.” Bush said he was looking forward in working with Congress on a new farm bill that would provide farmers with a safety net and one that “spends federal tax dollars wisely.” Bush also said he and Schafer would work to “continue leveling the playing field by concluding the Doha Round” of multilateral trade negotiations. “Ed Schafer is the right choice to fill this post,” said President Bush. “He was a leader on agricultural issues during his eight years as the governor of North Dakota.”

India’s edible oils imports may cross 12 million tonnes by 2015 from the current level of 5.5 million tonnes, if oilseeds production in the country is not raised, according to an industry representative. India’s edible oil demand is likely to touch 20 million tonnes by 2015, up from the current demand of about 13 million tonnes as population rises, said Davish Jain, chairman of Central Organization for Oil Industry and Trade.

But stagnating local production would mean more imports would be needed, Jain added. “Increase in productivity is the need of the hour more so as more oil across the world is being used as biofuels,” Jain said. “There is a need to bring more land under oilseed cultivation urgently.” India’s oilseed sector has recently expressed concerns that many farmers are shifting to other commodities such as wheat.

The soy complex closed lower on November 1 as a setback in petroleum futures sparked a sell-off in the soy complex. November bean futures closed down $7.07, finishing at $364.03; January lost $7.07, closing at $369.82; and March was down $6.52, ending at $375.43. December meal decreased $8.27 closing at $299.94; January was $8.05 lower, finishing at $302.14; and March meal closed down $7.61 ending at $306.22. December oil closed $5.29 lower to finish at $927.48; January was down $2.87, closing at $938.94; and March lost $6.61, closing at $948.66.

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