Last week’s USDA reports featured a tightening of soybean supplies. The reports are expected to provide bullish input for soybean markets. USDA’s U.S. soybean production forecast of 71.3 million tonnes was considerably below trade expectations. USDA did bump up its 2006-07-usage forecast by 680,000 tonnes, which reduced the 2006-07 carryout to 15.1 million tonnes. USDA’s 2007-08 carryout dropped by 136,000 tonnes from last month to 5.83 million tonnes as smaller supplies were largely offset by a net reduction in 2007-08 usage on a 1.22 million tonne cut in 2007-08 exports to 26.5 million tonnes and a 680,000 tonne increase in the 2007-08 crush to 49.7 million tonnes. USDA significantly tightened its U.S. soybean oil balance sheet on substantial increases in soybean oil usage in biodiesel production and a hike in 2006-07 exports that reduced 2006-07 ending stocks to 1.17 million tonnes and 2007-08 ending stocks to 787,000 tonnes.

The recent surge in the biodiesel industry’s consumption of soyoil could rapidly deplete U.S. soyoil stocks from the record high levels of June. Also impressive on the disappearance side have been 2006-07 U.S. soyoil exports, which USDA expects to reach 44.98 million tonnes. Soybean oil stocks have been abundant during the 2006-07 marketing year. New biodiesel production capacity has been snatching up those supplies in recent months.In addition, the export markets have been accessing those supplies as U.S. soybean oil has been competitive in China, South Korea and northern Africa. Starting in April, soyoil exports have exceeded those of recent years and appear to have been even stronger during the last quarter of 2006-07.

Meanwhile, soyoil usage in biodiesel production was 165,000 tonnes during July, which equates to an annual rate of 1.88 million tonnes. With 300 million gallons of annual capacity added since then that would consume 1.02 million tonnes of vegetable oil per year if fully utilized, soyoil stocks appear destined to be drawn down to minimal levels in the not too distant future.

The Southeast region will now require more grain and soybean inshipments than the volume estimated for 2006-07, though 2007-08 looks to be similar to the experience of the past five years at 32.1 million tonnes. The Mid-Atlantic will need to bring in nearly one million more tonnes during 2007-08 and would be the highest inshipments since 1999-00. The Lower Mississippi region is expected to a significant level of exports this year, but with a remarkable harvest anticipated for the region its net inshipments are forecast at 58.4 million tonnes, which would be 1.2 million less than 2006/07, yet slightly better than the average inshipments from 2002/03 through 2005/06.

The Ohio, Indiana, Michigan, and Kentucky region will see its net surplus volume shrink nearly 8 million tonnes during 2007-08 to 32.2 million tonnes, something last seen in 2002/03. This will impact shipments to the Southeast and Mid-Atlantic and cause grain and soybeans supplies from these net deficit areas to draw grain from much greater distances. The Upper Mississippi’s production potential will lead this region to have 63.2 million tonnes of surplus grain and soybeans to send by barge to export position at the Gulf or by rail to the Southeast, Mid-Atlantic, Texas Panhandle or even the West Coast.

India will continue to be a massive importer of edible oils for at least the next decade due to the slow growth of domestic output compared with demand, according to a report from the Public Ledger. B.V. Mehta, executive director of the Solvent Extractors’ Association of India, told a conference recently that the current vegetable oil production of between 7 million and 8 million tonnes would not be sufficient to meet India’s domestic demand. It is estimated the country’s edible oil consumption is around 12 million to 12.5 million tonnes annually at present, but this will continue to rise. “As demand rises by about 700,000 tonnes a year, domestic production is likely to rise by just half demand growth, that is about 350,000 tonnes,” Mehta said.

“The inference is clear - India’s domestic supply shortfall, currently placed at 4 million to 4.5 million tonnes, will continue to widen with an average increase of 350,000 tonnes per year.” Mehta questioned whether India could lift its domestic edible oil output by the 4% annual target set by the government. “There is no guarantee that even this modest growth will be achieved,” he said.

“The challenge of stagnating acreage, low yields and low production will have to be met successfully.” According to Mehta, India will likely continue to be a large importer of vegetable oil for at least 10 years. “Strong gross domestic product growth contributed by manufacturing and service sectors as well as rising population automatically translates to higher demand for food products including edible oils,” he said. Mehta also said he expects Indian demand for vegetable oils will increase from current levels to around 15.6 million tonnes in 2010 and to 21.3 million tonnes by 2015.

Senate Ag Committee Chairman Tom Harkin (D-Iowa) says he still believes a new farm bill can be completed yet this calendar year, but that major funding issues are making it difficult to move forward. “When you are spending $10 billion to $12 billion per month in Iraq, and with Defense appropriations spending at an all-time high, that doesn’t leave much” for farm bill funding, Harkin noted.

Harkin recalled that the Budget Resolution permits farm-bill writers to increase spending by up to $20 billion, but also stipulates that any additional spending from this “reserve fund” cannot be financed by increasing the federal deficit. “We are working with the Finance Committee to see how much of the reserve fund we will get,” Harkin said. “I think we have made a strong case for additional funding for income protection, and for additional new funding for key priorities such as conservation, nutrition, investment in bioenergy and renewable resources and more support for rural development,” the chairman said. He added that to date, “We haven’t been able to get anything from Finance.” However, the Finance Committee issued a statement in which it identifies $8 billion to $10 billion in additional farm bill funding that could be made available.

The soy complex was mostly higher on September 13 reflecting possible frost in the northern regions of the Corn Belt. September bean futures closed up $1.10, finishing at $340.98; November gained $1.01, closing at $345.85; and January was up $0.92, ending at $351.36. September meal increased $0.22 closing at $280.43; October was $0.11 higher, finishing at $281.75; and December meal closed unchanged at $287.81. September oil closed $2.87 higher to finish at $859.75; October was up $4.85, closing at $863.54; and October gained $3.31, closing at $874.56.

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