The run up in soybean prices throughout the summer (June through early September) was driven more by soybean meal prices than it was by the price of soybean oil, according to report filed by Darrel Good with the University of Illinois’ Department of Agricultural and Consumer Economics.

In his Farmdoc Daily report, from the June low to the September peak, January 2013 soybean futures prices increased by 43%, while January soybean meal futures increased by 51% and January soybean oil futures gained only 20%. Soybean oil futures have returned to early-June levels, while soybean futures are 13% above those early-June levels and soybean meal futures have held at 21% higher prices.

USDA projects soybean oil prices will remain weak relative to soybean meal prices during the 2012-13 marketing year. “The price of crude oil at Decatur, IL is expected to average 2.26 times the price (per pound) of 48% protein meal at Decatur. The ratio of average prices was 3.08 during the 2010-11 marketing year and 2.64 last year. In nominal terms, the average price of soybean oil is projected in a range of $0.51 to $0.55/lb., compared to an average of $0.519/lb. last year and $0.532/lb. during the 2010-11 marketing year. On the other hand, the average prices of soybeans and soybean meal are projected to be substantially above the averages of the previous two years,” Good explains.

The Illinois economist notes that the relatively low price projection for soybean oil signals weaker demand than is forecast for soybean meal. Soybean oil exports during the current marketing year are projected at 1.2 billion pounds, compared to 1.464 billion pounds exported last year and 3.233 billion pounds in 2010-11.

Exports of soybean oil from Argentina during the second half of the marketing year are expected to curb some U.S. soybean oil exports. While exports during the current marketing year are expected to be down by nearly 14% compared to a year ago, sales have been relatively large early in the marketing year.

Shipments during the first seven weeks of the marketing year were more than 3.5 times larger than the very slow pace of a year ago.  The brisk early export pace reflects the small South American soybean harvest  in 2012 and will likely slow after the first of the year as confidence in the 2013 South American crop increases, Good notes.

“Domestic consumption of soybean oil for purposes other than biodiesel during the current marketing year is projected at 13.1 billion pounds, 310 million pounds less than consumed last year,” he explains. “Consumption is expected to be limited by larger supplies and consumption of other vegetable oils, particularly cottonseed oil and peanut oil.”

The consumption of soybean oil and all other fats and oils for biodiesel production has not been reported by the Census Bureau since July 2011. The USDA's World Outlook Board relies on data reported by the U.S. Energy Information Administration to estimate the amount of soybean oil used for biodiesel production.

Biodiesel production totaled 723.3 million gallons during the 2010-11 marketing year and 928.9 million gallons during the first 10 months of the 2011-12 marketing year, which could climb to 1.13 billion gallons for the marketing year. August 2012 estimates are due on Nov. 28.

For the 2011-12 marketing year, the USDA estimates that 4.9 billion pounds of soybean oil were used for biodiesel production, up from 2.737 billion pounds in the previous year. That estimate implies that soybean oil accounted for about 57% of the feedstock used in the production of biodiesel, compared to about 50% in the previous year.

The EPA has increased the minimum amount of domestic biodiesel consumption from one billion gallons in 2012 to 1.28 billion gallons in 2013. The increase of 280 million gallons will require about 2.1 billion pounds of additional feedstock, if biodiesel trade remains at the same level as in 2012. Biodiesel production could also exceed the minimum requirement in order to meet the advanced and total biofuel mandate for the year.

In the first eight weeks of the 2012-13 marketing year, soybean oil prices averaged $0.48/lb., well below the USDA projection for the year. With demand potentially stronger, the increase in prices that began two weeks ago is likely to be extended. Unless the biofuels mandate is amended, price strength could extend well into the future, Good says.

For more on the soybean and related supplies, go to http://farmdoc.illinois.edu/marketing/weekly/html/112612.html.