Since my last blog on 6/30/10 the Soy Oil market has risen 250 points or 7%, corn has risen 18% and Canola oil premiums have doubled! Let's break this down with some reasoning.
Soybean and Soybean Oil
The news has been great in regards to soybeans; record acreage and production year, weather has been very favorable. Ending stocks of soybeans are expected to double over last year. But on the other side of the equation with the demand from China and an increase of 900 million pounds in biodiesel production the 2010/2011 ending stocks for soybean oil are expected to drop from last year(2009/2010) by 17% to 2.4 billion pounds. This is the number that is currently providing the most support in the soyoil market. But ending stock numbers have a tendency to change throughout the course of the year. 2.4 billion is a forecasted estimate that is based off the ending stocks of this year at 2.9 billion pounds. As of May the ending stocks for the 2009/2010 season were at 3.4 billion pounds, the 2009/2010 year ends in September. If this number does not change expectations are that the soyoil market prices will be between 34 and 38 cents per pound over the next year.
Not much change in the news here. Because of the lost acreage and a worldwide shortage of rapeseed (Canola) oil, prices are expected to have a premium of 6.5 cents per pound, roughly 650 basis points, over soyoil for the next year.
All indicators look good for corn; greater acreage, growing is slightly ahead of the 5-year average. However the latest USDA report reduced its estimated acreage and ending stocks numbers. This led to a jump in the market late last month. Looking forward weather will be the major factor on the direction of corn pricing.
USDA Oil Crops Outlook (7/12/2010)
USDA Crop Production (7/9/2010)