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| Start with the industry profitability.
Soy Crush Margins-Today
May running 4 cents above seasonal normal average
July, gained 2 cents & is 6 cents above seasonal average
August, gained 12 cents & is approx. 17 cents above seasonal average
Sept. stdy but 45 cents above seasonal average
Oct/Nov up 11 & 23 cents above seas. Average.
NOW, TO BE REALISTIC, there is probably some slippage here in actual fills in getting the spread.
December 2007 Methyl Ester Prod. 321,460 vs 153,999 in 2006
Soy oil exports are 80% of projections with 31 weeks to go
Soybean exports are 85% of projections with 31 weeks to go
The Sept-Nov crush was 468.4 (+2%) above yr. ago
Projected annual crush 1,830
Balance of projected crush Dec-August 1361.6 yr ago was 1,347.2 for same period.
Cattle Inventory- not much change: dairy cows up 1%
Variables as of today:
The lowest calf crop since 1951 & 4th consecutive calf crop below 38 million. Suggests a strong undertone to beef for the longer pull.
The rate of methyl ester consumption is declining but still sharply above one year ago.
The soybean crushing margin is a synthetic measure of gross operating margin for crushers. If a crusher & can earn 17 cents more for August & 45 cents above the typical margin in Sept & the fall crush is already 23 cents above average….does this suggest the soybean crush will decline? I doubt very much that in our free market system that crush margins significantly above average margins will lead to a smaller crush. The crush is more likely to increase.
In my experience & is all upon which I can rely, soybean buyers are pretty much regular human beings & in the past have taken some future coverage, but in times of very high prices they do not book ¾ of a season ahead. They cover some, then plan to buy hand to mouth for awhile.
I am sure there are a few importers who’ve overbooked their needs, but if you are a buyer, in a corporate atmosphere, the decision to book months and months in advance is generally a decision which must be approved by a senior officer. Knowing corporate executives, as most of us are familiar, this requires an exceptional amount of courage in a volatile market which is acting contra-seasonal to the norm.
If wrong, it could be a career ending move in some companies.
While I know we are liquidating cows, the FI cow slaughter is still pretty close to a year ago. Additionally, if cow slaughter does increase, it will not affect feed consumption for quite some time.
In my mind, it looks to me like the rationing will have to come from hogs & poultry. Since sows are generally consumers of higher fiber rations, that too will not effect feed consumption immediately.
The other variable is the demand for methyl ester & not too sure a swing from $99 to $80, if it occurs, is sufficient to completely wipe out that industry.
The dollar: In my view, the dollar could go either way in here, but…the odds favor lower & if instead it moves sideways to higher, the dollar is still at historically low levels.
I’m trying my best, I cannot find a bear in here, until we have some evidence of shutting down this demand.
Edited by SeniorCitizen 2/1/2008 18:14
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SOYBEANS-some facts to digest.
