USDA (US Department of Agriculture) projects 2006/07 domestic consumption of soybean oil at 19,000 million pounds, up sharply from this season’s forecast 18,000 million. 

 

As in the current marketing year, biodiesel could again account for a large majority of next year’s increase in domestic use of soybean oil.

Production capacity for biodiesel has grown rapidly over the past year.  Presently, there are at least 65 biodiesel plants operating nationwide. 

 

The capacity for producers that are exclusively using soybean oil as a feedstock exceeds 300 million gallons.  Over the next 18 months, another 50 biodiesel plants currently under construction or planned could more than double U.S. production capacity again. 

 

Although utilization rates are still well below capacity, biodiesel output is likely to experience a proportional rate of gain. One sign of its growing popularity is that the Department of

Energy reported the January-February 2006 nationwide average for biodiesel blends was selling at a discount to regular diesel by 10 cents per gallon.

 

While soybean oil supplies in 2006/07 look to rise by up to 705 million pounds, most ofthat increase appears destined for domestic consumption.  The strength of domestic use should tighten soybean oil stocks, support prices, and work against export demand.  Nevertheless, U.S. soybean oil exports might still manage a modest increase to 1,200 million pounds versus 1,125 million this season, provided that prices do not surge significantly higher.

 

Accelerating use will keep soybean oil stocks from accumulating next year as they have throughout 2005/06.  This year, a comparatively large volume of soybean oil inventory is seen mounting to around 2,749 million pounds, but could ease back toward 2,379 million by the conclusion of 2006/07. 

 

On the other hand, import demand for competing oils is also likely to be brisk, which could help moderate the price level.  The season average price for soybean oil is projected at 22.5-26.5 cents per pound, compared with a 2005/06 average at 23.0 cents.

 

See the full USDA Oil Crops Outlook report here: http://usda.mannlib.cornell.edu/reports/erssor/field/ocs-bb/2006/ocs06df.pdf

 

David Smith, Singapore