A return to near-trend yields then, would result in a larger crop and lower prices. We have suggested that prices would return to the pre-drought levels around $11. That is consistent with the recent projections by both the Congressional Budget Office and the USDA. It now appears that the cash price implied by the projected price for crop revenue insurance, the average of November 2013 closing futures prices during February, will be well above $11.
The average futures price during the first 11 days of the averaging period was $13.01 and the average for the month would be $12.85 if the price for the rest of the month remained at the same level as on Feb.15,” Good said.
One factor that could provide additional support for soybean prices during the 2013-14 marketing year would be a rapid expansion in biodiesel production.
Good said that the EPA has announced a minimum of 1.28 billion gallons of biodiesel to be produced in 2013, up from one billion gallons in 2012. Annual increases in the total advanced biofuels mandate of the Renewable Fuels Standards (which can be met with biodiesel) in combination with the re-instatement of the $1-per-gallon biodiesel tax credit for 2013 could propel biodiesel production well above the minimum, particularly in 2014 if the tax credit is extended. In recent periods, vegetable oil has accounted for about three-quarters of the feed stock for biodiesel production, and soybean oil has accounted for about three-quarters of the vegetable oil feed stocks.
As biodiesel production expands, limited supplies of alternative feed stocks would likely increase the proportion of vegetable oils used, particularly soybean oil.
“An increase in vegetable oil demand for biodiesel production could support soybean oil and soybean prices during the 2013-14 marketing year at higher levels than are now anticipated,” Good said. “Such an outcome could result in a very interesting dynamic in future years. Higher soybean oil and soybean prices relative to other crop prices in 2014 would be expected to stimulate more soybean production if biodiesel demand was expected to remain strong. This would be in contrast to the ethanol-driven increase in corn acreage since 2007. The increase in soybean production and processing in order to meet expanding soybean oil demand could then result in a surplus of soybean meal and lower prices for that product with an indeterminate effect on soybean prices beyond 2014,” he said.
Good concluded by saying that there is considerable uncertainty about U.S. biodiesel production beyond 2013 because production is primarily policy driven. “That is another factor that can be added to the long list of factors that will impact soybean prices over the next 18 months,” he said.