OIL CROPS YEARBOOK November 14, 2002 October 2002, ERS-OCS-2002 Approved by the World Agricultural Outlook Board --------------------------------------------------------------------------- OIL CROPS YEARBOOK is published annually by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. This release contains only the text of the OIL CROPS YEARBOOK--tables and graphics are not included. Printed copies of this yearbook will be available from the USDA order desk. Call, toll-free, 1-800-999-6779 and ask for stock # ERS-OCS-2001, $21. ERS-NASS accepts MasterCard and Visa. --------------------------------------------------------------------------- Oil Crops Situation and Outlook Yearbook. Market and Trade Economics Division, Economic Research Service, U.S. Department of Agriculture, October 2002, OCS-2002. Contents Summary Outlook for 2002/03 U.S. Soybean Review, 2001/02 Situation for Other U.S. Oil Crops Cottonseed Peanuts Sunflowerseed Other Minor Oilseeds Other Fats and Oils Highlights World Oilseed and Protein Meal Situation World Vegetable Oil Situation List of Tables Report Coordinator Mark Ash (202) 694-5289 E-mail: MASH@ers.usda.gov Principal Contributors Mark Ash (Soybeans, Other Oilseeds, Vegetable Oils) Erik Dohlman (202) 694-5308 (Peanuts) Wilma Davis (202) 694-5304 (Statistics) Editor Dana Rayl West Graphics, Table Design & Layout Wynnice Pointer-Napper Approved by the World Agricultural Outlook Board. Summary released October 23, 2002. Summaries and full text of Situation and Outlook reports may be accessed electronically via the ERS website at www.ers.usda.gov/. To order, call 1-800-999-6779 in the United States or Canada. Other areas please call (703) 605-6220. Or write ERS-NASS, 5285 Port Royal Road, Springfield, VA 22161. The U.S. Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, sex, religion, age, disability, political beliefs, sexual orientation, or marital or family status. (Not all prohibited bases apply to all programs). Persons with disabilities who require alternative means for communication of program information (braille, large print, audiotape, etc.) should contact USDA’s TARGET Center at (202) 720-2600 (voice and TDD). To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, DC 20250-9410 or call (202) 720-5964 (voice and TDD). USDA is an equal opportunity provider and employer. Summary U.S. farmers planted 74.1 million acres of soybeans in 2001, 0.2 million less than the 2000 record. Although U.S. soybean plantings decreased, harvested area increased to a record 73.0 million acres due to lower abandonment than in 2000. Gains in both yield and harvested area raised 2001 soybean production to a record 2,891 million bushels. U.S. soybean exports rose to a record 1,063 million bushels in 2001/02. U.S. soybean processors used 1,700 million bushels in 2001/02, up 60 million from the year before. Though soybean use slowed somewhat in the spring quarter, the overall increase in demand reduced year ending stocks to 208 million bushels from the previous season’s 248 million. Since much of the crop was marketed in the fall at lower prices, the season-average price fell to $4.35 per bushel from the 2000/01 average of $4.54 per bushel. Domestic soybean meal disappearance rose to 33.0 million short tons in 2001/02, up from 31.6 million the previous year. U.S. soybean meal exports slipped to 7.6 million tons from 2000/01 exports of 7.7 million. The season average price of soybean meal slipped to $168 per short ton versus $174 in 2000/01. Total soybean oil exports swelled to 2,500 million from 1,401 million pounds in 2000/01. The surge in soybean oil demand in the U.S. and abroad shrank the glut of stocks carried over from the previous year from 2,877 million pounds to 2,385 million pounds. U.S. cottonseed production rose to 7.5 million short tons in 2001 from 6.4 million the previous year based on a higher harvested cotton area and yield. More plentiful seed supplies and stronger cottonseed oil prices supported domestic cottonseed crushing at about 2.8 million tons, up from an estimated 2.75 million in 2000/01. Feed and seed consumption expanded to a record 4.8 million tons versus 3.7 million in 2000/01. Production of peanuts in 2001 totaled 4,277 million pounds, up 30 percent from the previous year’s crop and the largest output since 1992/93. Planted area for the U.S., at 1.54 million acres, was up less than 1 percent from 2000, but favorable weather throughout the peanut producing regions reduced abandonment compared to the previous year, and contributed to record U.S. national average yields. Imports in 2001 fell just 13 million pounds from the year before, to 203 million pounds. The large harvest boosted food use, exports, and crush, but a large portion was carried over to the following season as ending stocks grew to a record 1.48 billion pounds, up 35 percent from the 2000 level. Peanut exports rebounded to 713 million pounds from 527 million the year before, and crush was up 143 million pounds. Food use climbed a modest 49 million pounds to 2.23 billion, just off the 1989 record of 2.31 billion. World oilseed production increased to 323.1 million metric tons in 2001/02, from 313.4 million the previous year. Most of the oilseed gain came from an expansion in global soybean production, which rose to 183.8 million tons from 175.1 million in 2000/01. Brazilian soybean output reached a record 43.5 million tons in 2001/02 and Argentina’s output increased to 29.5 million tons from 27.8 million in 2000/01. Global soybean exports expanded from 55.1 million tons in 2000/01 to 55.4 million in 2001/02, while soybean meal exports grew from 41.1 million tons to 45.1 million. In March, China agreed to ease implementation of its new regulations on biotech crop imports, but the lapse of purchases prior to that announcement caused its 2001/02 soybean imports to drop to 10.3 million from 13.2 million tons in 2000/01. Outlook for 2002/03 2002 U.S. Soybean Crop Less Damaged Than First Indicated The U.S. Department of Agriculture (USDA) shaved its forecast of 2002 soybean production to 2,654 million bushels in October from the September estimate of 2,656 million. The lower yield estimates in October for Indiana, Ohio, North Dakota, and South Dakota were mostly offset by record yields in Minnesota, Arkansas, and Mississippi. The national average yield would still be 37.0 bushels per acre and below the 2001 yield of 39.6 bushels. Adding a slightly larger carryover of 208 million bushels to the crop estimate edged the 2002/03 supply up 9 million bushels from the September forecast. However, there would still be a sharp 276-million- bushel reduction from last year’s record supply. A brisk pace of South American soybean meal shipments to Europe has been a drag on U.S. export sales of soybeans, which (as of October 3) were down 8 percent against the previous year. Soybean exports in 2002/03 are forecast to fall 20 percent to 850 million bushels, which was unchanged from September’s forecast. Stocks by September 2003 are also expected to be less tight (at 175 million bushels) than previously forecast although smaller than the 2001/02 carryover. In early October, tropical storms in the Gulf of Mexico pushed a substantial amount of rain into the Midwest and South, which has delayed progress of the soybean harvest. As of October 13, just 53 percent of the U.S. soybean harvest had been collected, compared with the 5-year average of 63 percent. In spite of a delayed harvest pace, the arrival of new crop supplies have begun pressuring soybean prices from their summer peak. An unusually large volume of South American export shipments this fall is also weighing on world prices. The central Illinois soybean price fell below $5.20 per bushel in early October, which is down from the September average of $5.62 yet nearly $1 per bushel higher than a year ago. USDA forecasts the 2002/03 average farm price slipping to $5.05-$5.95 per bushel from its September forecast of $5.15-$6.05. Much smaller expected supplies of sunflowerseed meal and canola meal this season will reduce the available alternatives for domestic feeding. Consequently, USDA raised its 2002/03 forecast of soybean meal disappearance in October by 150,000 short tons to 33.5 million. Yet, the 2001/02 outlook for meal disappearance still represents a modest 1.5- percent increase over last season. Soybean meal consumption by hogs is likely to weaken because of a smaller breeding herd and lower farrowing intentions for this fall and winter. Higher feed costs and a huge level of unsold meat stocks will moderate production incentives for poultry, as well. As of August 31, U.S. stocks of red meat and poultry in cold storage swelled by 30 percent and 28 percent, respectively, from a year earlier. In contrast, greater domestic consumption and foreign production of soybean meal may further dim the potential for U.S. soybean meal exports. Shipments of soybean meal abroad are now anticipated falling to 6.6 million tons in 2002/03. Soybean meal prices have recently softened to less than $170 per ton compared with the September average of $185. A lower marketing year average of $165-$195 per ton is seen compared with the September forecast of $170-$200. As with soybean meal, domestic disappearance of soybean oil will also benefit from a shortfall of competing supplies. Collectively, supplies of sunflowerseed oil, canola oil, and cottonseed oil are expected to plunge by approximately 500 million pounds from last year. Thus, U.S. soybean oil disappearance is forecast rising 2 percent in 2002/03 to 17,350 million pounds. At the same time, the export pace may slow only slightly to 2,400 million pounds. Ending stocks of soybean oil are projected tightening further to 1,630 million pounds, the smallest in the last 4 years. Shrinking vegetable oil supplies are expected to support the soybean oil price. USDA projects a season average price for soybean oil of 19.0-22.0 cents per pound. U.S. sunflowerseed production was forecast to drop by nearly one-fourth in 2002 to 2,593 million pounds. Harvested area for sunflowerseed will be down 10 percent in 2002, but the severe production cut is primarily due to the drought that hit yields very hard this year. Despite an increase in production by North Dakota and Minnesota, yields suffered greatly in much of the Central Plains region. The 2002 average yield is estimated down to 1,118 pounds per acre, which would be the poorest since 1993. To further complicate matters, the sunflowerseed harvest has also been slowed by untimely wet weather. As of October 13, 23 percent of the crop had been harvested compared with the 5-year average of 34 percent. The implied reduction in oil-type sunflowerseed supplies by nearly 700 million pounds from 2001 will sharply curtail 2002/03 crush and leave scant season ending stocks. Sunflowerseed oil exports, which may bear the brunt of the impending shortage, are expected to drop to half of their 2001/02 volume of 465 million pounds. The shortage will maintain a large price premium for sunflowerseed oil, which may curtail domestic consumption, as well. Similarly, canola seed will also be in short supply this year. The nearly completed 2002 domestic harvest was forecast at 1,586 million pounds, which would be down 21 percent from 2001. Despite an increase in planted area by 19,000 acres in 2002, harvested canola area fell by 77,000 acres to 1.38 million acres. In North Dakota, which accounts for 91 percent of national acreage, the average canola yield is forecast falling to 1,150 pounds per acre versus 1,400 pounds last year. In addition, the poor Canadian canola crop will restrict availability of imported supplies. Consequently, the shortage may scale back 2002/03 domestic canola seed crushing by as much as 14 percent. Canadian reductions in crushing will also likely trim U.S. imports of canola oil and canola meal. U.S. canola oil supplies may decline nearly 200 million pounds in 2002/03, while there may be nearly 100,000 fewer tons of canola meal available over the next 12 months. U.S. Soybean Review, 2001/02 Higher 2001 Harvested Area Produced a Bumper Soybean Crop Expenses to fertilize corn increased $10-$15 per acre in 2001, requiring a higher corn price to maintain its breakeven level with soybeans. Nitrogen is a critical nutrient for achieving optimal corn yields, and anhydrous ammonia is the most widely used source. Tight U.S. supplies for natural gas, the raw material for producing ammonia, more than doubled prices from the previous spring. In contrast, soybean plants can obtain nitrogen from the atmosphere, so the crop needs little application of this input. As a result, in March 2001 U.S. farmers intended to plant a record 76.7 million acres of soybeans. Wet soils delayed 2001 crop planting mainly in Minnesota, Iowa, Wisconsin, and the Dakotas. Progress improved after some drying in late May, but by then it was too late for many producers to feasibly plant corn. Soybean plantings also fell 1.2 million acres from March intentions because the areas still had not dried out well enough during June. Many producers in these locations had no alternative but to make crop insurance claims for prevented planting. In contrast, firm soils helped planting proceed rapidly in the eastern Corn Belt, boosting acreage 400,000 acres from previous intentions in Illinois, Ohio, and Michigan. U.S. farmers planted 74.1 million acres of soybeans in 2001, 0.2 million less than the 2000 record. Planting increased to records for each of the top 13 soybean producing States, excluding Arkansas and Missouri. Nearly all of the additional soybean acreage came at the expense of corn, although lower durum wheat and barley planting contributed to a 500,000-acre increase in North Dakota. However, farmers expanded cotton planting in Arkansas, Mississippi, and Louisiana, which extended the long-term exodus of soybean production from the Lower Mississippi Valley. High heat and below-normal rainfall in July affected an area encompassing most of Iowa, Michigan, southern Minnesota, southern Wisconsin, and northern Illinois. Earlier dryness in southeastern Missouri and eastern Arkansas only moderately eased. Rains in late August and early September helped stabilize soybean conditions. Autumn weather was generally favorable toward the late-maturing soybean fields in Minnesota and Wisconsin but earlier weather had already taken a toll on yields. A wide swath of heavy rains in mid-October stalled harvest progress, except for some western parts of the Corn Belt. Harvest conditions improved later in October, though progress lagged in Michigan and Wisconsin. The 2001 national average yield improved somewhat to 39.6 bushels per acre from 38.1 bushels the previous year. Despite a lack of rain in some Midwestern States, favorable conditions in Indiana and throughout the South produced excellent soybean yields in those areas. Although U.S. soybean plantings were down, harvested area increased to a record 73.0 million acres due to lower abandonment than in 2000. Gains in both yield and harvested area raised 2001 soybean production to a record 2,891 million bushels. Soybean Exports Surged with Strong Foreign Demand and Deferred Competition U.S. soybean exports for 2001/02 began slowly due to a lapse of soybean shipments to China. Exports to China fell by 42 million bushels in 2001/02 to 155 million. Yet, in spite of the trade disruptions over China’s regulations on biotech imports, U.S. shipments of soybeans and soybean meal to other countries (particularly the European Union (EU), Japan, Canada, Mexico and Turkey) were quite strong. U.S. exports of soybeans to the EU were a record 286 million bushels. In Japan, the discovery of cases of mad cow disease prompted its government to ban feeding of meat and bone meal. Like the EU a year earlier, substitution of soybean meal and tight world supplies of rapeseed increased Japan’s import demand for soybeans, as did a shift in Japanese beef consumption to pork and poultry. In Canada, poor oilseed crops also enlarged imports of soybeans and soybean meal from the United States. Turkey’s demand for soybeans was sharply raised by a shortage of domestic and foreign supplies of sunflowerseed. A new (yet small) source of import demand came from Cuba, which purchased 2 million bushels of soybeans, 97,000 tons of soybean meal, and 60 million pounds of soybean oil from the United States. Two years ago, Congress enacted legislation allowing cash sales of food and medicine to Cuba, which had been embargoed for the last 4 decades. U.S. soybean exports rose to a record 1,063 million bushels in 2001/02. However, strong demand alone was not enough to generate such robust trade. U.S. soybean exports experienced the typical seasonal slowdown in the spring once the new South American crops were harvested. Yet, an unusual lag in South American soybean shipments and a weaker dollar extended the strength of U.S. exports through the summer. Producers in both Brazil and Argentina deferred marketing of soybeans as they anticipated even higher farm prices with a substantial depreciation of exchange rates. Between October and June, U.S. processors set a monthly crushing record every month. Crushers benefited from steady domestic demand for meal and oil as well as the market disruptions in Argentina, the world’s largest exporter of soybean products. Soybean stocks fell rapidly (to 1,336 million bushels on March 1, 2002, versus 1,404 million a year earlier) because of record crushing and exports in the first half of 2001/02. Although soybean use slowed somewhat in the spring quarter, the overall increase in demand reduced year ending stocks to 208 million bushels from the previous season’s 248 million. Solid soybean demand rallied prices modestly during January, but prices weakened late in the month following a perceived improvement in South American growing conditions. U.S. stocks continued to tighten throughout the spring and summer months and as dry weather deteriorated new crop conditions. Thus, soybean cash prices rose above $5.50 per bushel in July, sharply higher than the April average of $4.56. Since much of the crop was marketed in the fall at lower prices, the season-average price fell to $4.35 per bushel from the 2000/01 average of $4.54 per bushel. Solid Demand for Soybean Meal Tightened Supply Reasonably inexpensive values for soybean meal aided the profitability of broiler chicken production and a gradual expansion of the flock size promoted soybean meal use in 2001/02. Favorable hog prices in mid-2001, as well as a reduction of more than 300,000 short tons in other oilseed meal supplies, also encouraged consumption of soybean meal. Domestic meal disappearance rose to 33.0 million short tons in 2001/02, up from 31.6 million the previous year. Foreign competition in soybean meal restrained U.S. export growth in 2001/02. U.S. soybean meal exports slipped to 7.6 million tons from 2000/01 exports of 7.7 million. The expansion of output also pressured meal prices in the first half of 2001/02. The season average price of soybean meal slipped to $168 per short ton versus $174 in 2000/01. Central Illinois meal prices grew stronger in March and rallied to $186 per short ton by August as use drew down soybean stocks and processors scaled back their summer operations. As a consequence of rising domestic prices, high transportation costs from Midwestern processors, low-priced Brazilian exports, and a minimal import tariff, soybean meal imports were practical for Southeastern poultry producers. U.S. imports of soybean meal more than doubled to 110,000 short tons for 2001/02 when shipments from Brazil arrived in the Southeast during the late summer. Surge in Soybean Oil Demand Trimmed Stock Surplus An increase in domestic soybean crushing raised 2001/02 soybean oil production to a record 18,865 million pounds, although the gain was tempered by a lower oil extraction rate. A record high December crush and sharply lower soybean oil export shipments caused U.S. soybean oil stocks to peak in January 2002 at a record 3,039 million pounds. Prices again slumped to 14.2 cents per pound in February. While crushers in some foreign countries substituted soybeans for their loss of high-oil-content oilseeds, the lower yield of oil created foreign deficits of vegetable oil. Many nations needed oil imports and the higher relative prices for rapeseed and sunflowerseed oils favored purchases of soybean oil. For instance, Turkey’s imports of U.S. soybean oil (which were zero in 2000/01) increased to take up the slack in domestic oil output because of the poor sunflowerseed harvests throughout Europe. U.S. commercial exports of soybean oil were very competitive in other foreign markets, as well. High U.S. price premiums over South America during the summer usually exclude most U.S. sales to India and China. However, exports to both countries surged in 2002 because of competitive U.S. prices. Total soybean oil exports swelled to 2.5 billion pounds from 1.4 billion in 2000/01. Favorably low oil prices continued to encourage a strong rate of domestic consumption, which rose 4 percent to 16.9 billion pounds. A collective reduction in the consumption of canola and corn oil by more than 500 million pounds also favored more soybean oil use. The surge in soybean oil demand in the United States and abroad shrank the glut of stocks carried over from the previous year from 2,877 million pounds to 2,363 million. Following a seasonal peak in September 2001, growth in global palm oil production output slowed in early 2002. Combined with a sharp decline in world rapeseed and sunflowerseed output, shrinking oil surpluses finally ended a 3-year slide in vegetable oil prices. Although U.S. soybean oil prices were still historically low, by March 2002 they began an upward trend as growth in demand outpaced new supplies. By August, the average price had strengthened to 20.6 cents per pound. The season average soybean oil price increased to 16.5 cents per pound from the 2000/01 average of 14.2 cents. Farm Legislation Enacted New Provisions for Oilseeds On May 13, President Bush signed into law the Farm Security and Rural Investment Act (2002 Farm Act), which sets agricultural policy for the next 6 crop years. Among the provisions for oilseeds was a lower marketing assistance loan rate for soybeans at $5.00 per bushel, which has been $5.26 for the last 5 years. The law established a national weighted average loan rate for other oilseeds at 9.6 cents per pound for 2002 and 2003 and 9.3 cents for 2004-2007. Based on this average, USDA set 2002 loan rates for oil-type sunflowerseed at 9.15 cents, non oil-type sunflowerseed at 12.1 cents, safflowerseed at 12.53 cents, canola at 9.49 cents, rapeseed at 9.47 cents, and flaxseed at 6.98 cents. A single loan rate for peanuts was set at 17.75 cents per pound. New features of the 2002 Farm Act give farmers who planted oilseeds during the 1998 through 2001 crop years a one-time option to update farm bases to reflect cotton, grain and oilseed plantings during 1998-2001 or to add oilseed acres to existing program bases for cotton and grain. Oilseeds were excluded in previous legislation from the calculation for decoupled government payments. Producers still have flexibility to plant other crops on their cotton, grain, and oilseed bases as the direct and counter- cyclical payments are decoupled from current plantings. Farms establishing an oilseed base are eligible for direct payments on soybeans, peanuts, and other oilseeds of 44 cents per bushel, 1.8 cents per pound, and 0.8 cent per pound, respectively. In addition, the 2002 Farm Act provides for oilseed counter-cyclical payments during low price periods. The counter-cyclical payment rate is defined as the difference between the target price and the sum of the direct payment rate and the higher of the 12-month average market price or the loan rate. The target price is set at $5.80 per bushel for soybeans and 24.75 cents per pound for peanuts. For other oilseeds, the target price for the next 2 years is 9.8 cents per pound and 10.1 cents per pound for 2004-2007. Other oilseeds will not receive counter-cyclical payments because the loan rate plus the direct payment rate equals or exceeds the target price throughout the life of the 2002 Farm Act. A farm’s total counter-cyclical oilseed payment will be determined from the product of the payment rate and the farm’s payment yield times 85 percent of the farm’s oilseed base acreage. The energy title in the legislation also re-authorizes a bioenergy program for the Commodity Credit Corporation to reimburse biofuel producers the cost of commodity feedstocks up to $150 million annually. The law broadened the program’s eligible feedstocks to include animal byproducts, oils and fats, and recycled greases. The title also establishes a new program for purchases by Federal Government agencies of bio-based products derived from agricultural materials (such as fats and oils). These products include adhesives, lubricants, inks, plastics, fuels, solvents and cleaners. The law mandates that Federal agencies give preference to purchasing bio-based products whenever they are reasonably available and priced and they provide performance within normal standards. Funding is provided for biomass research and education initiatives. Situation for Other U.S. Oil Crops Cottonseed U.S. cottonseed production rose to 7.5 million short tons in 2001 from 6.4 million the previous year based on a higher harvested cotton area and yield. Although 2001 cotton plantings were up only 100,000 acres from last year, more normal weather helped harvested acreage increase by at least 1 million acres. Cotton yields generally benefited from the improved conditions, but the seed-to-lint ratio continued a long-term downward trend to 742 pounds per bale. More plentiful seed supplies and stronger cottonseed oil prices supported domestic cottonseed crushing at about 2.8 million tons, up from an estimated 2.75 million in 2000/01 (which was the least in 14 years). U.S. cottonseed exports increased from 235,000 tons to 274,000. However, cattle feedlots were the primary beneficiary of larger domestic and foreign supplies of cottonseed. Feed and seed consumption expanded to a record 4.8 million tons versus 3.7 million in 2000/01. Because of the relatively high level for beginning stocks of cottonseed oil, demand in 2001/02 was able to outpace the production increase. Domestic cottonseed oil disappearance improved from 673 million pounds in 2000/01 to 767 million in 2001/02. In addition, U.S. exports to Nicaragua, South Korea, and Egypt rebounded, helping to boost 2001/02 exports to 160 million pounds from 131 million a year earlier. After oil prices fell last season to the lowest price level (16.7 cents per pound) in two decades, an easing of the oil market glut firmed the 2001/02 average cottonseed oil price to 18.0 cents. U.S. exports of cottonseed meal (at 125,000 tons) were not as high as in 2000/01, mostly because shipments to Mexico fell to a more typical volume. Combined with an abundant supply of soybean meal, the decline in cottonseed meal exports kept pressure on its season average price, which fell from $143 in 2000/01 to $136 per short ton. Peanuts Record Yields Contributed to Bumper 2001 Crop Production of peanuts in 2001 totaled 4,277 million pounds, up 30 percent from the previous year’s crop and the largest output since 1992/93. Planted area for the U.S., at 1.54 million acres, was up less than 1 percent from 2000, but favorable weather throughout the peanut producing regions reduced abandonment compared to the previous year, and contributed to record U.S. national average yields. Harvested area totaled 1.41 million acres, up 5 percent from 2000, and the U.S. yield per harvested acre averaged 3,029 pounds. This marked an improvement of 585 pounds per acre compared to the year before, and 146 pounds per acre above the previous yield record set in 1984. Though the U.S. yield set a new record high, no individual State surpassed its prior record. Peanut production in the Southeast (Alabama, Florida, Georgia, and South Carolina) totaled 2.53 billion pounds, 37 percent greater than 2000. Though the region’s drought continued, heavy rains began easing the moisture deficit during the spring; and excellent harvest conditions resulted in yields averaging 3,135 pounds per acre, more than 740 pounds above the previous year. Production from the Virginia-North Carolina area totaled 602 million pounds, up 10 percent from 2000. Growers entered the season with better than average soil moisture levels, and timely rains throughout the season kept improving the crop. The Southwest crop (New Mexico, Oklahoma, and Texas) totaled 1.11 billion pounds, up 27 percent from 2000. Yields in the Southwest averaged 2,787 pounds per acre, 412 pounds above 2000. Ending Stocks at Record Levels for 2001/02 Although peanut food use, crush, and exports were all up over 2000, the even larger increase in available supplies during 2001 resulted in weakening average farm prices, which declined 4 cents to 23.4 cents per pound in 2001. Total supply in 2001 amounted to 5.58 billion pounds, the largest level in a decade, backed by the more than 1-billion pound production increase from the year before. Contributing to the large supply were beginning stocks of 1.10 billion pounds, down 136 million pounds from 2000 but still fairly large given the previous season’s production problems. Despite the lower overall farm price, the marketing quota system maintained the relatively high price for domestic edible peanuts, and imports remained attractive to those who could acquire peanuts at the lower (“within-quota”) tariff rate under the U.S. tariff-rate quota system. Imports in 2001 fell just 13 million pounds from the year before, to 203 million pounds. The large harvest boosted food use, exports, and crush, but a large portion was carried over to the following season as ending stocks grew to a record 1.48 billion pounds, up 35 percent from the 2000 level. Exports rebounded to 713 million pounds from 527 million the year before, and crush was up 143 million pounds. Food use climbed a modest 49 million pounds to 2.23 billion, just off the 1989 record of 2.31 billion, and continuing the general upward trend from the 1990s low of 1.99 billion pounds set in 1995. Another factor behind the large ending stocks figure was the large amount of peanuts contracted for export that went unsold. Contractors preferred to hold the peanuts rather than sell them at discounted prices which, based on Rotterdam prices, were down nearly 25 percent from the year before. With the increased crush, U.S. peanut oil production rose to 230 million pounds from 179 million pounds the previous year. Though peanut oil imports, at 39 million pounds, fell to less than half the previous year’s level of 79 million pounds, domestic peanut oil consumption continued its upward climb, rising more than 2 percent to 250 million pounds—the highest since 1975. The peanut oil price weakened to 32.6 cents per pound, which is 2.3 cents below the 2000/01 season average. Peanut meal production also increased in 2001 to 148,000 short tons from 115,000 in 2000, with virtually all of it consumed domestically. Peanut meal prices slipped to $114 per short ton, down $8 from the previous year’s season average. 2001/02 Marks Last Year of Quota System In the peanut quota system’s final year of operation, the national peanut poundage quota for the 2001/02 marketing year was set at 1.18 million short tons (2.360 billion pounds), the same as for previous marketing year. The quota equaled the estimated quantity of peanuts needed for domestic edible and related uses, excluding seed, in the 2001 marketing year and allowed for potential underdeliveries of up to 17,000 short tons. The national average support price for quota peanuts was announced as $610 per short ton and the support price for additional peanuts was $132 per short ton, both unchanged from the previous year. The signing of the 2002 Farm Act substantially transformed the domestic policy setting for U.S. peanut growers. Beginning with the 2002/03 crop year, the 2002 Farm Act eliminates the marketing quota support price system. Thus, farmers no longer have to own or rent peanut marketing quota rights to produce for domestic edible consumption. Peanuts are now similar to “program crops” such as grains and cotton—with identical marketing loan provisions available to all peanut producers, regardless of production history. The marketing assistance loan rate for peanuts has been established as $355 per ton. The loan repayment rate for peanuts is the lesser of a) $355 per ton plus interest or b) a USDA-determined rate designed to minimize loan forfeiture, government-owned stocks, and storage costs. Alternatively, the producer may forgo the marketing loan and opt for a loan deficiency payment (LDP) at a payment rate equal to the difference between the loan rate and the loan repayment rate. In addition, compensation (a buy-out) is provided to quota holders for elimination of the peanut quota system, and all farmers with a history of peanut production during 1998-2001, whether quota holders or not, are eligible for fixed direct payments and for counter-cyclical payments based on an established target price. The quota buy-out will be made to quota owners in five annual installments of $0.11 per pound during fiscal years 2002-06, or the owner may opt to take the entire payment in a lump sum. The direct payment is $36 per ton of eligible base-period (1998-2001) production. Eligible production would equal the product of average or assigned base-period yields and 85 percent of base-period acres planted to peanuts. The direct payments are made regardless of current prices or the actual crop planted, as long as the farm remains in approved agricultural uses. Counter-cyclical payments are available whenever the USDA-calculated effective price is less than an established target price. The target price for peanuts specified in the 2002 Farm Act is $495 per ton for each crop year 2002-07. The effective price is equal to the sum of 1) the higher of the national average farm price for the marketing year, or the $355 per ton national loan rate, and 2) the $36 per ton direct payment rate for peanuts. The difference between the target price and the effective price is the payment rate. The payment amount equals the product of the payment rate, the payment acres (85 percent of base acres), and the counter-cyclical payment yield. Counter-cyclical payments are not contingent upon current production of peanuts. Loan repayment rates established by USDA early in the 2002 crop year have ranged from $331 to $387 per ton for Runner peanuts, indicating that counter-cyclical payments are likely and marketing loan benefits possible during 2002/03. Sunflowerseed Historically low prices discouraged U.S. sunflower acreage in 2001. Sunflower plantings dropped to 2.65 million acres, down 97,000 from March intentions and 187,000 from 2001. Most of the decline occurred in North Dakota (the top producing State), where planted acreage of oil-type and confection-type sunflowers declined by 140,000 and 100,000 acres, respectively. Yields were generally above average, although South Dakota yields were somewhat lower. National sunflowerseed production fell 125 million pounds to 3,419 million. Production of oil-type varieties was 2,804 million pounds and production of non oil-type was 615 million. With a significantly smaller stock carryover, 2001/02 supplies fell by 265 million pounds. Relatively tight world sunflowerseed supplies favored a strong interest by importers, but the smaller domestic supplies limited the capability to expand both U.S. exports of sunflowerseed and sunflowerseed oil. Nearly all of the gains in 2001/02 sunflowerseed exports were in the rapidly growing foreign confectionery market. A limited supply of oil-type seed rationed the crushing demand, which fell from 2,036 million pounds to 1,676 million. Even so, ending stocks shrank to 237 million pounds, the smallest carryout since 1997/98. Prices for sunflowerseed responded by surging to a season average of $9.75 per hundredweight compared with $6.89 a year earlier. The relative scarcity of sunflowerseed oil in 2002 swelled its premium over soybean oil to nearly 7 cents per pound. The price of sunflowerseed oil averaged 23.3 cents per pound in 2001/02, which was well above the 2000/01 average of 15.9 cents. Another contributing factor was that an increasing portion of the oil (about 40 percent in 2001) was derived from premium priced mid-oleic sunflowerseed varieties. The superior quality attributes of this oil stabilized its domestic use, which increased slightly to 375 million pounds. In contrast, higher prices deterred foreign purchases (particularly by Mexico and the Netherlands) and U.S. sunflowerseed oil exports slumped to 465 million pounds from 545 million in 2000/01. Ending stocks dwindled to a meager 25 million pounds. Other Oilseeds Although U.S. farmers intended to expand 2001 canola plantings by 21 percent to a record 1.9 million acres, plantings fell slightly to 1.5 million because of excessively wet soils in the spring. Consequently, U.S. canola production increased only 1 million pounds in 2001 to 1,999 million. Given tight Canadian supplies, U.S. canola seed imports in 2001/02 dropped to 276 million pounds versus 479 million in 2000/01. Even so, steady demand from Canadian crushers made the United States a net exporter of canola seed in 2001/02. Canadian processors produced less canola oil in 2001/02, helping to raise its U.S. average premium over soybean oil to an unusually large 9 cents per pound. In addition, because there were ample domestic supplies of soybean oil, 2001/02 canola oil imports were trimmed to 1,108 million pounds. Because export demand for canola oil was a comparatively strong 276 million pounds, domestic disappearance slumped 14 percent to 1,493 million pounds. U.S. imports of canola meal in 2001/02 were similarly affected by the short Canadian crop, which fell by one-fourth to 0.9 million tons. U.S. safflower acreage fell 13 percent in 2001 to 188,000 acres. Below average yields also contributed to a cut in safflowerseed production to 242 million pounds, making it the smallest crop since 1983. As a result, crush and exports of safflowerseed in 2001/02 fell to 190 million and 43 million pounds, respectively. For safflowerseed oil, a recovery in U.S. shipments to Japan boosted 2001/02 exports to 40 million pounds. In contrast to other oilseeds, U.S. flax area rebounded in 2001 with a 9- percent increase to 585,000 acres, raising flaxseed production to 11.5 million bushels. North Dakota farmers supplied 95 percent of the national flaxseed crop. Total 2001/02 supplies tightened, however, because imports slumped to 1.9 million bushels, the lowest volume in 2 decades. At the same time, a sharp cut in European flaxseed output raised U.S. flaxseed exports to their largest volume in 30 years at 2.4 million bushels. EU flaxseed area has declined over the last several years due to a policy reducing the oilseed area payment. Lower available domestic supplies cut the crush and tightened ending stocks of U.S. flaxseed. The national average farm price for flaxseed strengthened to $4.29 per bushel in 2001/02 compared with $3.30 in 2000/01. Despite the improvement in farm prices, they were still well below the 2001 marketing loan rate of $5.21 per bushel. Consequently, farmers obtained nearly $12 million in marketing loan benefits on the 2001 flaxseed crop. Other Fats and Oils Highlights Corn Oil Corn oil production modestly expanded to 2,459 million pounds in 2001/02 from 2,403 million in 2000/01. Tight world supplies for the closest corn oil substitutes (sunflowerseed oil and olive oil) encouraged a robust 2001/02 export pace of 1,140 million pounds. Corn oil shipments to Turkey more than doubled, which were prompted by Turkey’s shortage of domestically produced sunflowerseed oil. Exports to Saudi Arabia, Italy, and Mexico also increased. These four countries typically comprise about half of U.S. corn oil exports. Domestic disappearance of corn oil dropped sharply to 1,345 million pounds from 1,630 million in 2000/01. In contrast, the consumption data has increased strongly over the last year. This could be explained if end users consumed oil from their own stocks purchased at bargain 2001 values. Two major oil consumers, McDonald’s and Frito-Lay, recently announced decisions to use more corn oil in frying their products because of its lower trans-fatty acids content. Similar to the rest of the vegetable oil complex, corn oil prices recovered from a very low level seen early in 2001. The unusual price discounts that emerged last year against soybean oil have since readjusted to a more typical premium. The season average corn oil price strengthened to 19.1 cents per pound compared with 13.75 cents in 2000/01. Imported Oils World coconut oil output fell 10 percent in 2001/02 to 3.3 million metric tons. U.S. imports of coconut oil were 1,150 million pounds in 2001/02, up 35 million from the previous year. In anticipation of a downturn in global production lasting into 2003, importers were probably taking advantage of favorably low prices early this year to secure larger stocks. The U.S. import unit value for coconut oil declined from $361 per metric ton in 2000/01 to $327 in 2001/02. For palm kernel oil, the other main lauric oil, U.S. imports in 2001/02 fell to 330 million pounds from 364 million in 2000/01. But, total supplies of palm kernel oil were higher because of an ample level of beginning stocks. A recovery in domestic disappearance from a low 2000/01 pace was possible because of the larger supplies. Lower import costs for palm oil encouraged a 25-percent increase in domestic disappearance to 481 million pounds. U.S. palm oil imports were raised in 2001/02 to 505 million pounds from 399 million in 2000/01. Tightening world stocks had rallied import values later in the summer but the bulk of 2001/02 imports were received before June. World output of olive oil increased just 2 percent in 2001/02 to 2.5 million tons, largely due to a surge in Spanish production. However, shrinking stock levels and a sharp cut in both olive oil production and exports by Turkey and Tunisia contributed to stronger world prices. A weakening of the dollar relative to the euro in 2002 also made U.S. imports more costly. U.S. olive oil imports totaled 465 million pounds in 2001/02, only slightly less than the 468 million imported a year earlier. Animal Fats Domestic output of edible tallow expanded 6 percent in 2001/02 to 1,920 million pounds. The price of edible tallow had sunk to a low 12.5 cents per pound in January but strengthened above 15 cents by the summer. The 2001/02 average price was 13.9 cents per pound, up from 13.4 cents a year earlier. Foreign imports of edible tallow were encouraged in 2002 by rising world prices for competing products. For example, tallow is a chief substitute for palm stearin in the production of stearic acid, which is used for manufacturing rubber. Output of beef tallow in Europe has not yet recovered from its outbreak of mad cow disease 2 years ago. U.S. tallow exports mushroomed to a record 475 million pounds compared with 338 million in 2000/01. Mexico, traditionally the largest importer of U.S. tallow, accounted for most of the increased shipments. In contrast, domestic consumption of edible tallow declined 35 million pounds to 1,464 million. Production and demand for lard were quite stable in 2001/02. Lard output increased 3 percent to 1,080 million pounds, while domestic disappearance edged 3 percent higher to 989 million and exports slipped 2 percent to 90 million pounds. A summer rally was not sufficient to counter low prices in the first 3 quarters of the marketing year, causing the season average lard price to weaken to 13.6 cents per pound compared with 14.6 cents in 2000/01. World Oilseed and Protein Meal Situation Foreign Exchange Developments Shape World Oilseed Trade World oilseed production increased to 323.1 million metric tons in 2001/02, from 313.4 million the previous year. Most of the oilseed gain came from an expansion in global soybean production, which rose to 183.8 million tons from 175.1 million in 2000/01. The United States accounted for 42 percent of the world’s output gain. Despite smaller absolute increases in Argentine and Brazilian production, both countries accrued much of the gains in world soybean and soybean meal trade. Global soybean exports expanded from 55.1 million tons in 2000/01 to 55.4 million in 2001/02, while soybean meal exports grew from 41.1 million tons to 45.1 million. For Brazilian farmers, soybeans have been a very good hedge against volatile fluctuations in their nation’s currency. Despite relatively weak soybean prices in dollar terms, Brazil’s exchange rate (which depreciated by one-fourth against the dollar in 2001) supported internal soybean prices and plantings in 2001/02. Brazilian corn prices were not as attractive as they were in 2000, causing a higher soybean-to-corn price ratio to create a substantial shift between corn and soybean acreage in 2001/02. Farmers locked in favorable domestic prices with a large number of forward sales and Brazil’s government also increased its farm credit by 30 percent to plant 2001 crops. In response to these factors, Brazilian soybean area swelled to 16.35 million hectares in 2001/02, compared with 13.9 million hectares in 2000/01. Growing conditions were largely favorable in each of Brazil’s major producing states. The national average yield also benefited from the expansion of soybean area in the high-yielding states of the Center-West. Late in January, heavy rains eased a drought in the southern states of Rio Grande do Sul and Santa Catarina (which account for about 20 percent of Brazilian soybean area), although some yield damage remained. Soil moisture conditions elsewhere in Brazil were quite favorable. The national average yield also increased as most of the area change was attributed to the high-yielding states of the Center-West. Brazilian soybean output reached a record 43.5 million tons in 2001/02. Despite a bumper harvest and bigger than usual soybean carryover, Brazilian soybean exports slipped to 15.0 million tons from 15.5 million in 2000/01. Between December and March, impending new crop supplies and China’s sudden suspension of imports depressed Brazilian soybean prices. Farmers locked in relatively high prices last year on a portion of the crop with forward sales and were well capitalized to wait for better post-harvest returns. Better prices reappeared by fall 2002 when doubts about Brazil’s ability to service a large public debt weakened its exchange rate to a record low 4.0 reals per dollar. Threats to U.S. crop also contributed to the price rally. Between March and August 2002, soybean prices in local currency surged 75-80 percent. Yet, by the end of September the postponement of export shipments created an unusually large level of stocks. Greater availability of domestic soybean supplies and an easing of the 2001 energy shortage sparked a brisk increase in Brazilian crushing to 24.7 million tons. The production growth helped revive Brazil’s soybean meal exports from 10.7 million to 11.3 million tons; however, they were constrained by robust domestic use. Brazil’s own consumption of soybean meal increased 8 percent in 2001/02 to 8.2 million tons, with particularly strong growth in poultry production. Export Taxes Temper Farm Benefits from Argentine Currency Devaluation Brazil was not the only country where exchange rates affected production incentives. In June 2001, Argentina’s government modified its fixed exchange rate regime because of difficulty paying off foreign debt. Instead of being pegged one-to-one to the dollar, the peso was based for importers and exporters on a half dollar-half euro rate. At the time, the policy amounted to an 8-percent devaluation on export commodities based on convertibility of approximately 0.84 euros to the dollar. Although the depreciation was less acute than what Brazil had experienced with its floating exchange rate, agricultural commodity prices in Argentina subsequently gained and farmers made plans to expand planting of oilseeds. Between September and November 2001, excess soil moisture and localized flooding in Argentina stalled planting for corn and sunflowers. The rains abated during December and soybeans (which can be planted later than the other crops) gained even more farmland than first anticipated. Argentine soybean area expanded to 11.3 million hectares in 2001/02 from 10.4 million the previous year. During February 2002, a dry spell developed throughout Argentina. But by mid-March, rains returned to benefit most second-crop soybeans during their main pod filling stage, as well as some of the first crop soybeans that were planted later than usual this year. Late maturity of the crop, frequent rains in April and May, and diesel shortages slowed completion of the harvest. Nonetheless, Argentina’s soybean output increased to 29.5 million tons from 27.8 million in 2000/01. The Argentine peso had formerly been pegged since 1991 at a one-to-one rate to the U.S. dollar. But in December, Argentina’s default on its large public debt forced a controlled devaluation starting January 6, 2002, of 28.5 percent for export and import transactions. Devaluation instantly improved Argentina’s competitiveness of producing exportable agricultural commodities and their returns from even marginal cropland. Yet, about 94 percent of farmer’s intended soybean acreage had already been sown before the official devaluation date in early January. Producers view dollar- based soybeans as a hard asset with a superior store of value, and many likely anticipated devaluation, planting as many soybeans as they could. Prior to devaluation, forward marketing of new-crop soybeans was negligible, and there was little old-crop left to sell. The exchange rate was allowed to float for other transactions, which depreciated to 1.7 pesos per dollar in initial trading. Government officials indicated that the peso might be allowed to float within 4-5 months for foreign trade, approximately at the time farmers would harvest their new crops. Even if Argentina had been able to defend the new exchange rate in the interim, farmers would have postponed marketing. Many small farms were insulated from the need to immediately service debt, because the government converted dollar-based bank loans of less than $100,000 into pesos at a one-to-one rate. In February, the Argentine Government accelerated its plans to eliminate exchange rate controls by allowing the peso to float freely. Transfers of export earnings by multinational companies were still severely restricted, however. The action ended the dual exchange rate for exports that was fixed at 1.4 pesos to the dollar in January. The exchange rate differential for exporters (based on a half-euro and half-dollar rate), implemented in 2001, was also abolished. By itself, the devaluation should benefit agricultural exports in the long run. But commodity exchanges in Argentina were virtually shut down between late December 2001 and March 2002. Oilseed exports briefly ceased because of uncertainty about the government’s repayment of value-added taxes (VAT) owed to agricultural exporters. Exporters of oilseeds and oilseed products are required to pay a 21-percent VAT. When the shipment is loaded, the government is legally obligated to refund a portion of the tax to the exporters. But, the exporters were owed VAT refunds of about $600 million, as well as an additional $100 million from the special exchange rate program. The government proposed to settle the debts through a series of 19 monthly installments beginning in March. A resumption of agricultural exports was hoped to stabilize the peso’s value, and the government may eventually consider a reduction in the VAT to further encourage them. Nevertheless, the Government converted all dollar-denominated debts (including the delinquent value-added tax refunds) into pesos at a one- peso-per-dollar rate. This forced exporters to absorb more than $300 million in foreign exchange losses on the tax rebates. In addition, all dollar deposits in Argentine banks were converted at a 1.4-peso-per-dollar rate instead of the rapidly depreciating market rate. Exporters and oilseed processors passed on part of their huge losses to Argentine farmers through greater price discounts for their commodities, diminishing the immediate advantages from the devaluation to them. Argentina imposed export taxes on agricultural products in the 1980’s, but mostly abandoned them in 1991, retaining only a modest 3.5 percent tax on oilseeds. In addition, a portion of the domestic value-added taxes on oilseed products was rebated to exporters. This policy contributed to the country’s decade-long expansion of agricultural production and exports. But in March 2002, the Government of Argentina raised the tax on oilseed exports to 13.5-percent and added a 5-percent tax on exports of oilseed meals and vegetable oils. At the time, the 8.5-percent tax differential would have provided soybean processors an advantage of $10-$15 per ton over exporters. This differential was narrowed in April when the taxes were hiked again to 23.5 percent for oilseeds and 20 percent for oilseed products. To help moderate domestic food prices, the more favorable differential for vegetable oils and oilseed meals was retracted from processors. The agricultural export taxes were intended to raise about $3 billion annually for the cash-pressed treasury. The exchange rate in October 2002 averaged 3.6-3.7 pesos per dollar, a 72- percent devaluation since January 1. By September, this led the soybean price in Rosario, Argentina up more than 400 pesos per ton (325 percent). However, export taxes and capital controls moderated the pace of export gains for oilseeds. To support its banking system, Argentina also imposed barriers on the repatriation of dollar earnings. And, the Argentine central bank required exporters to exchange their dollars for pesos within 5 days of a sale. Yet, for some distant buyers (such as China), it can take up to 6 weeks after leaving port for an exporter to get paid. In effect, the exporters provided mandatory loans to the government. Previously, exporters had up to 180 days for oilseed products and 15 days for oilseeds. With the multinational grain companies compelled to finance their own trade, such drains on their cash flow prevented a quicker recovery in Argentine oilseed exports. The government also revised a policy for converting dollar loans for agricultural inputs. Farmers must now repay the loans at the current market exchange rate instead of the former one-peso-per-dollar rate. Argentine farmers lost a $2 billion foreign exchange windfall by the revision. However, the revision may have prevented an even worse outlook for the financing of 2002 crop planting. In mid-April, Argentina’s Government decreed that the export taxes be applied on sales retroactively to March 4 and subsequently assessed at the time of shipment instead of the time of sale. Oilseed exporters ceased trading after this announcement because profits on their unshipped sales were wiped out, and the possibility of higher future export taxes made profits for new trades impossible to ascertain. As a result of this standstill, the government rescinded the policy a week later. Then a week- long closure of the banking system halted export sales, as exporters could not price commodities without an exchange rate. For several days, some farm organizations protested against rumors of even higher export taxes by suspending their crop sales. To encourage oilseed deliveries, exporters offered producers the opportunity to deliver sales immediately after harvest and defer pricing (with no discounts for storage) until August. Argentine farmers reluctantly sold their newly harvested crops to protest high export taxes, fuel costs, and inequitable treatment of farm debt. Argentine farmers also waited to see whether the peso stabilized or if rising U.S. prices continued. Trucker strikes also complicated transportation of crops. Without farm sales, Argentine exporters had little to sell abroad. Thus, the government was unable to quickly reap tax payments from agricultural exporters, the leading source of tax revenue. The International Monetary Fund has yet to restore lending to the country. Having few financial resources, the government suspended promised rebates of delinquent value-added tax to exporters. This hurt the ability of processors to expand output so they could not afford to offer farmers any better prices for their crops. Until more summer crops are sold, farmers have little cash to pay off debts and buy new inputs for planting 2002 crops. A slowdown in China’s soybean purchases only compounded the problems for Argentine exports. In 2000/01, China accounted for two-thirds of Argentina’s total soybean exports and nearly three-quarters of its exports between April and July. Even with a crop size 1.7 million tons larger than the previous year’s, the standoff between suppliers and the government reduced Argentine soybean exports for 2001/02 to 6.3 million tons from 7.4 million in 2000/01. Consequently, end-of-September stocks accumulated to a record 9.8 million tons. Higher soybean oil prices aided a strong increase in Argentine soybean crushing to 20.5 million tons from 17.3 million in 2000/01. Growth in soybean meal exports (from 13.6 million to 15.7 million tons) also followed. In India, a good first round of monsoon rains in 2001 produced a recovery from the droughts that afflicted oilseed production in the previous 2 years. Improved prices encouraged Indian farmers to expand soybean area about 3 percent in 2001 to 6.0 million hectares. With a recovery in yield to its yearly trend, Indian soybean output bounced back to 5.4 million tons from 5.25 million a year earlier. Higher supplies restored 2001/02 Indian soybean meal exports to 2.45 million tons. China’s Policy on Biotech Imports Stalls Trade In China, comparatively attractive corn prices in 2001 kept soybean area unchanged at 9.2 million hectares. Rains in the last half of June eased a spring drought in the North China Plain. But the moisture largely missed Heilongjiang, the top soybean-producing province, which again led to disappointing yields. Soybean production by China in 2001 equaled the previous year’s output of 15.4 million tons. On June 6, 2001, China's Government announced a policy requiring a quarantine of imported biotech crops until a safety certificate was issued for it. However, at the time China provided few details on who would provide the certification or what criteria would guarantee approval. The regulation allowed a certification review period of up to 270 working days. Purchases made prior to the June announcement were exempted, but most imports had already arrived. Although no soybean shipments were rejected, traders were reluctant to book new deliveries because of uncertainty as to when or whether the cargoes would be discharged. Major delays (up to 30 days) for vessels at the port impose an onerous financial penalty on importers. China had huge soybean stocks left over from their 2001 buying spree and their own domestic harvest. Because prices were low for Chinese farmers, their government did not hurry to clarify the regulations. Exporters requested that China at least adopt a retroactive grace period, allowing imports to arrive until a complete set of import regulations was developed. On January 7, the Government of China announced new details of its import policies for transgenic products, which were first issued in June 2001. The new policy mandated that after March 20 every foreign shipment of biotech products must apply for a safety certificate from the Ministry of Agriculture (MOA), including a government statement from the originating country that it poses no harm to humans, animals, or the environment. Labeling would apply to biotech oilseeds as well as their processed derivatives such as soybean meal, soybean oil, rapeseed meal, and rapeseed oil. Sales can be made only after the certificates are issued. Upon arrival the imports must be quarantined while inspections are conducted to verify the presence of any genetically engineered material, as well as diseases or other impurities. Yet, specific information required from the applications for safety certificates was still ambiguous. Some of the data requested was available only from a biotech seed developer. And, with no explicit specification of a tolerance level, China’s labeling regulations would have effectively established a ‘zero-tolerance’ limit, similar to standards imposed by South Korea and the European Union. Zero-tolerance means that the presence of any genetically engineered commodities would have to be labeled and subject to the safety certificates. Current testing equipment can detect the presence of altered proteins within 0.01 percent. In 2001, biotech varieties accounted for 68 percent of the soybeans grown in the United States and 88 percent in Argentina. Despite the absence of an official Brazilian sanction of transgenic soybeans, buyers in China also cancelled purchases from Brazil for April- May shipment. A zero-tolerance standard would apply to the traces of biotech soybeans that can be found in many Brazilian exports. The risk of having any unlabeled imports testing positive would be quite costly, because without a safety certificate they would be returned or destroyed. Thus, it would have been practically impossible for Brazilian exports to get the required safety certificate from China if the shipments were not identity-preserved. Initially, the MOA would accept no applications until March 20, and the deadline for the first submission was March 31. The next opportunity for applications would not have been until September 30. Authorities were allowed up to 270 working days for each approval, with the inspection itself adding another month to the process. Shortly after the January announcement, exports of U.S. soybeans surged as Chinese processors rushed to secure delivery before March 20. In March, China agreed to ease implementation of the regulations (on a transitional basis through December 20) on biotech crop imports. After March 20, China provided preliminary safety certificates to importers within 30 days of receipt of required documents. Nonetheless, there was a temporary halt in the orderly movement of foreign oilseed products to China. Soybean shipments to China resumed while the Ministry of Agriculture considered the safety certificate applications for transgenic soybeans. Despite China’s temporary resolution for biotech soybean imports, its pipeline of foreign shipments had been cut off. Foreign trade surged in March ahead of the safety certificates implementation, but only a trickle of imports had been ordered for April-May delivery (compared to 2.7 million tons for those 2 months in 2001). Many exporters subsequently received interim safety certificates that swelled the number of soybean shipments to China again. The original interim period was set to expire on December 20, which was recently extended to September 20, 2003. The interruption caused China’s 2001/02 soybean imports to drop to 10.3 million from 13.2 million tons in 2000/01. Soybean meal imports by China also fell to just 30,000 tons. In fact, despite a tightening of domestic soybean supplies, exports of soybean meal by China (mostly to Japan) surged to 1.1 million tons in 2001/02. As China’s imports stopped, a huge level (about 4.9 million tons) of stocks carried over from the previous year helped sustain crush demand and meal consumption. A provincial grain bureau held auctions for soybeans that were made available from the State Grain Reserve. In contrast to the rapid growth of recent years, 2001/02 soybean meal consumption in China increased negligibly to 15.2 million tons. Consequently, ending stocks of soybeans were slashed to about 2.3 million tons, which represents only about 4 weeks of use in China. Low Prices Stimulate Global Soybean Demand European Union (EU) oilseed harvests fell by 0.3 million tons in 2001, so domestic prices for rapeseed oil and sunflowerseed oil rose substantially more than soybean oil. A shortfall of vegetable oils in the EU increased the profitability of oilseed crushing. Prices for imports of soybeans and soybean meal in dollar terms were nearly 10 percent cheaper than the previous year. In mid-2002, the euro had also strengthened to near parity against the dollar, its highest level since March 2000 and up from a low of 0.86 per dollar in February 2002. The improved purchasing power helped raise EU soybean imports to 19.9 million tons from 18.9 million in 2000/01. In 2000/01, EU consumption of soybean meal surged 6 percent, based on its substitution for meat and bone meal, which has been indefinitely banned from all livestock feeds. Soybean meal consumption in 2001/02 slowed to a 5-percent rate at 29.0 million tons. But with larger domestic production, EU imports of soybean meal increased less strongly than soybean imports, climbing to 21.2 million tons from 20.2 million in 2000/01. Japan consumed more soybean meal in 2001/02 because of its ban on feeding meat and bone meal and higher costs for importing rapeseed. A stronger yen in 2002 also supported soybean imports. Japan imported 5.0 million tons of soybeans and 1.05 million tons of soybean meal. In Indonesia, an improving economy rapidly expanded imports of soybeans and soybean meal for its poultry sector. Robust increases in Thailand’s imports of soybeans and soybean meal also continued as its own exports of poultry accelerated. In Canada, a very dry summer in the main soybean-producing region of southern Ontario slashed 2001 yields. Canadian soybean production fell 40 percent from last year to 1.6 million tons. Exports, crushing, and stocks of Canadian soybeans declined. In response, Canada’s 2001/02 imports of soybeans and soybean meal rose sharply. Mexico’s economy has been less vulnerable to the forces buffeting other countries. Mexican buyers found the low U.S. prices for soybeans, soybean meal, and oil very attractive. Soybean imports by Mexico grew from 4.4 million tons to 4.6 million in 2001/02 following an 11-percent gain in 2000/01. Similarly, imports of soybean meal and soybean oil rose to 390,000 and 155,000 tons, respectively. World Trade in Sunflowerseed and Rapeseed Deteriorates Counter to soybean output, world sunflowerseed production in 2001/02 declined 9 percent to 21.3 million tons. This was the smallest output since 1993/94. The shortfalls slashed world sunflowerseed exports 36 percent to 2.2 million tons. After two consecutive seasons of smaller harvests, global carryover stocks plunged nearly 70 percent from 2 years earlier. In Russia (the world’s top producer), sunflower plantings fell in 2000 after the government imposed a 10-percent export tax on sunflowerseed, which was then doubled in April 2001 to 20 percent. Farm prices relative to grains fell and 2001 sunflower area fell another 18 percent to 3.8 million hectares. Very wet soil conditions in May and early June also curtailed the seeded area. Throughout Eastern Europe, very little rain fell in July and August during the main flowering period. Rains returned in late August, but too late to prevent a sharp cut in sunflowerseed yields. Therefore, Russian sunflowerseed output plunged to 2.7 million tons from 3.9 million in 2000. Fewer supplies curtailed domestic crushing, even with a 25-percent decline in Russian sunflowerseed exports. Demand from Turkey, Russia’s largest foreign buyer of sunflowerseed, had already been weakened by Turkey’s financial crisis. To compensate for the loss of domestic supplies, Russian imports of soybeans, soybean meal, soybean oil, and palm oil increased sharply. Similarly, in the Ukraine, a sharp increase in wheat area cut sunflowerseed area 15 percent to 2.4 million hectares. The Ukrainian Government passed legislation to reduce its own export tax on sunflowerseed from 23 to 17 percent, although it was too late to affect farmers’ planting decisions in 2001. Drought also slashed yields and total 2001 output fell by 1.2 million tons to 2.25 million. Domestic crush and Ukrainian exports of sunflowerseed and sunflowerseed oil all experienced severe declines. Crops in Romania, Turkey, and Bulgaria also suffered drought-related yield reductions. Romania’s sunflowerseed crop was 744,000 tons, only slightly better than the previous year’s drought-damaged crop of 717,000 tons. Romania’s government instituted an export ban on sunflowerseed exports in October to conserve supplies and moderate prices for domestic use. The crop troubles in Eastern Europe and a more favorable exchange rate arrested the steep decline of Argentine sunflower area that occurred in 2000. Excess wetness in the province of Buenos Aires stalled wheat planting so farmers switched some of the unsown area to sunflowers. Argentine farmers also struggled to plant sunflowers because of the wetness; but with sunflowerseed prices that were about 50 percent higher than a year earlier, they continued to sow the crop beyond the dates usually recommended for best yields. Yet, expected farm returns were constrained by relatively high import tariffs on sunflower oil by two of Argentina’s major buyers (India and Russia). As a result, 2001/02 sunflower area increased moderately to 2.0 million hectares from 1.9 million the previous year. Improved yields were mostly responsible for raising Argentina’s sunflowerseed harvest from 3.1 million to 3.7 million tons. Combined with a much lower stock carryover, smaller 2001/02 supplies curtailed Argentine sunflowerseed crush to 3.4 million tons, the lowest volume since 1993/94. Seed exports increased only modestly to 300,000 tons. EU sunflowerseed production fell to 3.0 million tons in 2001 primarily because lower yields in France offset a small expansion of harvested area. To encourage more supplies, Turkey announced cuts of its import tariffs on sunflowerseed from 28 percent to zero and from 37 to 12 percent on crude sunflowerseed oil. But sunflowerseed crushers in Turkey and elsewhere in Western Europe had limited available supplies from Eastern Europe and Argentina. Consequently, Western European countries (which account for about three-fourths of world sunflowerseed imports) substantially reduced 2001/02 imports and crushing. A 4-percent decrease in 2001/02 world rapeseed output to 35.9 million tons also supported oilseed prices. Available supplies tightened and world trade dropped by nearly one-fourth. Imports by each of the world’s leading rapeseed importing countries (China, Japan, Mexico, and Bangladesh) were cut back considerably. Comparatively better grain prices and high fertilizer costs cut 2001 Canadian canola area by 19 percent to 3.9 million hectares, which was the lowest in 5 years. A drought in Alberta and Saskatchewan further discouraged canola planting in the spring. High temperatures and drought persisted through the summer, sharply reducing canola yields in Western Canada. Rainfall improved in late July but was generally too late to undo damage to the mostly mature crop. Canadian canola production plunged by 2.2 million tons to 4.9 million, more than 30 percent smaller than the 2000 harvest. Canadian rapeseed exports, which were 4.8 million tons in 2000/01, dropped sharply to just 2.6 million tons because of tighter supplies and rising prices. The decline in Canada’s domestic crush was less severe but still dropped nearly 1 million tons to 2.1 million. A steep escalation of prices rationed demand, and Canada’s ending stocks actually edged up to 1.2 million tons as farmers held out for better returns. Late in 2000, following the EU ban of meat and bone meal in livestock feeds, its substitution with oilseed meals had strengthened oilseed prices considerably. However, the price increase did not lead to an expansion in EU rapeseed area because they had already been planted by that time. In addition, the Agenda 2000 reforms of the Common Agricultural Policy implemented the second round of a 3-year reduction of oilseed area payments, intended to equalize them with the area payments on grain crops. Thus, EU rapeseed area was down 2 percent in 2001. Because poor yields in France, the United Kingdom, and Denmark offset good yields in Germany, EU rapeseed production decreased slightly to 8.9 million tons. Rapeseed fields in France did not develop normally due to excessive winter rains that were followed by extreme heat. So, lower yields combined with a reduction in area harvested cut 2001 French rapeseed output to 2.9 million tons, from 3.6 million in 2000. Exports by France, normally the world’s second-largest rapeseed exporting country, fell sharply. Higher consumption of rapeseed oil for biodiesel also restricted available supplies in the EU. Tighter domestic supplies are raising EU rapeseed prices and crush margins, thus reducing external trade. In Eastern Europe, 2001 rapeseed area did not increase much, either, but improved yields provided a moderate expansion of output. Australian rapeseed area declined modestly in 2001. Poor moisture conditions in Western Australia forced greater abandonment, reducing the 2001/02 crop 16 percent to 1.6 million tons. Australian rapeseed exports dropped to 1.3 million tons from 1.4 million in 2000/01. Despite improved yields, lower rapeseed area in China shaved its harvest to 11.3 million tons. But the lack of export supplies from Canada, Australia, and Europe cut China’s imports to 0.8 million tons from 2.4 million in 2000/01. Consequently, rapeseed crushing in China fell 11 percent in 2001/02 to 11.2 million tons. In contrast, India harvested a better rapeseed crop in 2001. The recovery in Indian rapeseed production to 4.5 million tons was based on an expansion of harvested area and more normal yields. This allowed Indian processors to modestly raise domestic output of rapeseed oil. World cottonseed production grew 9 percent in 2001/02 to a record 36.6 million tons. Output gains in China, the United States, and India accounted for 89 percent of the increase. China cotton area surged 19 percent in 2001, which produced 9.6 million tons of cottonseed versus 8.0 million in 2000/01. Gains in these countries were partially offset by smaller harvested area in Australia, Brazil, and Argentina. However, nearly all of the additional cottonseed crushed and cottonseed oil generated were used in the producing countries, with few supplies supplementing international trade. The resurgence allowed an expansion of crushing, boosting world cottonseed oil output by 0.3 million tons to 3.8 million. World Vegetable Oil Situation Slowing output of the high-oil-content oilseeds weakened gains in global vegetable oil output in 2001/02, which edged up 2 percent to 90.9 million tons. The decline in combined world production of sunflowerseed oil and rapeseed oil totaled 1.6 million tons in 2001/02. In addition, world palm oil production in 2001/02 was up just 3 percent to 24.9 million tons. By comparison, palm oil output in 2000/01 grew an estimated 10 percent. The slowdown of oilseed crushing in China and India helped firm domestic prices in those countries and made vegetable oil imports more attractive. Global import demand for palm oil was particularly strong and world stocks fell to the lowest level in 4 years. Although global stocks of vegetable oil were still comparatively large, the 2001/02 carryover dropped about 12 percent to 7.3 million tons as consumption outpaced production. Tighter Supplies of Competing Oils Boost Global Soybean Oil Trade International trade in soybean oil was the chief beneficiary from these events as its price discount to sunflowerseed and rapeseed oils widened. Draining off competing vegetable oil supplies accelerated world trade in soybean oil, which was up 15 percent in 2001/02 to 9.1 million tons. Argentine and Brazilian exports captured half of the trade expansion, although huge stocks helped the United States to also benefit. Shipments by Argentina, the world’s leading soybean oil exporter, expanded from 3.2 million to 3.7 million tons. Brazil also had a modest increase in soybean oil exports to 1.7 million tons. Global palm oil production edged up just 1.0 million tons in 2001/02 to 24.9 million. After several years of large gains in production, the rate of increase in new oil palm area in Southeast Asia was slowing. Last year, Malaysia implemented a replanting program for older trees that covered nearly 200,000 hectares. Malaysian oil yields were lower as palm trees showed signs of stress. Reduced fertilizer application and very dry conditions beginning in February also hurt productivity. Waning yields from Malaysian plantations trimmed 2001/02 production to 11.7 million tons from 11.9 million in 2000/01. Indonesia’s younger plantations helped its growth in palm oil production to exceed Malaysia’s,which rose from 7.9 million to 8.8 million tons. Although Malaysian palm oil output in 2001/02 failed to keep up with the previous year’s level, relatively large beginning stocks sustained a stable export pace. Both Malaysian and Indonesian exports benefited from Argentina’s difficulties in exporting soybeans and soybean oil in 2002. Malaysian palm oil exports for 2001/02 steadied around 10.35 million tons while Indonesian exports expanded to 5.5 million tons. Like vegetable oil stocks in the United States and EU, palm oil stocks in Malaysia and Indonesia gradually declined. Malaysian palm oil stocks were 1.1 million tons at the end of September 2002 compared to 1.5 million in early 2001. Tightening stocks buoyed the Malaysian palm olein price to $388 per ton by September 2002. This was the highest price level since early 1999 and much higher than the September 2001 value of $274 per ton. India’s vegetable oil consumption still rose steadily in 2001/02, but moderated from a robust 2000/01 growth rate of 11 percent. A larger domestic oilseed harvest and a paring of stocks dampened import requirements. Total vegetable oil imports by India (which surged by nearly one-fourth in 2000/01) declined to 5.2 million tons in 2001/02 from 6.0 million. Imports of palm oil and soybean oil dipped to 3.4 million and 1.65 million tons, respectively. Negligible quantities of rapeseed oil and sunflowerseed oil were imported, as they became less price-competitive because of an import duty structure that favored soybean oil and crude palm oil. India has not materially changed vegetable oil tariffs since October 2001, when it cut the rate on crude palm oil from 75 percent to 65 percent. Palm oil exporters had hoped that China would replace lagging Indian sales by raising its import quota. China officially entered the WTO on December 11, 2001. China’s accession agreement stipulated that its 2002 tariff-rate quota (TRQ) on soybean oil increase to 2.518 million tons and the within- quota tariff fall from 13 percent to 9 percent. Tariffs on soybeans and soybean meal were bound at their previous rates. But ample domestic production of soybean and rapeseed oils continued to limit China’s need for vegetable oil imports. China had originally set issuance of its vegetable oil import licenses by March 5 but had only begun distributing them in early April. Two-thirds of the annual 2.4-million ton quota was to be allocated to private importers. Nevertheless, palm oil imports by China surged in March. Before the quota, China had already imported about 300,000 tons this year, some of which were waiting at ports in bonded warehouses for the licenses to be distributed. About half of the palm oil imports were allowed to clear customs before April because importers could deposit a 52-percent over-quota tariff for them. When the importers received their quotas, the difference against the 9-percent within-quota tariff was refunded. China did not require foreign exporters to obtain separate safety certificates for each cargo of soybean oil produced from biotech varieties. However, soybean oil imports were temporarily handicapped by a requirement that safety certificates be approved for biotech soybeans before the same applications for soybean oil can be accepted. A tightening of China’s soybean and rapeseed supplies by mid-2002 created opportunities for vegetable oil imports. Palm oil was the most favorably priced and imports were unfettered by the country’s requirements for safety certificates, inspections, and labeling of biotech oilseeds. Therefore, China’s importers tried to fill their increased 2002 palm oil TRQ (2.4 million tons) first. Palm oil imports by China rose to 2.0 million tons from 1.6 million in 2000/01. For soybean oil, rising world prices narrowed the differential to China’s domestic prices, which limited its import needs. China’s soybean oil imports were 375,000 tons in 2001/02, still well below the TRQ but substantially above the 80,000 tons imported the previous year. List of Tables 1. Soybean stocks: On-farm, off-farm, and total U.S., by quarter, 1990/91 to date 2. Soybeans: Acreage planted, harvested, yield, production, value, and loan rate, U.S., 1960 to date 3. Soybeans: Supply, disappearance, and price, U.S., 1980 to date 4. Soybean meal: Supply, disappearance, and price, U.S., 1980 to date 5. Soybean oil: Supply, disappearance, and price, U.S., 1980 to date 6. Soybeans: Supply and disappearance, by month, U.S., 1997/98 to date 7. Soybean meal: Supply and disappearance, by month, U.S., 1997/98 to date 8. Soybean oil: Supply and disappearance, by month, U.S., 1997/98 to date 9. Soybean product prices, by month, U.S., 1997/98 to date 10. Soybeans: Monthly value of products per bushel of soybeans processed, and spot price spread,U.S., 1990/91 to date 11. Peanuts: Acreage planted, harvested, yield, production, and value, U.S., 1980 to date 12. Peanuts: (farmers’ stock basis): Supply, disappearance, and price, U.S., 1980/81 to date 13. Peanuts: Planted acreage, by State and region, 1980 to date 14. Peanuts: Harvested acreage, by State and region, 1980 to date 15. Peanuts: U.S. production, by State and region, 1980 to date 16. Peanuts: Yield per harvested acre, by State and region, 1980 to date 17. Cottonseed: Acreage planted, harvested, yield, production, and value, U.S., 1980 to date 18. Cottonseed: Supply, disappearance, and price, U.S., 1980/81 to date 19. Cottonseed meal: Supply, disappearance, and price, U.S., 1980/81 to date 20. Cottonseed oil: Supply, disappearance, and price, U.S., 1980/81 to date 21. Cottonseed: Supply and disappearance, by month, U.S., 1997/98 to date 22. Cottonseed meal: Supply and disappearance, by month, U.S., 1997/98 to date 23. Cottonseed oil: Supply and disappearance, by month, U.S., 1997/98 to date 24. Cottonseed: Products and prices, by month, U.S., 1997/98 to date 25. Sunflowerseed: Acreage planted, harvested, yield, production, and value, U.S., 1980/81 to date 26.Sunflowerseed: Supply, disappearance, and price, U.S., 1980/81 to date 27. Sunflowerseed meal: Supply, disappearance, and price, U.S., 1981/82 to date 28. Sunflowerseed oil: Supply, disappearance, and price, U.S., 1981/82 to date 29. Canola seed: Supply and disappearance, U.S., 1991/92 to date 30. Canola oil: Supply and disappearance, U.S., 1991/92 to date 31. Canola meal: Supply and disappearance, U.S., 1991/92 to date 32. Flaxseed: Acreage planted, harvested, yield, production, and value, U.S., 1980 to date 33. Flaxseed: Supply, disappearance, and price, U.S., 1980 to date 34. Linseed meal: Supply disappearance and price, U.S., 1980 to date 35. Linseed oil: Supply, disappearance, and price, U.S., 1980 to date 36. Edible fats and oils: Supply and disappearance, U.S., 1989 to date 37. Corn oil: Supply, disappearance, and price, U.S., 1980 to date 38. Corn oil: Supply and disappearance, by month, U.S., 1997/98 to date 39. Fats and oils used in edible products, by use, U.S., 1992/93 to date 40. Fats and oils used in edible products, by use, monthly, U.S., 2000/01 41. Prices: Farm, wholesale, and index numbers of wholesale prices, by month, 1996 to date 42. Fats and oils: Domestic consumption in food products, U.S., 1980 to date 43. Fats and oils: Use in selected industrial products, U.S., 1980 to date 44. Salad and cooking oils: Supply and disappearance, U.S., 1980 to date 45. Salad and cooking oils: Fats and oils used in manufacturing, U.S., 1980 to date 46. Baking and frying fats: Supply and disappearance, U.S., 1980 to date 47. Baking and frying fats: Fats and oils used in manufacturing, U.S., 1980 to date 48. Margarine (actual weight): Supply, disappearance, and price, U.S., 1980 to date 49. Margarine: Fats and oils used in manufacturing, U.S., 1980 to date 50. Lard: Supply, disappearance, and price, U.S., 1980 to date 51. Butter (actual weight): Supply, disappearance, and price, U.S., 1980 to date 52. Edible tallow: Supply, disappearance, and price, U.S., 1980 to date 53. Supply and use: Soybeans, soybean meal, and soybean oil, U.S., major foreign exporters, importers, and world, 1998/99 to date 54. World oilseed production, 1994/95 to date 55. World vegetable oils production, 1994/95 to date 56. World protein meal production, 1994/95 to date END_OF_FILE