(The opinions expressed here are those of the author, a market analyst for Reuters.)

NAPERVILLE, Illinois: Over the last decade or so, annual U.S. soybean use was often split somewhat evenly between exports and domestic processing, though the split is unusually unbalanced this year as exports slip and crush increases.

Early government estimates show a potential record 2024 U.S. soybean crop allowing for bigger exports in the 2024-25 marketing year starting Sept. 1, but the total use allocations of exports and crush are expected to be very similar to 2023-24, despite heavier supplies.

This emphasizes the rising focus on domestic soybean processing amid supportive renewable fuel policies, though it also acknowledges U.S. bean exporters’ distant second place to No. 1 Brazil and its stranglehold over stagnating Chinese demand.

U.S. crush far outpacing exports is not at all a new concept and was in fact the norm in the late 2000s and earlier, just before the dual explosion of China’s bean demand and Brazil’s crop and export potential.

CRUSH IS KING

The U.S. Department of Agriculture last week tentatively forecast 2024-25 U.S. soybean exports at 1.875 billion bushels, up 9% from 2023-24 but 12% lighter than the average of the previous three years.

The 2024-25 crop at 4.5 billion bushels would be up 8% on the year and narrowly edge 2021-22’s record, and crush is seen rising to an all-time high of 2.4 billion bushels, up 4% on the year.

Higher carry-in supplies plus the large crop are seen outpacing the rise in demand, sending 2024-25 ending stocks to a five-year high of 435 million bushels, which outside of an active trade-war year with top importer China would be the largest U.S. bean carryout since 2006-07.

USDA’s current 2023-24 U.S. supply and demand estimates show exports accounting for 41.5% of total use, the lowest share since 2007-08, trade-war years included. That compares with 46% in 2022-23 and 50% in 2020-21, close to the historical max of 51% in 2016-17.

Exports are slated to account for a slightly better 43% of total U.S. soybean use in 2024-25, a few percentage points below recent averages. U.S. crush in 2024-25 is projected at 55% of total use, down from 56% in 2023-24 but even with a 30-year average, highlighting China’s recent support of the export share.

OVERPRODUCTION RISKS LOOM

The United States arguably began overproducing soybeans in 2017, a year before the start of the U.S. trade war with China, though excessive output received far less attention than the political headlines when soy prices were collapsing in 2018.

The 2017 surge in U.S. soy production was linked to presumably booming Chinese soybean demand, though the rise in domestic processing has the potential to similarly impact production in 2024, 2025 or beyond.

Some clues lie in USDA’s projections from last week. Only 91% of total 2024-25 U.S. soybean supplies are slated for use, down from 93% in 2023-24 and between 94% and 95% in the previous three years. Steady declines in this percentage in the past have preceded big stock build-ups.

Ongoing growth in U.S. soybean processing capacity is driven by the United States’ recent plan to increase biofuel use and reduce petroleum in the national fuel mix. However, this is risky as fuel-based vehicles could increasingly compete with electric ones in terms of legislative policy.

U.S. crush expansion could disappoint without the proper incentives, which include both government support and market conditions, and the latter have been less attractive lately.

Chicago soybean oil futures are trading 35% off the average 2022 levels and nearly 20% off last year’s average. CBOT crush margins have eased significantly to more “normal” levels, running at less than half of the elevated, year-ago rates. Karen Braun is a market analyst for Reuters. Views expressed above are her own.

(Writing by Karen Braun Editing by Matthew Lewis)