Fundamentally Speaking

U.S. Soybean Crush Margins at 2nd Highest Levels Ever

Joel Karlin
By  Joel Karlin , DTN Contributing Analyst

Earlier this week the National Oilseed Processors Association said its members crushed a monthly record of 159.2 million bushels of soybeans in June, just slightly below trade expectations.

This should have been no surprise as soybean processing firms have been making tons of money crushing soybeans with some of the highest margins of all time.

This graphic shows the weekly central Illinois soybean crush margins in dollars per bushel along with the long-term average and the plus and minus one and two standard deviation lines.

Note that soybeans are processed into two products -- soybean meal and soybean oil, and this process is known as "crushing."

The crush spread is the difference between the combined value of the products and the value of the soybeans.

It is a measurement of the profit margin for the soybean processor with each 60-pound bushel of soybeans producing approximately 11 pounds of oil, 48 pounds of 44% protein meal and 1 pound of waste.

Processor profits are enhanced when the combined value of the products increases relative to the cost of soybeans and vice-versa.

Crush margins, which have been buoyant for most of the year, have really taken off over the past two months as China's boycott of the U.S. soybean market in response to actual and threatened tariffs on up to $500 billion in Chinese goods by the Trump administration has caused soybeans to fall much more on a percentage basis than either soybean meal or soybean oil.

Consider that November 2018 soybeans scored a contract high of $10.60 ½ per bushel on May 29th and then fell to ten year lows of $8.54 ½ on July 16th, a 19.4% plunge in value.

During that time, December 2018 soybean meal fell by $61.70 per ton or 16.0% and December soybean oil declined by 4.16 cents per pound or 13.2%.

Movement in soybeans and the products since the end of May has added 53 cents to the crush margin.

The one standard deviation means that 68% of the time since the beginning of 1993 the central Illinois soybean crush margin has traded between $0.18 to $1.75 per bushel while the two standard deviation means that the margin has traded between -$0.61 and $2.54 per bushel 95% of the time.

This means that the current $2.64 per bushel margin has been seen less than 2 ½% of the time over the past 25 years suggesting these elevated margins may start to contract especially if there is any resolution to the current trade impasse between Washington and Beijing.



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