"Even though bio-diesel production continues to grow, profit margins are narrow and production would not be profitable at all without the current large subsidies," said Darrel Good.

Much of the strength in soybean prices since the fall of 2006 has been provided by soybean oil prices, even though U.S. soybean stocks have been record large. The strength in soybean oil prices has been associated with rising world bio-diesel production."


Good noted that the cash price of soybeans in central Illinois averaged $7.82 during August 2007. That price is 42 percent higher than the average during September 2006 when a record U.S. crop was being harvested. The average price of soybean oil and soybean meal at central Illinois processing plants increased by 48 percent and 28 percent, respectively, over that same period.

"The higher soybean oil prices came in the face of record large soybean oil inventories being held at U.S. processing plants," he said. "New record large month-end soybean oil stocks have been reported every month since June 2006. Year-over-year increases in monthly stocks averaged 29 percent from October 2006 through June 2007. Month-end stocks reached a record 3.362 billion pounds in March 2007.

"Stocks remained extremely large, at 3.246 billion pounds, at the end of July 2007. Soybean oil stocks are large due to the record pace of the domestic soybean crush in order to meet record consumption of soybean meal. Use of U.S.-produced soybean meal, domestic plus exports, during the period October 2006 through July 2007 was a record 36.05 million tons, almost 6 percent more than consumed during the same 10 months in the previous year."

Even though U.S. soybean oil stocks have been increasing, consumption of soybean oil has been record large as well. Domestic use plus exports of U.S. soybean oil reached a record 16.93 billion pounds in the 10 months from October 2006 through July 2007, an 8 percent year-over-year increase.

"Percentage-wise, the large increase, 13 percent, was in exports," said Good. "Still, domestic use of soybean oil was nearly 5 percent larger than during the same period last year. That is well above the long-term growth rate of about 2 percent per year.