Global Markets – Soybeans – Growing Chinese Demand Drives Imports Higher

Global soybean consumption in 2017/18 is projected to grow over 4 percent, primarily driven by China. Soybean consumption is forecast to rise nearly 8 percent in China, as imports surge to a record 97.0 million tons.

Growing population, rapid urbanization, rising incomes, and improving living standards have spurred China’s meat and fish consumption, creating strong demand for protein feeds and edible oils. Rising feed production, combined with increasing high-protein ingredients in feed rations have been driving soybean imports upward for the last decade.

USDA forecasts that soybean crush for feed will continue to grow, supporting the almost 5 percent growth in hog production.

However, China is not only the world’s largest livestock and protein feed producer, but also a major player in the vegetable oil market. Supported by strong economic growth over the last decade, the demand for edible oils has also been very robust.

Over the same period, China’s edible oil consumption grew by more than 50 percent. Additionally, continuing urbanization and rising incomes have significantly altered the vegetable oil market as consumers’ preference has been shifting towards premium oils (so-called golden oils).

Currently, soybean oil accounts for half of the total edible vegetable oil consumption, while laurics including palm oil, dropped to only 8 percent. As new trends develop and as consumers shift their preferences, there has been a stronger demand for other golden oils as well (rapeseed, peanut, sunflower, and cottonseed), which will replace palm oil in diets.

Historically, the Chinese crush sector has been expanding almost entirely on imported soybeans, with much of the domestic crop used for food consumption (such as tofu) or purchased by the State Reserve Bureau.

Since arable land in China is a constraint, the government had made a strategic choice to maintain its near-self-sufficiency in grains (corn, rice, and wheat) at the expense of oilseed crops. As a result, China made a conscious decision to invest in crush facilities and import soybeans, becoming the world’s largest soybean importer in 2003.

In 2016/17 (Oct-Sep) China accounted for nearly two-thirds of global soybean imports and continues to underpin the expansion of soybean production in Brazil and the United States.

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Currently, the Government of China is encouraging higher oilseeds production by cutting subsidies to grains. Since 2015/16, a lower purchase price for corn was prescribed, which cut corn earnings. Conversely, the government’s “target price-based direct subsidy” for soybeans continued in 2016/17 and soybean farmers were compensated based on the difference between the market price and the target price, which resulted in relatively stable soybean earnings.

This year the Chinese government implemented a “market oriented soybean price plus a direct subsidy to soybean farmers” which continues to ensure that farmers will receive a subsidy for soybean planting during the current marketing year. Meanwhile, the corn support policy has been adjusted which is likely to reduce corn earnings in 2017/18.

However, due to still high prices, corn production remains profitable.

It is likely that the government’s support will continue to spur modest growth in soybean area and production. However, these are more likely to be consumed as food rather than feed. As a result, long-term, China seems poised to remain a key market for other soybean producers and exporters, such as the United States.

China’s economic prosperity, population growth, and strong demand for meat products and vegetable oils will continue to create opportunities for U.S. soybean growers. In 2017/18, the United States is projected to export a record of 61.0 million tons of soybeans with China being the primary destination. In fact, nearly one-third of U.S. production is exported to China.

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