Global Soybean Demand: Where Is It Headed?

Strong global soybean sales are making news. The Wall Street Journal reported that in October soybeans accounted for 12.9 percent of the growth in U.S. exports, as soybean exports jumped to almost $2.4 billion that month, an all-time high.

According to U.S. Department of Agriculture (USDA) figures, U.S. soybean exports had a total value of more than $21 billion for the 2009-2010 marketing year. The 1.9 billion bushel equivalent of soybeans, soy meal and soy oil that was exported set a record for the fourth consecutive year. About 59 percent of U.S. soybean production was exported, compared to 55 percent the previous year.

Experts expect soybean exports to remain strong. USDA data shows global consumption of soybeans may rise 6.8 percent in the marketing year that began Oct. 1.

That is good news for soybean farmers because, just as exports have boomed, domestic demand has backed off. According to John Baize of the ag consulting firm Baize and Associates, “The U.S. has had a decline of 3.497 million metric tons (equivalent to 128 million bushels) of soybean meal production since 2006-2007. That’s because of challenges in the livestock industry and because dried distillers grain produced in the ethanol sector is an increasingly competitive feed for livestock.”

The decline in demand is common among developed countries, Baize says. Canada’s soybean consumption is down 342,000 tons (12.57 million bushels) since 2006-2007 for the same reasons as the U.S. In the European Union from 2007-2008 to 2009-2010, consumption dropped by 4.09 million tons (150.3 million bushels) as they produce more rapeseed meal, which competes with soy, and they also have a stagnant livestock and poultry sector. Japan’s demand is flat because of an aging, declining population and because the Japanese are importing more meat, rather than producing it themselves.

In contrast, demand in developing nations is growing. Baize says China, India, Iran, Russia, Vietnam, Thailand and Egypt are all experiencing an emerging middle class.

“What’s driving this is rising populations and rising incomes,” Baize says.

Grant Kimberley, director of market development for Iowa Soybean Association, concurs. “When people are more educated and have more income, they expect to eat better and increase their consumption of oil and animal protein, rather than eating grains, like rice, which are cheaper. This creates a strong demand for meat and for grain to feed livestock.”

Mark Albertson, director of strategic market development for Illinois Soybean Association, says, “Most soybean farmers are aware that livestock is their biggest customer, but often we forget many of the animals eating our soy are outside the U.S.”

Much of the export story centers on China, the leading customer of U.S. soybeans.

“By 2008 China’s urban population had grown to 45.7 percent of its total, and urban per capita income had risen to $2,340, more than three times the rural level,” Albertson notes. “These demographic changes have given rise to a growing urban middle class who want to improve their diet.”

China imported 825 million bushels in the 2009-2010 marketing year, up from 686 million bushels in 2008-2009. It is estimated China imported a full one-fourth of the 2009 U.S. soybean crop. Baize reports, from 2006-2007 to 2010-2011, China’s purchase of soybeans has grown 17.048 million tons (626.2 million bushels), a growth of 61.7 percent.

“China is the main driver in the trends,” says Peter Mishek of Mishek & Associates, an exporter consulting firm. “Without China, soybean prices would be $8 or $9 rather than $13.”

Farmers can put the demand into perspective, Albertson says, by considering that roughly two of every four rows of soybeans will be exported, and one of those will go to China.

The trend is expected to continue. Hamburg-based oilseeds analyst, Oil World, has predicted China’s total soybean imports from October 2010 to September 2011 will rise to 54.5 million tons (2 billion bushels) from 50.3 million tons (1.848 billion bushels) in 2009-2010.

The boom in exports to China is not without some concerns, according to Mishek.

One issue is inflation in China’s economy. “Their monthly inflation in November was 5 percent, which would be 60 percent in a year,” Mishek says. “And their food prices rose even more, 7.6 percent in one month.”

There is some fear the Chinese government will raise interest rates to control inflation, and that, in turn, could slow demand for commodities. “They must keep people happy and cool down the economy,” Mishek says, “Yet cutting off imports will kick off inflation and more demand. And they can’t really increase their own soybean production. That would have to take acres from crops like rice and corn.”

Frank Ning, chairman of COFCO Ltd., China’s top grain trader, told Reuters on Nov. 30 he does not foresee any food shortages for his country, even though food prices have helped drive China’s inflation to a two-year high. Instead, Ning expects soy imports, coming from the U.S., Argentina and Brazil, to grow 5 to 7 percent a year.

“Soybeans are almost everything protein,” Ning said. “The egg you eat, the pork you eat, is all soybean.”

Still another issue for Mishek is competition from South America. “The number one exporter of soybeans is Brazil, while Argentina exports mostly processed soybean meal, but they’ve had some problems with their crop,” he says.

In spite of those reality checks, Mishek says, “The prognosis appears that soybeans will hold their own; the outlook is pretty positive overall.”

Baize expects the export trend to continue over the next five years. “It may possibly slow down in China, though China expects a population growth of 54 million people in the next ten years,” Baize says. “But we will also see other countries’ imports increase.”

For example, Baize says, although India is now a net exporter of soybean meal, within ten years it could become an importer. “India faces an expected population growth from 1.173 billion people today to 1.326 billion by 2020,” Baize says. “Those 153 million additional people will coincide with good economic growth, so people will increasingly be able to buy high quality diets with milk, meat and eggs.”

Glen Heitritter, vice president of marketing for AGP, a soy processing and grain marketing cooperative whose members are ag cooperatives, says, “While China is the number one soybean customer, it is not the only customer, and U.S. farmers are not dependent on China. It’s a global demand. As populations continue to grow, demand for food will continue to grow, though it may shuffle as the world changes.”

Kimberley notes that current record exports are no accident. “For more than 20 years, we have invested soybean checkoff funds to promote U.S. soy through international marketing efforts.”

For example, both Iowa and Illinois soybean farmers host numerous visits from foreign trade teams.

“Those international buyers emphasize the importance of protein content in the soybeans they buy,” Albertson says. “It has never been more important to make sure we are producing and promoting a product that exceeds the expectations of international customers. The checkoff is helping to spread

that message.”

Soybean farmers are also engaged in developing relationships by visiting their customers. “For the last three years, Iowa soybean leaders have traveled on trade missions to develop relationships with Chinese customers and gauge the market,” Kimberley says. “And our effort is not limited to China. We’ve also sent trade missions to the Philippines, Japan, Thailand, Korea, Indonesia, Vietnam and Turkey.

“It is important to be in touch with our best customers and grow relationships with new customers.”