Over the past nearly two decades, global soybean demand has outpaced other crops such as corn, cotton, rice, and wheat. According to figures from U.S. Soy, soybean demand has grown 229% during the 1990/91 marketing year to 2017/18 compared to 123% for corn, and 34% for wheat. Growth has been driven by growing demand for protein, and vegetable oil consumption for food. Much of the growth was driven by China. Soybean world per capita consumption averaged 43 pounds in 1990 and by 2010 that had nearly doubled to 81 pounds according to figures from US Soy. China’s per capita soybean consumption grew from just 19 pounds in 1990 to 110 pounds by 2010. By comparison, soybean per capita consumption in the United States grew from 304 pounds in 1990 to 344 pounds in 2010.
The growth momentum appears set to continue. Over 80% of imported soybeans are processed into animal feed in China. This is consistent with the world average with about 85% of the world’s soybean crop is used as animal feed. China, the world’s largest importer according to UN trade data, imports soybeans for its meat, poultry, and dairy industry which has been booming as Chinese citizens increasingly add more protein to their diets as incomes rise and living standards increase. China is on track to overtake the U.S. to become the world’s largest dairy market according to Euromonitor International, and currently is the world’s largest egg consumer and producer, and the world’s largest meat importer.
Protein intake among Chinese citizens has been steadily growing reaching 96.7 grams per capita per day during 2011-2013 and has reached levels comparable to developed neighbors such South Korea (96 grams per capita per day). However, it has yet to reach levels comparable to other developed nations such as the United States (108.7 grams per capita per day), and Germany (101.7 grams per capita per day) suggesting room for Chinese soybean demand to grow.
This is particularly true for animal protein which at 38 g/capita/day (3-year average) in China has not yet reached the levels of neighbors Japan (48 g/capita/day), and South Korea (46 g/capita/day), as well as developed nations such as the United States (69 g/capita/day), and Germany (61 g/capita/day).
At 45.7 kilograms per capita, China’s meat consumption per capita is higher than the world average of 34 kilograms per capita but has room to catch up with Asian countries such as Malaysia and Vietnam which have meat consumption per capita of 60.3 and 50.5 kilograms per person respectively.
Chinese meat demand has pushed up meat imports over the past few years and China is the world’s largest meat importer. China’s growing appetite for imported meat should help drive EU soybean demand. As the world’s largest meat exporter, the EU has been a major beneficiary of China’s growing meat consumption which in turn helped push EU soybean imports; the EU is the world’s second largest soybean importer and the world’s largest importer of soybean meal which is used mainly as animal feed. With China driving global meat demand, soybean demand from the EU, the world’s second biggest importer, is poised to grow as well.
India also presents a tremendous growth driver. Incomes and living standards have been rising and India’s average protein supply is on a firm uptrend but is still about half of China’s suggesting ample room for growth.
A comparison between the meat markets in India and China are somewhat of an apples to oranges comparison; India is the world’s largest vegetarian market with more than 390 million vegetarians according to figures from Euromonitor International, India may not reach the ranks of other countries such as China and Australia in terms of meat consumption per capita in the near term. Vegetarians in countries such as India often abstain from consuming meat citing religious reasons (such as the moral concept of non-violence against all life forms) and thus meat affordability is not a concern. Hence, regardless of income growth and rising wealth, it is unlikely their diets will change to include any meat at all.
However there is tremendous room for meat consumption growth among the non-vegetarian population. Vegetarians make up 30% of India’s population which leaves a meat consuming population equal to about two-thirds of India’s one billion plus population.
In fact, according to the results of a survey conducted by Indian Market research Bureau (IMRB), 73% of urban rich Indians are protein deficient, with 93% of them unaware about their daily protein requirements. With nearly 80% of Indian households expected to rise to middle income status by 2030, up from 50% today, the U.S. Soybean Export Council sees India as a prime export market in the future.
The top five largest soybean producers are the United States, Brazil, Argentina, China, and India.
China, the world’s largest soybean importer and consumer is likely to remain a major import market in the years ahead. Domestic soybean production meets just about 20% of China’s domestic demand of about 100 million metric tons, and while there is potential for the country to increase domestic output by improving yields (particularly with the government reportedly making efforts to boost soybean production), this is unlikely to satisfy demand so the country will continue to depend heavily on imports going forward.
Even if China doubles its soybean production by doubling its yields to match the United States (China’s average soybean yield on the same area of land is about 40% that of the U.S. according to Heilongjiang Academy of Agricultural Sciences), China could potentially increase its production by about 15 million metric tons, which is not even one-fifth of China’s estimated 84 million metric ton soybean import volume during marketing year 2019/2020 according to data from the USDA.
India, the world’s fifth largest soybean producer, has been a consistent net exporter of soybeans but its net exports have been shaky as domestic production is outpaced by domestic demand.
India became a net importer this year having imported some 114,000 metric tons from October 2019 to February 2020 according to USDA data. As incomes grow and protein intake increases, the country may well end up becoming a consistent net importer, unless they dramatically increase soybean yields; India’s average soybean yields on the same area of land is just 25% that of the U.S. according to data from the USDA.
That would leave current soybean export leaders Brazil, and the United States to continue dominating the soybean export market in the years ahead.
The fragility of the U.S.-China relationship suggests Brazil is in a better position to capitalize on China’s soybean demand in the long term, presenting opportunities for Brazilian soybean suppliers. As of August 2020, Brazil accounted for 72% of China’s soybean imports so far this year, while imports from the U.S. accounted for just 21% which is an improvement from last year’s 15% but considerably lower than the 43% share pre-trade war. The long term impact of losing China as an export market for U.S. soybeans was abundantly clear when prior to the Phase 1 trade deal, the USDA’s long term projections for soybean planting in the U.S. expected only marginal increases and was not expected to recover to pre-trade war levels.
Agribusiness players ADM (NYSE:ADM), Bunge (NYSE:BG), Cargill, which buy crops from farmers, then transport, store and/or process the crops and sell the processed crops to food, feed, and energy buyers all have operations in Brazil and should benefit from improved South American export volumes as Chinese soybean imports grow along with rising protein demand.
In 2019, Cargill was the largest soybean exporter in Brazil followed by Bunge, ADM, and Dreyfus.
On the domestic front, Brazilian grain trader Agribrasil expects revenues to more than double this year to 1 billion reais from 390 million in 2019 thanks to China’s voracious appetite for commodities such as soybeans and corn.
In the short term however, China will likely continue buying U.S. soybeans not just as part of the Phase 1 trade deal secured in January this year which helped end a nearly two year trade war between the two nations, but also perhaps to buy time as the country makes the necessary investments to cost effectively diversify its soybean sources in the long term, since top supplier Brazil may be unable to keep up with Chinese soybean demand. The opportunity in Russia is particularly compelling. Already the world’s second-largest wheat exporter, Russia has been vying for a greater share of China’s wheat imports and it is not a far stretch to envision Russia expanding its soybean production to capture a bigger slice of China’s soybean imports. Russian soybean exports to China have grown 51 times from just 15,000 metric tons in 2013/14 to 763,000 metric tons in 2018/19. Although this is less than 1% of China’s approximately 100 million metric ton soybean consumption currently, the long term potential is significant considering China’s top soybean producing region – Heilongjiang – is just across the China-Russia border from Russia’s top soybean producing region – the Amur region, which if developed could offer China soybeans at very cost effective prices with the added advantage that Russian soybeans are non-GMO (compared with the United States where 94% of US soybean acreage comprises GMO soybeans as of 2018). The expected completion of two new bridges over the Amur River (known as the Heilongjiang river in China) which borders Russia and China should greatly facilitate soybean trade between the two countries. With calls from China to set up a ‘soybean industry alliance’ with strategic partner Russia, it is highly likely Russia will continue to take greater share of China’s soybean imports going forward.
All is not lost for U.S. soybeans however. The EU is gradually phasing out palm oil for its domestic biodiesel use, and U.S. soybeans could be a beneficiary of this move. Accounting for 20.03% of the EU’s biodiesel feedstock mix, the EU consumed 2,640 million liters of palm oil in 2019 for biodiesel production according to data from the USDA. Soybeans’ share has grown from 7.83% in 2013 to 8.35% in 2019. Assuming the EU turns to soybeans to fill the void left by palm oil, soybean use for EU feedstock production could double.
The reality however is that American soybeans will be fighting against EU-grown rapeseed, soybean, and sunflower oil for a chance at replacing the void left by the palm oil subsequent to EU phasing it out as a feedstock which indicates the opportunity for American soybean farmers looking to cash in on the EU opportunity will be smaller.
Nevertheless, it should still cushion the blow for companies such as ADM for whom soybean trading accounts for 16% of revenue with most of their origination from North America. In its latest annual report, ADM’s Ag Services and Oilseeds operating unit saw profit drop 4% which the company attributed to weaker North American grain margins and volumes, in part due to changing weather conditions and the U.S.-China trade tensions. Within the Ag Services and Oilseeds unit, Ag Services (which includes results from its origination business which buys grains from farmers) recorded a 23% drop in operating profit, compared with a 45% increase a year earlier.
The company benefited from China’s increased soybean consumption before the trade war and if Brazil replaces the United States as China’s leading soybean supplier or takes an increasing share of Chinese soybean imports, the EU could help partially fill in the void for U.S. soybean producers and traders such as ADM.