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World Soybean Trade: A Long Term View

Last updated on September 16th, 2020 at 10:24 am

Demand

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.

Bar chart showing top five soybean imports by volume, 2018. China was the world’s largest soybean importer having imported 85.47 million metric tonnes in 2018, followed by the EU-27 + UK with imports of 17.29 million metric tonnes, Argentina with 6.78 million metric tonnes, Mexico with 5.15 million metric tonnes, and Egypt with 3.51 million metric tonnes. Data from UN Trade Data.

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.

Column chart showing average protein supply (in grams per capita per day) (three year average) in China, South Korea, United States, and Germany. In 2008-2010, average protein supply was 91.7 in South Korea, 92.4 in China, 101.3 in Germany, 110.7 in the United States. In 2009-2011, average protein supply was 93 in South Korea, 93.7 in China, 102 in Germany, 109.3 in the United States. In 2010-2012, average protein supply was 94.3 in South Korea, 95.3 in China, 101.7 in Germany, 109 in the United States. In 2011-2013, average protein supply was 96 in South Korea, 96.7 in China, 101.7 in Germany, 108.7 in the United States. Data from the Food and Agriculture Organization of the United Nations.

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.

Bar chart showing meat consumption per capita (beef and veal, pork meat, poultry meat, and sheep meat) for selected countries in 2019 (kilograms per capita). In 2019, meat consumption per capita stood at 34 kilograms per person worldwide, 100.8 kilograms per person in the United States, 89.7 kilograms per person in Australia, 62.6 kilograms per person in Russia, 60.3 kilograms per person in Malaysia, 50.5 kilograms per person in Vietnam, 45.7 kilograms per person in China, and 3.6 kilograms per person in India. Data from OECD Data and LD Investments analysis.

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.

Column chart showing the average protein supply in grams, per capita, per day on a 3-year average in China and India. During 2005-2007, average protein supply was 55 grams per capita per day in India, and 87.4 grams per capita per day in China. During 2006-2008, average protein supply was 56.7 grams per capita per day in India, and 89.1 grams per capita per day in China. During 2007 – 2009, average protein supply was 57.3 grams per capita per day in India and 90.8 grams per capita in China. During 2008 – 2010, average protein supply was 58 grams per capita per day in India, and 92.4 grams per capita per day in China. During 2009-2011, average protein supply was 58.7 grams per capita per day in India, and 93.7 grams per capita per day in China. During 2010-2012 average protein supply reached 59.3 grams per capita per day in India and 95.3 grams per capita per day in China. During 2011-2013 average protein supply reached 59.7 grams per capita per day in India, and 96.7 grams per capita per day in China.

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.

Bar chart showing the top five vegetarian markets in the world by vegetarian population. India was the biggest with a vegetarian population of 390 million followed by Indonesia with 66.9 million vegetarians, Nigeria with 58.1 million vegetarians, China with 51.9 million vegetarians, and Pakistan with 33.2 million vegetarians.

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.

Bar chart showing vegetarians as a percentage of the population for selected countries. With vegetarians accounting for 29.8% of the country’s population, India’s vegetarian population had the highest percentage, followed by Indonesia where vegetarians accounted for 25.4% of the country’s population, and Pakistan at 16.8%. China’s vegetarian population made up just 3.8% of the country’ s total 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.

Supply

The top five largest soybean producers are the United States, Brazil, Argentina, China, and India.

Bar chart showing the leading countries in soybean production worldwide. During calendar year 2018-2019, the United States was the leading soybean producer in the world, producing 120.52 million metric tons, followed by Brazil with 119 million metric tons, Argentina with 55.3 million metric tons, China 15.97 million metric tons, India with 10.93 million metric tons, Paraguay with 8.85 million metric tons, Canada with 7.27 million metric tons, Ukraine with 4.83 million metric tons, and Russia with 4.03 million metric tonnes. According to preliminary figures for calendar year 2019-2020, Brazil was the leading soybean producer worldwide with 126 million metric tons, followed by the United States with 96.68 million metric tons, Argentina with 50 million metric tons, China with 18.1 million metric tons, Paraguay with 9.9 million metric tons, India with 9.3 million metric tons, Canada with 6 million metric tons, Russia with 4.36 million metric tons, and Ukraine with 4.05 million metric tons. Data from the United States Department of Agriculture Foreign Agricultural Service.

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.

Line chart showing India's net soybean exports from 2012-2018. India's soybean net exports were 45,413 metric tons in 2012, 100,908 metric tons in 2013, 195,003 metric tons in 2014, 197,340 metric tons in 2015, 84,557 metric tons in 2016, 219,425 metric tons in 2017, and 37,857 metric tons in 2018.

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.

Bar chart showing soybean yields in metric tons per hectare, for selected soybean producing countries, and world average. During crop year 2018/19, average soybean yields was 2.88 metric tons per hectare worldwide, 3.31 metric tons per hectare in Brazil, 3.4 metric tons per hectare in the United States,3.33 metric tons per hectare in Argentina, 2.39 metric tons per hectare in Paraguay, 2.86 metric tons per hectare in Canada, 1.9 metric tons per hectare in China, 2.91 metric tons per hectare in the European Union, 1.47 metric tons per hectare in Russia, and 0.96 metric tons per hectare in India. According to preliminary figures for calendar year 2019/20, average soybean yields was 2.75 metric tons per hectare worldwide, 3.41 metric tons per hectare in Brazil, 3.19 metric tons per hectare in the United States, 2.94 metric tons per hectare in Argentina, 2.8 metric tons per hectare in Paraguay, 2.61 metric tons per hectare in Canada, 1.95 metric tons per hectare in China, 2.87 metric tons per hectare in the European Union, 1.57 metric tons per hectare in Russia, and 0.78 metric tonnes per hectare in India.

That would leave current soybean export leaders Brazil, and the United States to continue dominating the soybean export market in the years ahead.

Bar chart showing the top five soybean exporting countries in the world in 2019. Brazil was the largest exporter with US$ 34.2 billion followed by the United States with US$ 16.7 billion, Paraguay with US$ 2.4 billion, Canada with US$ 1.7 billion, and Ukraine with US$ 0.8 billion.

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.

Line chart showing long-term projections for soybean planted acreage in the United States by the United States Department of Agriculture. The United States department of Agriculture projects soybean planted acreage in the United States at 90.1 million acres in 2017, 89.1 million acres in 2018, 82.5 million acres in 2019, 82.5 million acres in 2020, 83 million acres in 2021, 83.5 million acres in 2022, 84 million acres in 2023, 84.5 million acres in 2024, 85 million acres in 2025, 85 million acres in 2026, 85.5 million acres in 2027, and 85.5 million acres in 2028.

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.

Bar chart showing Brazil's top soybean and corn exporters in 2019. In 2019, Brazil's leading soybean exporters were Cargill, Bunge, ADM, Dreyfus, Amaggi, Gavilion, COFCO, Glencore, Coamo, and Engelhart respectively. In 2019, Brazil's top corn exporters were Cargill, Bunge, Amaggi, ADM, Dreyfus, Gavilion, COFCO, Glencore, Coamo, and Engelhart respectively

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.

Column chart showing EU biodiesel production by feedstock. In 2019, rapeseed oil had the biggest share of the EU biodiesel feedstock mix with a share of 37.94%, followed by used cooking oil (20.86%), palm oil (20.03%), soybean oil (8.35%), animal fat (6.07%), sunflower oil (1.44%), and other oils such as pine/tall oil, fatty acids (5.31%). In 2017, rapeseed oil had the biggest share of the EU biodiesel feedstock mix with a share of 44.18%, followed by used cooking oil (19.42%), palm oil (18.58%), soybean oil (6.52%), animal fat (5.58%), other oils such as pine/tall oil, fatty acids (4.45%) and sunflower oil (1.26%). In 2015, rapeseed oil had the biggest share of the EU biodiesel feedstock mix with a share of 47.48%, followed by used cooking oil (17.80%), palm oil (17.36%), animal fat (7.64%), soybean oil (4.01%), other oils such as pine/tall oil, fatty acids (4.15%), and sunflower oil (1.56%). In 2013, rapeseed oil had the biggest share of the EU biodiesel feedstock mix with a share of 51.37%, followed by palm oil (21.05%), used cooking oil (10.35%), soybean oil (7.83%), animal fat (3.78%), other oils such as pine/tall oil, fatty acids (3.01%), and sunflower oil (2.61%).

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.