Soy Industry Expects Continued Demand from Its No. 1 International Customer, but Soy Checkoff Ready if It Falters
When a customer consistently buys one-quarter of an industry’s production, year after year, it’s easy to attract attention. So, considering the number of soy-related news reports coming out of China recently, it’s not surprising that some in the U.S. soy industry have been concerned.
The good news is that China has already bought 220 million bushels more soybeans than it had by early June last year, leaving U.S. soy stocks at historic lows. And, earlier this month, a Chinese delegation agreed to purchase 7 million bushels of U.S. soybeans worth an estimated $100 million. Other reports, however, indicate Chinese purchasers have been turning away ships and defaulting on orders.
Industry analysts predict that Chinese demand will remain strong, but the United Soybean Board (USB) also continues to move forward with a major project to increase demand in other international soybean markets.
Stocked Up
Per capita incomes continue to increase in several regions around the world, and whenever incomes improve, one of the first things those people want to do is add protein to their diets.
That’s certainly true in China, where pork production is surging and shipments of U.S. soybeans to the country have followed closely behind.
China imports more U.S. soy than all other countries put together. The country is also home to half of the world’s pork production and consumption, both of which could continue to increase. Supplying the Chinese swine sector with high-quality soybean meal will help U.S. farmers remain the preferred supplier for this valuable market.
“Export markets are very important to U.S. soybean farmers,” says Jimmy Sneed, soy checkoff farmer-leader from Hernando, Mississippi. “Domestic and foreign demand for soy has kept the soy industry profitable and requires us to be innovative and efficient. In order to meet demand, U.S. farmers must continue to produce a reliable and high-quality product for our customers.”
On top of purchasing huge quantities of soybeans to use in hog feed, China reportedly overcompensated for last year’s transportation issues at harvest time in Brazil. Anticipating similar gridlock this year, China stocked up on U.S. soybeans and soybean meal at a record pace, according to soy checkoff consultant John Baize.
As a result, U.S. soybean stocks reached their lowest levels in nearly a half-century, but the value of soybeans hit historic highs.
“This is a perfect situation for U.S. soybean farmers,” says Baize, who monitors global soybean markets for the checkoff. “They sold their soybeans early in the marketing year at very high prices. We are short now (in mid-June), but will soon be bringing in soybeans from Brazil for a much cheaper price than we sold ours for. It’s a good situation that I think we will see often in the future.”
With international demand so high, Baize believes that the value of U.S. soybeans has never been stronger.
“This is the golden age for soybeans,” he says. “We have record demand every year. Soybean demand is growing faster than demand for any other commodity. It is being driven by export demand, and China is the biggest driver. This year, 60 percent of the crop will be exported as soybeans, soybean meal or soybean oil. That’s a record high.”
Challenges Remain
As it turns out, South American farmers have experienced a successful harvest and smooth loading conditions this year, thus inundating China with an oversupply of soybeans this spring and leading to some shipments being turned away. Some have questioned whether the No. 1 importer of U.S. soy will continue to be a reliable market, but U.S. Soybean Export Council (USSEC) CEO Jim Sutter says the market is safe for now.
“Even with the influx of shipments, Chinese crushers have been working hard to sell soybeans to other countries and delay deliveries with exporters — few have actually defaulted,” says Sutter. “Right now, the question is what export demand will look like come fall of 2014. We expect continued demand from China, but with Brazil and Argentina’s improved infrastructure, it’s likely China won’t overbuy again and export volume will be back to normal.”
Challenges that could affect China’s future demand for U.S. soybean meal include: