U.S. soybean exports have grown sharply over the years, but is it sustainable?
It hasn’t always been this way, but in the past two decades, China has emerged as the world’s biggest importer of soybeans. In the 2014/15 marketing year, China is projected to buy 1.171 billion bushels of soybeans from the U.S., according to recent analysis by University of Illinois ag and consumer economists John Newton and Todd Kuethe.
That’s a stark contrast compared to the mid-1990s. For the 1995/96 marketing year, China imported only
18 million bushels of soybeans. Since that time, however, the country’s economy has enjoyed rapid double-digit growth each year.
Today, China could stand to import as much as 2.7 billion bushels of soybeans, based on USDA projections, which is up 5% from a year ago. From a different angle, that’s importing 57 million acres given the average U.S. soybean yield of 47.8 bu. per acre.
“Put simply, as the world’s largest importer, China’s massive appetite for soybeans is a significant driver of global and domestic soybean markets,” Newton and Kuethe say.
To visualize China’s demand for soybeans, Newton and Kuethe mapped the consumption categories as they relate to county-level soybean production acres across the U.S.
In 1995/96, Chinese demand for U.S. soybeans was satisfied by the production of just two counties—McLean and Livingston counties in Illinois.
To fill the current need of 1.171 billion bushels, production from the top 133 counties would be required. This geographic footprint spans from the Upper Midwest through the Corn Belt and down into the Mississippi Delta.
Newton and Kuethe also note as U.S. exports to China have risen, they have also declined in 40 other countries by a total of about 400 million bushels. The lion’s share of this decline is the lowering of exports to Japan, South Korea and Taiwan by nearly 150 million bushels since 1995.
Until 1996, the percentage of U.S. soybean exports to China was close to zero. Today, the U.S. sends more than 60% of its exports to China.
In light of this information, Newton and Kuethe are asking the essential question: “Are all our soybeans in one basket?”
“While historical growth rates have been impressive, recent forecasts suggest the Chinese economy is unable to maintain that growth rate,” they note.
Through 2017, the World Bank forecasts year-over-year growth in China’s GDP at or above 6.9%. That supports China’s maintaining soybean consumption at or above current levels in the short-term.
With another bin-busting crop expected for 2015, soybean farmers should keep a sharp eye on several factors, including competition from other countries (especially Argentina and Brazil). It’s also critical to understand how the value of the dollar can influence export opportunities as U.S. commodities fluctuate in value relative to those elsewhere in the world.
“It will be especially important for U.S. soybeans to continue finding a Chinese home if prices are expected to remain at or above current expectations,” the authors write. “Monitoring these economic indicators is essential, given anticipation that U.S. farmers will plant anywhere between 83 to 88 million of acres of soybeans in 2015.”
Tommy Grisafi with Advanced Trading says the size of the South American soybean crop isn’t necessarily a deal-breaker, either. So many other factors are at play that big South American crops and big prices can coexist in some circumstances.
Some non-crop economic clues are worth considering as well, Grisafi adds. For example, he says it’s important to keep an eye on copper demand in China and other countries.
“They call it Dr. Copper,” Grisafi says. “It shows the heart rate of economies because anything that has to do with electronics and infrastructure will require copper.”
The continued relative strength of the dollar is another market wildcard, he says.
“A strong dollar might make it more appealing to get beans from other countries,” he adds.
Grisafi is interested to see if China will continue to buy old crop U.S. beans or start switching over to the South American crop.
For the 2014/15 marketing year, China’s demand for U.S. soybeans is projected to claim the equivalent of 100% of production from the top 133 U.S. counties. Just 10 years ago, soybean production from just two Illinois counties was sufficient to fill Chinese demand.
Want more market talk and speculation? Visit the “Marketing 2015” thread on the AgWeb discussion boards at www.AgWeb.com/China_demand