Market review

Soyabean is a versatile oilseed supplying both oil and meal to the global market, which has been disrupted by the ChinaUSA trade war, African swine fever affecting feed demand in China and the outbreak of the novel coronavirus Ile Kauppila

The last few years have been exciting for soya farmers and traders, but for all the wrong reasons. The soyabean market grew at a fantastic pace in the years leading up to 2017, with both the USA and Brazil reporting record harvests.

Then, in 2018, multiple events mostly centering around China and the USA threw the soya market into disarray, disrupting established trade patterns. With soya being one of the most valuable farm crops in the world, the end result of such upheavals were felt far and wide, from producers to consumers.

But what exactly makes soyabean such a valuable commodity? The oilseed is a versatile legume and has a myriad of uses across a variety of sectors.

Most people probably consider soyabean a food, and human nutrition is indeed one of its major applications. Soyabeans are one of the best sources of plant-based proteins, with 16.6g of protein per 100g of beans, according to the United States Department of Agriculture (USDA) Food Composition Database. They also contain relatively large amounts of poly - and monounsaturated fats – the so-called ‘good fats’ - and are low in both carbohydrates and saturated fats.

Due to their high nutrition value, soyabeans are used to produce many different food items around the world. Some of the most popular soya-based foods include soya sauce, soya milk, and protein substitutes such as tofu, tempeh and textured vegetable protein.

Major uses However, on a global scale, soyabeans are much more financially important as an oil and meal. According to the American Soybean Association (ASA), one bushel – or slightly over 27kg – of soyabeans produces about 5kg of oil and 22kg of high-protein meal. Roughly 98% of the world’s soyabeans are processed into these two products.

Of the two, soyabean oil ties more closely into human food use. About 95% of the world’s roughly 56M tonne annual soya oil supply is consumed as edible oil. It is a popular frying oil and is also used as an ingredient in, for example, baked goods and salad dressings.

Another popular use for soyabean oil is for biodiesel production which, for example in the USA, accounts for 25% of total soya oil consumption.

Soyabean oil is also used in a wide range of non-food industrial products, such as petroleum-free plastics, printing inks and even car parts. Soya-based industrial lubricants are preferred by some end users due to their high heatresistance and non-toxicity, says the North Carolina Soybean Producers Association (NCSPA).

Other possible uses for soyabeans include particle board production, biocomposite materials, and even nontoxic crayons that are safer for children to use. Research into soya-based products has picked up in the last decade, and new applications keep being discovered, particularly in the field of renewable alternatives to petroleum and oil products. Finally, soya meal is used as an animal feed. Of the total global soya meal output of 238M tonnes, 98% is used for animal feed, from swine and cattle to poultry and pets. Soya meal is also becoming increasingly common in fish food, both in commercial aquaculture and home aquariums, to replace increasingly scarce fish meal, the NCSPA says.

The remaining 2% of global soya meal output is used mostly in human nutrition as soya flour and other proteins.

Some of the key global soya producers

include Archer Daniels Midland, Bunge, Cargill, DowDuPont and Louis Dreyfus.

Global production giants Soyabean is among the top 10 most valuable agricultural products in the world, with an annual production of 358.28M tonnes in 2018/19, according to the USDA’s January 2020 report on global oilseed markets and trade.

Total global output grew by nearly 4.8% from 341.99M tonnes in the year before, although that year lagged behind 2016/17, when production was 349.99M tonnes. Out of 2018/19’s 358.28M tonne total, 307.2M tonnes or some 85.7% was produced on the American continent. There, the USA and Brazil stand as the world’s two largest producers of unprocessed soyabeans, responsible for more than 66% of the global total. In 2018/19, the USA produced 120.52M tonnes of soyabeans, according to USDA estimates, equalling roughly 33.6% of global production. Its soya meal production was estimated at 44.28M tonnes, while its soybean oil output stood at 10.98M tonnes. In hectarage, the USA boasted 35.45M ha of planted area, giving a yield of 3.4 tonnes/ha.

Brazil, the global number two producer in 2018/19, produced 117M tonnes of soyabeans, 32.96M tonnes of soya meal and 8.16M tonnes of soyabean oil. Planted area in Brazil was ahead of the USA at 35.9M ha, but its yield stayed lower at 3.26 tonnes/ha.

However, partly due to the trade dispute between the USA and China and other factors, Brazil is poised to assume the role of the global soya leader in 2020. The USDA projects US soyabean area to fall by more than 14% to 30.36M ha with a yield of 3.19 tonnes/ha. This would result in a 19.64% decrease in production, with an estimated total of 96.84M tonnes of soyabeans. Brazil, meanwhile, is expected to increase its planted area by 2.8% to 36.9M ha, with its total output growing 5.13% to 123M tonnes.

Argentina held the number three spot in 2018/19, although far below the USA and Brazil. Total Argentinian soyabean production in 2018/19 reached 55.3M tonnes, which marked a significant 46.3% increase from the 37.8M tonnes achieved in 2017/18. However, according to USDA predictions, such explosive growth cannot be sustained and the 2019/20 soyabean production is projected to remain 4.16% lower at 53M tonnes. Argentina’s soya meal production in 2018/19 stood at 31.2M tonnes and its soya oil output was 7.91M tonnes.

At number four position in global production is China, one of the places where the wild form of soyabean originates. In 2018/19, China produced 15.97M tonnes of soyabeans, USDA data shows. Its planted area stood at 8.41M ha, with a yield of 1.9 tonnes/ha.

However, moving over to meal and oil, China totally overshadows its competitors with a total soya meal output of 67.32M tonnes and oil output of 15.23M tonnes, far ahead of its nearest competitor – the USA.

China is projected to increase its domestic production of soyabeans in 2019/20 to offset some of the effects of its trade disputes. Chinese soyabean hectarage is expected to grow by 10.5% to 9.3M ha, and its total soyabean output is poised to grow by 13.3% to 18.1M tonnes – the highest level the country has seen in 14 years, according to Reuters. Behind China is India with a total soyabean production of 10.93M tonnes, which the USDA expects to fall by 17.6% to 9M tonnes in 2019/20. Further down the line, the global top 10 producers are made up of Paraguay, Canada, Ukraine, Russia and Bolivia. u

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Leading world consumers On the consumption side, China is the single largest consumer of soyabeans by a massive margin. China’s soyabean consumption has skyrocketed in the past 20 years, from less than 30M tonnes in 2000 to 102.2M tonnes in 2019, according to the USDA. In simpler terms, China consumes 28.5% – nearly one-third – of the entire global soyabean output. It is therefore no surprise that China is also the single largest importer of soyabeans at 85M tonnes.

China uses its soyabean imports to produce 67.32M tonnes/year of soyabean meal for animal feed, with more than half of the world’s pigs residing in China. When it comes to soyabean meal and oil, China is almost self-sufficient, with production and consumption having remained at more or less equal levels for the past five years.

Behind China, the USA is the second largest consumer of whole soyabeans with a total consumption of 60.77M tonnes in 2019. According to the ASA, the US livestock feed industry is responsible for nearly all of the country’s soya meal consumption.

The world’s third largest consumer of soyabeans is Argentina, which in 2019 used 51.1M tonnes of soyabeans.

China and the USA are also the leading global consumers of soyabean meal and oil. In 2019/20, China is projected to consume 66.07M tonnes of soya meal and 16.29M tonnes of oil, while for the USA, these numbers stand at 33.39M tonnes and 10.66M tonnes, respectively. The third largest soya meal consumer is expected to be the EU at 31.19M tonnes, while in soyabean oil, the third place is held by Brazil with a consumption of 7.35M tonnes. u

Imports and exports In exports of unprocessed soyabeans, Brazil is the leader with 74.95M tonnes exported in 2018/19 and a projected total of 76M tonnes in 2019/20. Behind Brazil are the USA (48.3M projected for 2019/20), Argentina (8.2M tonnes), Paraguay (6.2M tonnes) and Canada (5.74M tonnes). In soya meal exports, the leader is Argentina (30.85M tonnes), followed by Brazil (15.4M tonnes), the USA (11.98M tonnes), Paraguay (2.55M tonnes) and Bolivia (1.75M tonnes). Finally, in soyabean oil, the export leader is again Argentina (6M tonnes), followed by Brazil (1.1M tonnes), the EU (950,000 tonnes), the USA (771,000 tonnes) and Paraguay (710,000 tonnes).

China, as already mentioned, is the largest whole soyabean importer in the

‘The single largest event shaking the soyabean market in the past few years has been the US-China trade war’

world at projected total imports of 85M tonnes in 2019/20. This is followed by the EU, which is expected to take in 15.2M tonnes of soyabeans in 2019/20. According to statistics from the European Commission (EC), in 2018/19, imports from the USA increased by 121% compared to the year prior, rising from 3.73M tonnes in 2017/18 to 8.24M tonnes. At the same time, Brazilian imports decreased by 31.9% from 3.5M tonnes to 2.39M tonnes.

US-China trade war The single largest event shaking the soyabean market in the past few years has been the US-China trade war.

The economic conflict was kickstarted on 22 January 2018, when the administration of President Donald Trump imposed tariffs on Chinese solar panels and washing machines. In the following months, the two global superpowers exchanged tit-for-tat tariffs on nearly all imports coming to and going from each country. However, the one that shook the balance of the entire global soybean market was the 2 April 2018 decision by China’s Ministry of Commerce to impose a 25% tariff on US soyabean exports to China. According to Reuters, by July 2018, the tariffs had brought US soyabean sales to zero. In December, President Trump claimed that China was looking to buy a “tremendous amount” of soyabeans but such sales never materialised and over the following six months US soyabean exports to China were only a quarter of what they were in 2017.

Other agricultural exports suffered greatly as well, and American Farm Bureau data shows that agri exports from the USA to China fell from US$24bn in 2014 to a paltry US$9bn in 2018. USDA data shows that in 2017/18, before the tariffs on soya, US soyabean exports to China totaled 27.68M tonnes, but in 2018/19, only 13.37M tonnes were exported.

Increased exports elsewhere, including to the EU, were not enough to offset the sales lost in China. Reuters reports at the time painted a grim picture of the state of US agriculture – including soya farmers – with farm bankruptcies, low incomes and cancelled equipment purchases all around. The US government has had to pay out significant subsidies to bail out its farmers, the cost reaching roughly US$28bn by early 2020, according to CNN reports. But while the USA suffered, other countries reaped the profits as China turned elsewhere for its soyabeans. China’s own soyabean production is projected to be higher in 2019/20, but perhaps more importantly, the Asian economic giant increased imports from Brazil. According to Reuters, in 2018 China imported 12-14M tonnes of soyabeans from Brazil, up from 9M tonnes the year before.

The beginning of 2020 showed signs of the trade war slowing down. On January 15, Trump signed a deal with senior Chinese officials to enact what has become known as Phase One of a future US-China trade agreement.

In the January deal, China agreed to purchase US agri products – including soyabeans – worth an additional US$12.5bn in the first year and a further US$19bn in the second year under the plan. In return, the USA would reduce tariffs on US$120bn worth of Chinese products from 15% to 7.5%.

According to documents released from the White House outlining the deal, China’s imports of US agricultural products, including soyabeans and other products such as grains, meats, ethanol and cotton, would total at least US$80bn over the next two years.

In addition to increased farm purchases, the ASA said that the Phase One deal included improved regulatory processes for evaluation and authorisation of agricultural biotechnology products, improvements to sanitary and phytosanitary measures, and intellectual property protection for agriculture. ASA president Bill Gordon was cautiously optimistic about the agreement, despite some experts voicing doubts about whether China will actually be able to meet its purchase commitments. “This milestone moment in the negotiation process bodes well for de-escalation of the tension between our two countries and making further progress. Yet, as an industry, we have a lingering unease regarding the tariff on US soyabeans, which was not addressed in

this deal. China needs to take action, and, as a goodwill gesture, offer to remove its retaliatory tax on our soybeans,” he said.

ASF hits soya feed demand As if the trade war would not have been enough on its own, another disaster surfaced in late 2018 that reduced China’s need for soyabeans.

An outbreak of the African swine fever (ASF) was first detected in China in August 2018 and spread like wildfire as both local farmers and officials were reluctant to report the disease, according to Forbes. The virus causing ASF is harmless to humans but lethal to pigs and, as a result, at least a quarter of China’s hog population perished. According to Rabobank, China’s pork production has fell 25% in 2019 and will further decline in 2020.

Due to the massively lower number of pigs left alive, China’s need for soyabean-based pig feed naturally went down. Rabobank, in its Soybean Baseline published in September 2019, predicted that the ASF epidemic – combined with the US-China trade difficulties – would keep exports from the USA slow and global soyabean prices low. However, at the same time, Rabobank says that while China’s need for soya may fall due to ASF, other regions might step in to make up for the difference.

“While the spread of ASF reduces soyabean demand in some impacted regions, other regions may offset some of these losses as they ramp up their production of other animal proteins to cover the decrease in pork production from ASF or to export pork to regions heavily impacted by ASF,” Rabobank projects.

Indeed, by January 2020, the worst of the ASF could be over, and Rabobank says that China’s hog herd could end up making a small recovery during the year before heading into an even stronger 2021. For soyabean farmers this is good news, as more hogs need more feed. Additionally, Rabobank projects that Chinese demand for other animal feeds, including poultry and aquaculture feed, would rise more strongly.

Coronavirus outbreak But while ASF’s back might be broken, another disease broke out in late 2019. China’s coronavirus epidemic has at the time of writing spread to all continents, with the WHO even declaring it a global emergency. This has affected the prices of agri products including soyabeans. Reuters reported in late January that the novel coronavirus (Covid-19) had caused Chicago Board of Trade (CBOT) soyabean

futures to fall for the longest consecutive streak since 2014, and that in January, soya prices were down 8.7% compared to December 2019, the largest monthly drop since June 2018 when the effects of China’s soya tariffs were first felt.

“The primary market concern is that fear of the virus will drag the global economy closer to a recession. China is basically shutting down its economy to get control of the virus,” Arlan Suderman, chief commodities economist at INTL FCStone, told Reuters. As it stands, with the US-China Phase One deal and the slowdown of ASF in China, the global soyabean trade looks set to get a small boost in the coming year. But uncertainties remain as the coronavirus continues to spread, and it would not be the first time in the past two years for relations between the USA and China to thaw slightly before plummeting into new depths of hostility.

Rabobank reflects this view in its 2019 soya baseline, concluding that the market is likely to remain depressed, unless the trade war and ASF are eliminated, in which case the projection is not all that bad.

As anticlimactic as it might be, all the market can do is wait and see how the situation develops.  Ile Kauppila is OFI’s former assistant editor