What Does China's Economic Slowdown Mean for Soybeans?

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Despite the country’s long-held title as the world’s top consumer of soybeans, Chinese production of the oilseed has been in steady decline for the better part of a decade. Following entry into the World Trade Organization (WTO) in 2001—and the requisite reduction in agricultural protectionism—Chinese farmers were left vulnerable to global prices. Those farmers, who are overwhelmingly small-scale, struggled to compete with the highly efficient mega-farms of countries like the United States (US), Brazil, and Argentina. Furthermore, a renewed policy emphasis on achieving self-sufficiency in staple grains meant that Beijing was more eager to support rice, corn, and wheat producers, rather than the country’s oilseed farmers.

Chinese soybean farmers do receive some assistance from the state. In previous years, the government purchased soybeans from farmers at a set price; last year, it began a system of more indirect subsidies, in which the state sets a target price for the crop, paying farmers the difference if they are unable to reach the goal. But Chinese producers—especially those in the northeast, where most soybeans are grown—have repeatedly expressed their belief that these target prices are too low, and that the government’s support is inadequate. And they have been putting their land where their mouths are, converting plots to rice-growing or corn-growing farms.

Between 2001 and 2013, the amount of land China dedicated to growing soybeans fell by about 40 percent, while domestic consumption over that period nearly quadrupled. China fills this widening supply gap through imports, mainly from the US, Brazil, and Argentina, the world’s top three producers. China opened up to the global soybean market in 2001, and in the following decade the relative importance of these three exporters remained largely in that order. But that steady hierarchy shifted in 2013, when Brazil claimed the top spot. Brazil has continued to be the top soybean exporter to China ever since.

Brazil’s rise to soybean dominance was swift. Since 2000, the country’s output has swelled by about 60 percent, compared to 30 percent growth over the same period in the US. And while Brazil’s trade relationship with China has strengthened in the past several years—across several commodities, not just soybeans—US soybeans are still very vital to China. Although the US can no longer claim the title of top soybean exporter to China, exports of the crop to the East Asian superpower have been growing steadily. In 2014, exports reached a record high of 30 million tonnes, and that same year, Brazil’s exports also reached a record of 32 million tonnes. Chinese imports from the US, therefore, are not shrinking— China’s total imports are growing at staggering rates.

Although some of these soybean imports are sold as whole beans (usually to make tofu), a greater proportion are processed into soybean meal and oil. The ramping up of imports that began in the early 2000s required China to build more processing units along the coastal regions, so that imported product could be more readily processed. Most of these beans are processed into soymeal, an important ingredient in animal feed for the country’s ever-expanding hog and poultry industries.

A smaller proportion of these whole imported soybeans are processed into oil. China meets its soybean oil demand— which amounted to about 14 million tonnes in 2014/15—through a combination of domestically-produced soybeans and soybean oil imports. Soybean oil imports, which have remained relatively stable over the past decade at one to three million tonnes, represent a small portion of consumed oil. Almost all imported soybean oil comes from Argentina and Brazil.

What’s Next?

It’s difficult to predict how any economic slowdown will play out—and for a market as complex as China’s, that difficulty is multiplied. Despite this considerable level of uncertainty, it remains unlikely that soybeans will take a hard hit.

Soybean prices have remained relatively low thanks to repeated bumper harvests from mega-producers. The 2015/16 crop will be no different, as harvests from the US, Brazil, and Argentina are all expected to hit record highs. Given the price of soybean oil is less than that of alternatives like sunflower or rapeseed, and only slightly higher than that of palm, the commodity should remain a popular choice in cooking regardless of an economic slowdown.

A deep recession, by placing downward pressure on incomes, could make it more difficult for Chinese consumers to afford meat. Pork is by far the most important meat in the country, and most soymeal in China is destined to become pig feed. Chinese pork prices have risen in recent months, making analysts nervous of the price’s potential to stoke inflationary fears. But the country’s hog industry is known to be tumultuous, and is defined by consistent boom and bust cycles: hog farmers increase output, prices fall on overproduction, a drop in prices leads farmers to reduce their droves, prices rise, hog production increases, and so on. So while the current high prices and tight supply are a concern, another increase in production is imminent. Beijing, well-aware of the dangers of such volatility, is encouraging the intensification and commercialization of pig farming which should boost production and efficiency, and also reduce the level of price fluctuation. This sort of change in hog rearing methods will also be good news for soymeal demand.

The Chinese population’s continued ability to afford pork products will depend on the severity and longevity of the present economic slowdown. But at this point, it does not appear as though the economic situation will have a widespread or profound impact on the ability of the average Chinese citizen to afford pork. For soybeans, that means that demand for pig feed is likely to remain robust. But if the economic situation deteriorates, soymeal demand is still likely to persevere to a significant extent, given that it is also a crucial ingredient in feeds for chicken and farmed fish, both of which are more affordable forms of animal protein and may serve as cheaper meat substitutes.

Still, the depth of the uncertainty about the potential effects of the economic slowdown have left soybean farmers and traders concerned about the market. Soybean prices have been declining steadily since mid-August, partly due to this uncertainty.

Somewhat reassuringly, Chinese soybean imports in July and August of this year were strong, with August figures representing a 29 percent increase from the same month last year. Soybean oil imports have been in decline for most of the year, but soybean meal (cake) imports have been up significantly since January—in July, they were up 170 percent year-on-year. And while these figures have helped assuage some fears, it is important to note that these purchases represent China buying up the last of South American supply. Harvests in Brazil and Argentina run from March through May, and output from these two countries enter the market in the subsequent months. South American soybeans are cheaper than those from the US, so a rise in Chinese purchases may be more about China getting its hands on as much cheap soybean crop as possible before it runs out. North American harvests are in August-October, so in the upcoming months, China may be forced to pay more for its imports.

Nonetheless, global agribusiness giant Bunge, in a statement to Reuters, expressed its optimism that China would be importing a significant amount of US soybeans through 2015/16. Bunge estimates that the overwhelming majority of Chinese imports are likely to be evenly split between the US and Brazil, as they were last year.

Currency Currents

The US dollar has strengthened significantly over the past several months, with the currencies of Brazil and Argentina continuing their tumbles. The Brazilian real reached its all time low against the US dollar earlier this month, and the Argentine peso has been in steady decline for the past several years with the currency’s performance over the past few weeks the worst in recent history. Exports from both countries, therefore, are extremely competitive. If both these currencies continue to weaken against the dollar, and Brazil and Argentina continue to post bumper crops, US soybeans may soon face some significant challenges.

The real and the peso aren’t the only weakening currencies affecting Chinese agriculture. The Russian ruble has been in decline since mid-2014, when Western countries imposed sanctions against the country. That decline, in addition to the proximity of Russia to China, encouraged Chinese agricultural players to look towards Russia with greater interest. Reports indicate that cooperation between the two countries on a number of agricultural commodities is growing, and that Chinese interest in expanding Russian soybean output is growing. Russian soybean production and exports are still relatively small—in 2015/16, the country will produce only about 2.7 million tonnes of the oilseed. Though that figure on its own is fairly unimpressive, it does represent a near quadrupling in production since 2005. And while many of the soybeans harvested in Russia are consumed domestically, exports are growing in line with production, and the top importing market is China.

China’s interest in cultivating soybeans outside of the country is driven by the policy realities and pricing dynamics mentioned earlier in the piece. Water tables are falling rapidly in China’s soybean-growing north, and there is mounting concern about regional desertification. These issues are hardly reversible—an unfortunate reality which ensures that China’s ability to produce its own soybeans will only diminish over time.


Only time will tell just how severe China’s economic slowdown will be. Sectors dependent upon the country’s continued manufacturing prowess—industrial metals, machinery makers, and cotton growers—are most likely to be affected.

But for soybeans, China’s demographic realities, consumption trends, and constantly diminishing soybean output help ensure that demand for the oilseed will remain robust, even through an economic slowdown.

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