Production

Consistent with a forecast 2 percent fall in the soybean planted area and an average yield, the forecast for MY15/16 soybean production is 11.7 million tons, down from the estimated 12 million tons in MY14/15. Soybean production growth continues to be restricted by factors including low profits, stagnating yields, lucrative alternatives and recently, subsidy reductions.

Low profit signals continue to negatively impact planting decisions in major soybean producing areas where more lucrative crops, such as corn and rice, are viable planting options. For example, for MY13/14, the National Development Research Council (NDRC) estimated that farmer returns were estimated at $82/Ha for soybeans versus $189/Ha for corn. Specifically, in Heilongjiang, the largest soybean-producing province, MY13/14 soybean profits (excluding labor) were RMB379 ($62)/Ha, while corn and rice brought profits of RMB2,265 ($368)/Ha, and RMB3,720 ($605)/Ha, respectively.

In general, the government support purchase price (corn, rice, cotton, soybeans) has been above the world market price and cheaper soybean imports have placed downward pressure on domestic soybeans prices. Agronomists caution that these artificial price distortions deter crop rotation and will eventually lead to soil degradation and lower yields.

Beginning in MY14/15, reportedly seeking a more market oriented direction, the government's soybean subsidy program changed from a "minimum/floor price procurement program" to a "target price-based direct subsidy." Soybean profits are expected to grow slightly in MY14/15 given the government's "target price" was RMB200/ton higher above the "floor price" offered during the previous year. However, numerous sources report that MY14/15 soybean farmers in Heilongjiang Province could lose money even when they receive the direct subsidy at the end of April 2015. Furthermore, the uncertainty associated with the implementation of this new policy and the extended delay in the delivery of the subsidy payment may impact farmer's confidence and planting decisions in MY15/16. The soybean wholesale price declined dramatically from January 2013 to December 2014. The 2014 December price was 11 percent lower than the price in January.

Soybean farmers also continue to struggle to boost yields and productivity which have remained constant for several years. Without access to the latest seed technology, Chinese soybean farmers face major impediments to improve productivity, including small farm scale and inadequate agronomy practice (lack of proper crop rotation) which are unlikely to change significantly in the near future. In the last five years, soybean yield in China averaged 1,795 ton/Ha vs 2,920 ton/Ha in the United States.

Crop alternatives to soybeans are limited in some regions in Heilongjiang and Inner Mongolian provinces due to the short growing days. Additionally, soybeans are more resilient to stand the cold weather than other more lucrative crops. However, farmers with options have already switched from planting soy to grains. Soybeans produced in other provinces are mainly used in food processing and are increasingly challenged by competitively-priced imported soybeans. Thus, the soybean planting area is forecast to fall by another 2 percent from the previous year.

Stocks

Chinese official statistics for stocks are not publicly available. According to industry sources, as of December 2014, the government-held reserves of soybeans were estimated at 5 to 6 million tons. Additionally, China's record purchase of soybeans of 70.4 million tons in MY13/14 also contributed to total carry-in stocks estimated at 14.4 million tons. Although the government stopped purchases of MY14/15 crop in September 2014, total ending stocks are forecast at 14.1 million tons for MY14/15, slightly lower than late MY13/14. MY15/16 ending stocks are forecast at 13.8 million tons. Depending on the domestic oilseed product market situation, the government may auction older stocks as a means to stabilize any significant changes in soybean supplies and price.

Trade

Imports

China continues to dominate the global soybean market and remains the largest importer of soybeans in the world. Over the last three years, China absorbed an average 64 percent of the world's total soybean exports. Soybean imports are expected to continue on an upward trend driven by declining domestic production unable to meet growing consumption. The Chinese crushing industry's demand for soybeans continues strong. In addition, economic incentives are reportedly driving greater crush of imported soybeans for food in the coastal provinces. However, figures capturing this trend are not readily available. MY15/16 soybean imports are forecast at 77.5 million tons, up six percent from an estimated 73 million tons in MY14/15. Relatively low ending stocks in MY12/13 and adequate global soybean supplies at lower prices drove MY13/14 imports to a record 70.36 million tons, up by 10 million tons over last year. It is worth noting that China's soybean crushing sector experienced an unprecedented nine consecutive months of negative margins with a total loss estimated at RMB20 billion ($3.25 billion) in 2014. This could lessen the crushing sector's incentive to over import in MY14/15.

Brazil remained China's largest soybean supplier in MY13/14 with total imports growing to 32.92 million tons and holding 47 percent share of the market. China's imports of U.S. soybeans reached 27.04 million tons in MY13/14, up from 22.07 million tons in MY12/13.

China's Soybean Imports by Country of Origin from MY12/13 to MY14/15

Country

MY12/13

MY13/14

MY14/15*

Million tons

Share

Million tons

Share

Million tons

Share

United States

22.07

37%

27.04

38%

28

38%

Brazil

29.15

49%

32.92

47%

Argentina

5.27

9%

7.14

10%

45

62%

Others

1.05

5%

3.26

4%

Total

59.86

100%

70.36

100%

73

100%

Source: World Trade Atlas; * MY14/15 estimate by FAS/Beijing

In response to some Chinese crushers' expressed interest in using sustainable soybeans, in mid MY14/15 the United States began exporting sustainable soybeans certified under the U.S. Soy Sustainability Certification Protocol (SSAP). As most U.S. soybean producers already participate in certified and audited conservation and nutrient management programs, China stands to become the largest importer of U.S. sustainable soy. This could create opportunities for U.S. soybean growers to gain market share.

Changes in consumption trends created new challenges in forecasting China's soybean use/imports as these are generally calculated on a meal and oil based analysis. Driven by price advantage and purchasing convenience, industry sources report that many food processors in the coastal provinces are progressively using more imported soybeans to produce Tofu, soy milk and other foods. The direct use of whole soybean as a feed ingredient is also increasing. Again, specific consumption data on broader imported soybean utilization is not yet available.

Exports

China's soybean exports, mainly destined for traditional food use, are forecast at 220,000 tons in MY15/16, slightly higher than the estimated 210,000 tons in MY13/14. China's soybean export volume remains small and stable and is unlikely to change significantly as traditional markets, like Korea and Japan, source food soybeans (both biotech and non-biotech derived) from several suppliers, including the US. Industry sources report that some domestic soybeans are processed into protein for exports to EU and Asia. However, specific figures are currently not available.

Soybean crushing sector continues to expand

Industry sources estimated China's total soybean crush capacity exceeded 430,000 tons per day by the end of 2014 (annual crushing capacity at about 130 million tons based on 300 operation days). China's National Grain and Oils Information Center (CNGOIC) estimated total soybean crushing volume as 71 million tons in MY14/15, up from the 67 million tons in MY13/14, both are far below China's total actual crushing capacity. Despite the low utilization rate, both the new construction and expanded renovations to existing facilities raised daily crushing capacity. An estimated 78 percent of crush plants are located along the coastal region to facilitate the receipt of imported soybeans.

Policy

Grain Security Responsibility System

The sustained rise in soybean imports, which has grown from 16.9 million tons in MY03/04 to 70.4 million tons in MY13/14, highlights China's reliance on foreign suppliers. The soybean and corn price spike in mid-2012, reinvigorated government and private sector concerns over soybeans and other major grains security supply. To address this concern, in late 2014, China's State Council published a Notice Establishing a Provincial Governor Responsibility System on Grain Security. The Notice stressed the responsibility of the provincial governor on grain security ranging from maintaining and promoting grain production capacity, enforcing and improving agricultural support policy and maintaining adequate stocks to meet demand. As for maintaining grain producing capacity, the governors are requested to strictly protect arable land, standardize farm land management, and promote agriculture technology. Although China generally considers soybeans as a grain crop, the above policy mainly targets cereal crops such as corn, rice and wheat. As mentioned above, China's soybean production is not expected to see significant growth in the near future.

Agriculture subsidy

China's agricultural and food security policies to stimulate grain production and yield include an array of financial incentives. In 2012, China's total comprehensive agricultural subsidies (including direct payments to grain farmers based on acreage, and subsidies for agricultural inputs, agricultural machinery, and seed) reached RMB165.1 billion ($26.2 billion), up from the $22 billion in 2011. Total subsidies in 2013 and 2014 appear to be unchanged from the 2012 RMB value. However, the trial implementation of the target price-based direct subsidy for soybeans and cotton virtually increased subsidies significantly. The actual amount of the total subsidy is not available as of this report.

Direct subsidies for soybeans will continue in MY15/16

Historically, soybean farmers in the Northeastern region have benefited financially from the government's "minimum price procurement" program. During MY14/15, in an effort to maximize the effectiveness of its support policy, the central government enforced a trial program in the four northeast provinces (Heilongjiang, Jilin, Liaoning and Inner Mongolia) giving direct subsidies to soybean farmers based on a target price of RMB4,800/ton. Farmers will receive a subsidy representing the difference between the autumn 2014 market price and the target price. The central government will appropriate the production-based funds to the four provinces. The provincial governments then will distribute the subsidy to each individual farmer based on the certified planted area before the end of April 2015. Despite the RMB200/ton increase from the "minimum price" received in the previous year, the impact of the direct subsidy on soybean planting remains limited. This is mainly due to the fact that soybean profits continue to be at a disadvantage and low soybean productivity remains unchanged. Notwithstanding, the direct subsidy policy is expected to continue in MY15/16.

Domestic biotech-free soybean production policy unchanged

China's non-biotech derived domestic soybean production policy remains unchanged. Domestic soybeans (non-biotech soybeans or soybean protein) are targeted primarily for food use and some are exported at a premium to European and Asian markets. The commercialization of biotech grain crops in China for direct consumption seems uncertain in the near future. Moreover, the China Soybean Industry Association (CSIA) continues to call on the government to build a non-biotech soybean conservation region in Northeastern China.

Import policy on biotech approval system adds uncertainty to soybean trade

Regarding imported biotech products, China's Ministry of Agriculture (MOA) maintains an approval system for biotech varieties and renews the list on a periodic basis. However, the approval system lags behind the pace of international commercialization of new events and adds uncertainty to the soybean trade. The rejection of U.S. corn and distiller grain shipments to China in 2014 due to China's detection of unapproved biotech events resulted in serious trade interruptions in corn trade. USDA continues to work closely with China's MOA requesting the streamlining of China's approval process as market access is key for trading partners and critical for China's price stability and food security. In addition, China has not yet established a tolerance level for the adventitious presence of unapproved biotech events in imports of bulk grain and products. Although there were no reported disruptions to U.S. soybeans to China.

Responsible Soy Program

In addition to biotech-free characteristics, CSIA is also asking the Chinese government to consider adding production characteristics. In May 2013, The Association supported a Round Table on Responsible Soy Program (RTRS) by the Solidaridad, a multi-stakeholder initiative which aims to facilitate a global dialogue on soy production that is economically viable, socially equitable and environmentally sound. Based on an industry source, in 2014, one Chinese soybean trader became the first Chinese trader to receive the RTRS certificate for its soybean products. This program's impact on general soybean trade appears limited.

USDA and AQSIQ Continue Cooperation

In 2012, USDA and China's General Administration for Quality Supervision, Inspection and Quarantine (AQSIQ) signed a Memorandum of Understanding (MOU) to increase bilateral cooperation in the inspection and quarantine of U.S. Soybeans Exported to China. As a result, USDA and AQSIQ have conducted joint soybean vessel inspection programs first in March 2013 and more recently in November 2014. These programs continue to enhance understanding of inspection systems, quarantine standards, procedures and testing methodologies in both countries. A third joint program is envisioned for the fall of 2015. This bilateral cooperation in the areas of inspection and quarantine has significantly facilitated U.S. soybean trade to China.

The Impact of China-ASEAN Free Trade Zone on Oils Trade Remains Limited

The China-ASEAN Free Trade Agreement (CAFTA) was enacted on January 1, 2010. Under the Agreement, import duties on more than 90 percent of goods imported to China from ASEAN countries were eliminated. According to the 2015 Customs Import and Export Tariffs of China, the duties for palm oil, palm kernel oil, and copra oil remain unchanged from the previous year at 9 percent. In general, Chinese imports of palm oil from ASEAN countries are not expected to grow significantly given the ample supplies of lower-priced domestic crushed soybean oil and rapeseed oil.

Marketing

Despite a government announcement to raise the target price in May 2014, implementation details were announced much later than the harvest of the MY14/15 crop. In addition, the actual subsidy payment is not likely to reach farmers until the end of April 2015. This has delayed the marketing of MY14/15 crop. As the marketing price remained below the target price, farmers are holding soybeans seeking a better price and clearer details on the subsidy. According to industry sources, as of late 2014, the marketing rate of the MY14/15 crop in the major soybean-producing regions was less than 30 percent compared to the marketing rate in the previous year (over 40 percent). The majority of soybeans were sold for food processing. The purchase of domestic soybeans for crushing remained low given the price and quality advantages of imported soybeans.

In many coastal provinces, the marketing of domestic soybeans for food use is also increasingly challenged by the use of imported soybeans. Traders of domestic soybeans for food use are usually small to medium size operations and face difficulty in consolidating soybeans from households and villages. Improved highway systems and an increase in trucked soybeans could facilitate redistribution but would do little to address lower domestic supplies.

PSD Table

Country

China, Peoples Republic of

Commodity

Oilseed, Soybean (1000 tons; 1000 Ha)

2013/14

2014/15

2015/16

USDA Official

Post Estimate New

USDA Official

Post Estimate New

USDA Official

Post Estimate New

Market Year Begin

10/2013

10/2014

10/2015

Area Planted

7,700

6,850

7,700

6,600

0

6,500

Area Harvested

6,850

6,850

6,700

6,600

0

6,500

Beginning Stocks

12,378

12,378

14,427

14,427

0

14,077

Production

12,200

12,200

11,800

12,000

0

11,700

MY Imports

70,364

70,364

74,000

73,000

0

77,500

MY Imp. from U.S.

25,041

27,040

27,000

28,000

0

29,000

MY Imp. from EU

0

0

0

0

0

0

Total Supply

94,942

94,942

100,227

99,427

0

103,277

MY Exports

215

215

300

300

0

280

MY Exp. to EU

10

10

10

10

0

10

Crush

68,850

68,850

74,500

73,000

0

77,000

Food Use Dom. Cons.

9,650

9,650

9,700

10,250

0

10,350

Feed Waste Dom. Cons.

1,800

1,800

1,700

1,800

0

1,800

Total Dom. Cons.

80,300

80,300

85,900

85,050

0

89,150

Ending Stocks

14,427

14,427

14,027

14,077

0

13,847

Total Distribution

94,942

94,942

100,227

99,427

0

103,277

CY Imports

68,000

71,401

72,000

73,000

0

77,000

CY Imp. from U.S.

28,500

30,028

24,000

27,500

29,000

CY Exports

300

300

300

280

0

280

CY Exp. to U.S.

80

80

80

16

0

16