China 2017/18 Soybean Imports Soar on Appetite for Pork, Aquaculture, and Dairy

Global soybean consumption is forecast to grow 4 percent in 2017/18, driven mainly by China’s strong protein feed demand. This demand is projected to lift soybean imports to a record 93 million tons. Despite recent variability in animal production, expanding hog populations, consolidation and modernization of the animal production sectors (primarily higher yields per hog and dairy cattle), as well as a growing aquaculture industry, are all driving total feed demand and production upward.

China remains the top global producer of pork and currently holds over half of the world’s supply, so without a doubt, rising pork production is the main driver of feed demand. However, China’s fish farming is also leading the world’s aquaculture growth and accounts for approximately 60 percent of globally farmed warm water species. In 2006, China’s total artificially cultivated aquatic production was estimated at 31 million tons. Within the last 10 years, aquaculture has grown in importance, with production estimated at a little over 50 million tons in 2016. According to the China Ministry of Agriculture, total aquaculture feed production in 2015 was estimated at approximately 55 million tons. Fish meal and roquette seed meal are the main protein sources in aqua feed; however, industry sources estimate that approximately 9.0 million tons of soybean meal is also used in fish farming. In 2005 soybean meal consumption for fish farming was estimated at only 4.5 million tons. Current feed production and consumption estimates suggest that soybean meal inclusion doubled over last 10 years. Industry sources expect this trend will continue to grow to satisfy rapidly increasing fish production, both for export and domestic consumption.

With limited global supplies of high-priced fish meal, China’s fish industry was forced to turn to alternatives. Feed expense is the main cost in fish farming and can account for almost half of total input costs. Fish meal, with its high protein content, has been a traditional ingredient but transitioning to less expensive soybean meal has become a necessity. This is generating more demand for imported soybeans.

Another changing industry in China is dairy, which alongside aquaculture is transitioning from backyard farming to more intensive commercial production. Urbanization, rising incomes, and the new two-child policy have contributed to growth in dairy consumption and growing consolidation and modernization of the industry. As Chinese dairy farmers have been struggling with low milk prices, and many smaller producers are exiting the industry, further consolidation into larger and more efficient operations continues. While China’s dairy herd continues to contract, recent consolidations have led to improvements in animal genetics and production facilities that have enhanced efficiency. Milk output per animal unit continues to rise and along with lower feed costs, industry profitability continues to improve. According to FAS/Beijing, small farms continue to withdraw from the dairy industry while farms with at least 100 head of dairy cattle are increasing. For the first time, these larger farms will account for over half of the dairy cattle inventory in China. This transition also contributes to increasing demand for soybean products in China as a majority of commercial farms use soybean meal in mixed feed rations.

Increased demand for soybean meal in China continues to have a positive impact on global soybean trade. This demand growth comes from many sources, not only pork and poultry, but also through aquaculture and, to a lesser extent, dairy. China’s soybean imports (October to April) stand at 49.6 million tons, 4.2 million more than during the same period last year. Imports so far this year from the United States total 33.4 million tons, over 6.8 million more than last marketing year. USDA projects that in 2017/18 China’s demand for soybeans will continue to grow, creating more opportunities for U.S. producers and exporters.

OVERVIEW

2017/18

Global oilseed production is forecast higher this month at 573.0 million tons. A larger cottonseed forecast in Pakistan and China, as well as higher sunflowerseed output projected for Ukraine, more than offset reductions in EU rapeseed. Global soybean production is unchanged this month. Soybean imports are lower this month as ample carry-in stocks in Brazil reduce the need for imports from Paraguay. Global exports are reduced on lowered projections for Argentina. Global soybean stocks are lifted this month with increases in Argentina and Brazil. The U.S. season-average farm price for soybeans is unchanged at $9.30 per bushel.

2016/17

The global oilseed production forecast is raised this month. Soybean production is boosted for Brazil and Argentina as harvest data continues to show improved yields. Both peanut and rapeseed crops have been adjusted higher for India and sunflowerseed production is up in Argentina. Global soybean imports are down on reductions in Bangladesh and Brazil. Exports are forecast unchanged this month as higher shipments from Brazil offset reductions in Argentina. Global soybean ending stocks are raised this month reflecting larger harvests in South America. The U.S. season-average farm price for soybeans is unchanged at $9.55 per bushel.

SOYBEAN PRICES

U.S. export bids in May, FOB Gulf, averaged $367/ton, up $7 from last month. FOB Brazil Paranagua averaged $367/ton, up $10 from last month. FOB Argentina Up River averaged $360, up $9 from last month. Early season weather concerns impacting the pace of plantings in the United States helped support prices. Strong demand for soybeans in both the United States and South America, along with a slower pace of producer sales in Brazil, also lent some support for prices. However, record production in Brazil, coupled with abundant supplies in the United States, continues to weigh on the market and drag prices lower into June. Exchange rate movements continue to impact price levels.

For the week ending June 1, U.S. 2016/17 soybean export commitments (outstanding sales plus accumulated exports) to China totaled 35.9 million tons compared to 27.4 million a year ago. Total commitments to the world are 58.6 million tons compared to 48.5 million for the same period last year.

2017/18 OUTLOOK CHANGES

  • Argentina soybean exports are cut 500,000 tons to 8.5 million reflecting the lower 2016/17 forecast and strong competition with Brazil and U.S. origins in 2017/18.
  • Brazil soybean imports are slashed 150,000 tons to 250,000 on ample carry-in stocks and a shift in Paraguay exports (to Argentina).
  • European Union sunflowerseed oil and meal imports are both raised 100,000 tons to 1.6 and 3.8 million, respectively, following reductions in rapeseed crop projections.
  • Ukraine sunflowerseed oil and meal exports are boosted 200,000 tons each to 5.2 and 4.6 million, respectively, following greater crop prospects.

2016/17 TRADE CHANGES

  • Argentina
    • Soybean exports are down 500,000 tons to 8.5 million in response to a slower pace of trade reflecting competitive pressure from Brazil’s record crop.
    • Soybean meal exports are up 150,000 tons to 31.8 million on stronger trade and slower exports from Brazil.
    • Sunflowerseed exports are slashed 100,000 tons to 118,000 as the European Union shifts from seed to product imports to meet domestic demand.
    • Sunflowerseed meal exports are raised 100,000 tons to 680,000 on continuing strong demand mainly in the European Union.
  • Bangladesh soybean imports are reduced 100,000 tons to 850,000 on the pace of trade.
  • Brazil
    • Soybean imports plunge 200,000 tons to 300,000 in response to large domestic supplies and a shift in Paraguay exports to Argentina. Exports are lifted 500,000 tons to 62.4 million reflecting the larger production estimate, record export volume in May, and expectations of increased producer sales as farmers gear up for next year’s plantings.
    • Soybean meal exports are cut 200,000 tons to 15.0 million on a slower pace of crush and exports.
  • Malaysia palm oil imports are down 100,000 tons to 700,000, and exports are lowered 200,000 tons to 16.8 million on the pace of trade.