After the Chinese leader Xi Jinping stated that “the rice bowl should be in our own hands,” China’s Ministry of Agriculture and Rural Affairs identified expanding soybean production as a “key political task” that must be fulfilled this year. Since then, the price of imported soybeans has skyrocketed, resulting in shutdowns of China’s soybean crushing factories. So, why is China’s soybean demand so heavily reliant on imports? Meanwhile, though the prices of soybean meal and pig feed have risen, the cost of pork has remained unchanged.
In an article on food published by the People’s Daily on Feb. 20, Xi Jinping proposed at the end of last year that “the rice bowl should be in your own hands,” and the structure of grain planting should be adjusted, the planting of soybeans and oil crops should be expanded.
Soybeans are planted in the black land in the Northeast along with rapeseed peanuts, sunflowers, and sesame seeds—needed in many areas in the northwest and South.
The history of soybean planting in China is quite long. It began in the Shang Dynasty, and China was the largest soybean producer from the Warring States period to the Qing Dynasty. Before joining the WTO in 2000, China was a net exporter of soybeans.
How did the soybean price hike make China so anxious?
According to the 2016 U.S. Department of Agriculture (USDA) data, soybean oil accounted for more than 44% of the vegetable oil consumption in China, followed by rapeseed oil at 24%, palm oil at 18%, and peanut oil at 9%.
In early April, Fulinmen and Arowana, the two major edible oil producers in mainland China, raised the prices of rapeseed oil and peanut oil by 8%. Although the Chinese “experts” said that the proportion of the consumption of these two oils is not high and it will not increase the upward pressure on the consumer price index (CPI), people may ignore the fact of the rise in oil prices before the costs of food and clothing rise.
China’s annual soybean consumption is about 100 million tons. However, it is not self-sufficient, and the gap is enormous, with a production and demand gap of more than 90 million tons. In 2020, China’s soybean imports exceeded 100 million tons, according to the country’s official data.
Zhang Lichen, vice president of the China Soybean Industry Association, said that domestic soybeans are mainly used to make food, processed soybean products, and soybean protein. In contrast, imported soybeans are used to press vegetable oil and feed, only 20% is processed into oil, and 80% is processed into soybean meal. China has such a high degree of dependence on soybean imports, and it is no surprise that it wants to “stabilize soybeans.”
Soybeans are about China’s ‘national fortune’
By 2021, the area and output of soybeans in China continued to decline, while imports have also declined. According to the official data, in 2021, China’s total soybean production is estimated at 16.4 million tons, a decrease of 3.2 million tons or 16.4% from the previous year. Imports fell back below the 100 million tons level, at 96.518 million tons. The decline from the last year was 3.81 million tons, or 3.8% year-on-year. Therefore, the annual soybean supply in 2021 was down by 7.01 million tons.
In addition, there were some changes in the structure of China’s soybean imports last year.
According to data released by the Chinese Customs on Jan. 20, in 2021, China imported 32.3 million tons of soybeans from the United States, a year-on-year increase of 25%, while imports from Brazil were 58.15 million tons, a year-on-year decrease of nearly 10%.
This trend continues through this year. For example, a market source mentioned that in the second and third weeks of February, orders for about ten cargoes of Brazilian soybeans were canceled, a situation the industry refers to as “ship washing” when both buyers and sellers agree. In this case, the contract does not make actual delivery. So why is there such a large-scale Shipwash? Of course, the reason is money.
The soybean crop production outlook has deteriorated in Brazil after several weeks of dry weather, and some analysts have lowered their production forecasts for Brazilian soybeans.
The sudden surge in Brazilian soybean export prices has made Brazilian processing soybeans unprofitable. In addition, some reports mentioned that China’s oil mills face weakened demand for soybean meal in the breeding industry because of high import costs and falling pork prices in China.
Sources said Chinese buyers are likely to put all overseas soybean purchases on hold for now. There is indeed market news that some soybean crushing plants plan to stop production from southern China to northern China. According to sources, Bunge’s Tianjin crushing plant will be shut down for 49 days from Feb. 14 to Apr. 3, and Bunge’s Nanjing crushing plant is scheduled to shut down for nearly a month from the end of February to March. In addition, there are also many crushing plants in Guangxi that plan to shut down in March.
On Feb. 16, China Grain Reserves auctioned 10,000 tons of domestic soybeans, but the auctions were unsuccessful. The transaction rates were 47% and 67% in the two previous auctions, respectively.
Moreover, with the tension between China and the United States, Beijing has to purchase more American soybeans. In recent weeks, Chinese buyers have seen an increased pace of purchases of U.S. soybeans. From Jan. 28 to Feb. 18, U.S. exporters reported combined sales of 3.4 million tons of soybeans to China and unknown destinations, according to single-day export sales data released by the U.S. Department of Agriculture. Unknown destinations here are generally thought to be China.
Therefore, over the last weekend, China’s official media published an article calling for the Northeast to plant soybeans and the South to plant sesame and rapeseed. Moreover, before the press issued the report, mainland China’s grain and oil network issued an article saying that soybean is an important “grain, oil, and feed” crop related to food security and is more connected to “national transportation.”
Feed prices rise, and pig prices bottom out and rebound?
Xinmu.com reported on Feb. 12 that U.S. soybean futures have risen to an eight-month high. As of Feb. 10, the price of imported soybeans from the United States, Brazil, and Argentina was close to $808 per ton, a significant increase.
However, feed companies did not “lie down,” and the impact of soybean prices began to be transmitted to the spot price of domestic soybean meal. On Feb. 11, the quotation from the Guangzhou Feed Association showed that soybean meal was $697 per ton; fermented soybean meal was $919 per ton.
More than 30 feed factories in China have announced their price increases. According to the standard logic of rising water prices, the feed price has grown so much that pigs should be expensive. The reality is, however, that Pork prices have fallen again.
Data show that since the beginning of this year, the average price of live pigs in Waisanyuan has dropped by 20.69%, and the average market price of white strip pork has dropped by 14.13%. In addition, the latest data from the Bureau of Statistics of China shows that in late January 2022, the price of live pigs in Waisanyuan was $2.18 per kilogram.
The cost of feed has risen, while the price of pork has dropped. Therefore, many pork companies have reported losses.
Recently, the price ratio of pig grain in China has dropped to 5.04:1, entering the second-level warning range set by the National Development and Reform Commission of China. On Feb. 8, the commission announced that it would start the pork reserve purchase and storage work depending on the situation.
Some brokerages predict that this round of pork prices will bottom out in the third quarter of this year, and some analysts predict that pig prices will reverse in the fourth quarter of this year or the first quarter of next year.
China has grown soybeans for thousands of years, and the output has been very high. So why has China suddenly not planted so many soybeans in the past 20 years?
After China joined the WTO, China abolished the import tariff quota for soybeans and lowered the import tariff to 3%, reducing the import tariff of soybean oil from 63% in 2001 to 9% in 2006. Meanwhile, the import tariff of soybean meal remained unchanged at 5%. As a result, the cost of planting soybeans for Chinese farmers became significantly higher and unprofitable.
On the one hand, the United States has a high degree of mechanization in planting soybeans, which reduces planting costs. On the other hand, American soybeans are genetically modified, with their oil content higher than China’s domestic soybeans. For example, farmers in Heilongjiang have switched to growing corn because their income is higher than soybeans.
China’s various decisions often tear down the east wall to make up for the west wall, all for temporary gain. Now though Xi Jinping put forward the theory of rice bowls, it seems that soybeans have been taken seriously again, but can the problems be solved?