Why does China import soybeans?
Pork Feed
From the webinar presented by Todd Goll from Marex on 31 March 2023, it was discussed that China’s imports of soybean were significant to the production of pork. Pork is a predominant protein source that goes into Chinese diets. In total, China produces more pork then the next 9 largest producers including the European Union, United States, Brazil and Russia.
As a result, the increased demand for pork feed has also led to the increase of soybean imports and soybean production.
Soybean Production
Other than the increased pork feed, governmental strategy to increase standard of living and to cater to rising population size has also led to the need to increase China’s soybean production. The following are some of the estimates of soybean production among different countries.
Brazil:
In 2003-2004, Brazil exported around 26 to 27 million tons of beans. Production was at 60 million tons.
In 2022-2023, Brazil exported around 92 million tons of beans. Production was at 153 million tons.
Part of the reason of the drastic jump in production volumes from Brazil was due to the increasing appetite from China’s industry. As a large stakeholder and major soybean producer that supports the China’s soybean industry, total imports from China in 22/23 had reached 96 million tons, of which, Brazil exports 90 million. (Brazilian president Jair Bolsonaro has also supported the flourishing of the soybean market. From Lemonde, it is reported that “For soybean farmers, Bolsonaro is a hero”, read more here.).
Argentina:
In 2003-2004, Argentina exported around 11 million tons. Production was at 36 million tons.
In 2022-2023, Argentina exported around 4 million tons. Production was at 41 million tons.
Argentina is predominantly a soybean crush country with the crush at 25 million and 37 million tons around 2003 and 2023 respectively. In comparison to Brazil and the USA, Argentina’s soybean market serves more as a back-up export than a main source of China’s soybean.
US
In 2003-2004, USA exported around 24 million tons. Production was at 65 million tons.
In 2022-2023, USA exported around 54 million tons. Production was at 116 million tons.
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Soybean Prices
Among the 54 million that is exported by USA, approximately 30 to 35 million are exported to China. Based on the research from Todd, soybean prices managed to hit above $15 due to non-matching growth between the supply and demand.
To elaborate, the net change in world production from 2021/2022 to 2023 is about 25 million tons. However, taking into account that the estimate for Argentina is lesser, production/supply has only increased from one marketing year to the next by 15 million tons.
On the other hand, total usage from the demand side has increased by 14 million tons. With the supply and demand at a difference of 1 million, the U.S balance sheet remains tight.
Subsequently, Todd also presents an alternate way of showing the tremendous market growth and its potential impacts. From the 3 major countries, Brazil, Argentina and the US:
The net change in production was 191%.
The net change in exports was 240%.
The net change in China’s imports was 417%.
With China’s imports booming in a short span of time, the exportable supplies of the world are increasingly headed towards China and the imports to the country has grown from 36% in 2003/04 to 63% in 2022/23. In these circumstances, the supply demand dynamics of the soybean market remains problematic as the tight supply is likely to keep prices high.
Normally, Argentine soybean prices on a 5 basis would be cheaper than US but they are not. Additionally, Brazilian crop is expected to be bountiful next harvest (March to April) but that would also be faced with logistical problems such as bringing them to port, resulting in an inverse spread.
Soybean Forecast
For the Soybean forecast and outlook for 2023/24, refer to the United States Department of Agriculture (USDA) grain and oilseeds outlook published on February 23, 2023.
Cross-Border Arbitrage Opportunities
While heads turn towards upcoming change in prices, the supply from Brazilian soybean harvest remain one of the major factors affecting soybean futures and soybean prices.
Nonetheless, apart from tracking pricing changes, other trade strategies can also be used to make use of Dalian Commodity exchange (DCE)’s Soybean contracts. For example, traders may choose to use cross-market arbitrage between DCE and CBOT or the defined spread between CBOT Brazilian Soybean (SAS) and CBOT Soybean (ZS).
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