The only thing more amazing than the growth in global soybean production is the growing Chinese soybean demand.
The chart below shows how soybean production in China has increased by nearly 200% in the last decade and soybean imports have soared by 1,000%.
The growth in demand has been created by improved diets for many Chinese and the growing share of the feed market that soybean growers have captured in the last decade.
The U.S., Brazil and Argentina are all projected to harvest record or near-record crops this year. And because of the growing demand from China, ending stocks are pegged to make just a fractional increase, if they even go up at all.
Soybean processing plants in China were initially built at major coastal ports. But in the last few years, many new, smaller mills are also being built in the interior. Good crush margins, a growing livestock herd and limited government intervention have created a growing demand for soybeans. If you take China out of the global soybean market, ending stocks would likely jump by 300-350 million bushels.
Will the huge demand continue, and will exports continue to grow? Yes and maybe. China's economy has been very resilient and continues to improve. As an increasing number of workers enjoy better incomes, meat consumption continues to grow.
However, China's government may be concerned about becoming too dependent on soybean imports. It recently changed its GM soybean import policy and has voiced some concerns about the need to issue GM safety certificates — on soybeans that come in from the U.S.
The grain trade is reluctant to ship soybeans to China until the GM safety certificate labeling policy is clarified. This uncertainty has created a more volatile soybean market and lower soybean prices for U.S. farmers. Assuming that a clear ruling and that clear-cut industry rules can be worked out, odds are good that soybean exports to China will continue to trend higher by the third and fourth quarters of 2002.
China needs to keep a steady flow of soybeans into its market channels to get the 26-28 million metric tons moved to its interior processing facilities.
Our current analysis of the May CBOT soybean chart shows a potential major low on Jan. 2. The market setback into late January at $4.20 shows a higher bottom being posted on that important chart. The real short-term key to prices is if May futures can go up and close above $4.60. That would open the door for a test of the $4.80-5 price level.
What to do? In the next 30 days, large South American supplies will keep soybean prices under pressure as Brazilian and Argentine farmers sell their record crops. Any reduction in planted soybean acreage in the U.S., or any North American crop scares later this year, could rally soybean prices back toward $5 or higher.
Hopefully you have 50-100% of your 2001 crop soybeans sold — but at the current price level and at this time of year, I am reluctant to recommend any new crop sales.
Alan Kluis is executive vice president of NorthStar Commodity Investment Co. If you have marketing questions or want more information, write: NorthStar, 1000 Piper Jaffray Plaza, 444 Cedar Ave., St. Paul, MN 55101; call: 800-345-7692 or e-mail: [email protected].