Soybeans are native to China. As early as 2853 B.C. the plant was proclaimed one of five sacred plants by the Emperor Shennong (the others were rice, wheat, barley and millet). For thousands of years the cultivation of soybeans was confined mostly to East Asia. It was only in the 20th century that production increased rapidly in the rest of the world. In living memory there were few soybeans in Argentina for example, a country that is now a soybean producing and exporting powerhouse.
Soybeans are a crucial source of protein for animal production. It would not be an exaggeration to say that soybean meal made possible the production of farm animals such as chickens on the scale that is common in the world today. The ups and downs of soybean supply and demand are equally important to the world poultry industry as corn supply and demand (the plant Emperor Shennong forgot to mention because it was in the Americas).
China's role in soybean supply and demand
China, the country that was the original source of soybeans, now plays an enormous role in determining the world supply and demand for soybeans not because of production but because of use. As the graph illustrates, imports of soybeans by China rose at an astounding rate in the last 20 years. From zero net imports in 1995, Chinese imports rose steadily to reach a projected 69 million metric tons in crop year 2013-14. It is noteworthy that total world imports of soybeans and soybean meal are 150 million metric tons. China absorbs nearly half of all soybeans or soybean meal in world trade.
This meteoric rise in soybean imports by China raises at least three questions. First, why did imports rise so fast? Second, will imports continue to increase at this rate? Finally, what effect will the voracious appetite of China have on the future price of soybeans?
Soybean use in China increased at a rapid rate in large part because the diet in China changed suddenly. As per capita income increased in China, the consumption of meat increased as well. The total per capita consumption of all animal protein (meat, poultry, eggs and fish) doubled between 1995 and 2013, and the demand for soybeans followed suit. The considerable but ultimately limited agricultural resources of China are used primarily for rice, corn and wheat production and not soybean production. Therefore, most of the additional soybeans came from imports. Animal protein consumption can be expected to continue to increase in China but not at the rate of the last 20 years. Chinese meat consumption has reached the point (100 kilos per capita) at which growth is likely to slow considerably. In addition, the growth in the total population of China is slowing and will eventually decline.
Soybean imports to China to slow
With a slowdown imminent in the rate of increase in animal protein in China, the rate at which imports of soybeans grows is also about to slow down. Instead of growing at 5 million metric tons per year, it can be expected that the rate of increase will be falling. Over the next several years a much lower average growth of perhaps 2 or 3 million metric tons can be expected.Over the last 20 years the increased use of soybeans in China did indeed increase the price of soybeans worldwide. Those higher prices provided a powerful incentive for more production in the rest of the world, most notably in Brazil and Argentina. This "China effect" was particularly notable after recent back-to-back droughts in North and South America diminished supply as China continued to consume ever larger quantities. That led to record high prices of soybeans. Those high prices are now starting to recede as better harvests and new lands add to supply. The China effect, while profound in recent years, is already past its greatest moment of influence and will recede into the background over time as supply finally catches up to the new demand reality.