Soybean Market : Price Analysis in Supply and Demand Perspective
Soybean Market - What to Expect?
The price of soybean experienced a period of fluctuation through 1H18. The U.S - China trade war was the major key factor to the volatility of the market. Regardless of the unfavorable situation, however, the global demand and supply of soybean have been rising. Driven by the active livestock sector and expanded cultivation acreage, the market growth is expected to continue.
Usages of Soybean
Soybean, originated in Southeast Asia, is one of the leading crops widely consumed over the world. While soybean has various usages, most of the soybeans are processed to soybean oil. Soybean oils are mainly used for cooking purpose, and other uses such as; biodiesel fuel, industrial solvents, and others.
Soybean is high in protein, which makes it suitable for animal feed. Poultry, swine, and cattle consist the majority of soybean meal consumption. Although 98% of soybean meal is consumed by livestock, some portion is also consumed by humans in different ways: tofu, milk, sauce, meat alternatives, and others.
Global Production
Source: Production data privded by Tridge
USDA projects soybean production to reach 355.2 million tonnes in 2018/19, up 18.5million from 336.7 million tonnes from the previous year.
Soybean production in Brazil, U.S., and Argentina sum up to over 80% of world soybean production. In 2017/18 harvest, soybean production in three nations are estimated at; 115.5 million tonnes in Brazil, 90.1 million tonnes in U.S., and 37 million tonnes in Argentina.
Source: Export data provided by Tridge
These nations are also ranked top 3 in terms of export. According to Tridge, Brazil, U.S. and Argentine account for 40.7%, 39.7%, and 7.3% respectively in global export.
Brazil soybean production is bolstered by favorable weather as well as improved technology and is projected to increase by 4% this year. Brazilian production is likely to continue improving under the support of the government. The government plans to construct railway of over 1,000 kilometers to connect areas that produce soybean.
Argentina faces a drastic decrease in production by more than 30% since last year due to drought. Late rains in May caused a flood, making the harvesting process more difficult. However, the fall is temporary and 2018/19 production is expected to recover to approximately 61 million tonnes. Argentina government lowered export taxation and recently modified the taxation timing of soybean products, allowing exporters lower rate of tax.
Paraguay is a rising supplier of soybean in the global market with a current share of 3%. This year, the nation topped Argentina with soybean export for the first time. While the main cause was the drought in Argentina, Paraguay has shown a steady increase in annual soybean product export, especially with the projected increase of more than 10 million tonnes in 2018. Paraguay aims to double the soybean export within next decade by extending the production area to Chaco, a semi-arid western region of the country.
Global Trades
Source: Import data provided by Tridge
In 2016/17, China accounted for 93.5 million tonnes, or around 70% of the world soybean import of USD 51.6 billion. Due to active domestic feed and livestock sectors, USDA estimates the import to continuously rise to surpass 100 million tonnes by 2018/19. Regardless of Chinese government’s attempt to increase domestic production, the increasing demand cannot be fully met due to the limited amount of land suitable for soybean cultivation.
Other main importers include Netherlands, Mexico, Germany, and Spain, each sharing approximately 3% of the market. In particular, Netherlands, which stands second after China in soybean import, experienced an increase in quantity demanded by 58.2% in 2016. The soybean demand continues to grow, led by consumer’s interest in genetically modified(GM)-free products and the nation’s active livestock sector. However, the European Soya Declaration recently signed by the Dutch government to support European soybean production is likely to put a dent in the rapid increase of import.
2018 Market Outlook
Source: CEIC, Tridge
USDA estimates the global production of soybean will continue to increase, driven by the soaring demand. However, the ongoing trade war between U.S. and China makes the immediate outlook of soybean market bleak.
In response to U.S. President Donald Trump’s decision in levying tariffs on imported Chinese goods, China imposed 25% tariff on U.S. soybean. Last April, the amount of soybean import canceled by China summed up to 62,690 tonnes. The recent escalation of tension resulted in the 10% drop in soybean futures price in less than a month. Brazil is to largely replace the U.S. soybean export to China.
Once the political dispute resolves, the long-term prospect on soybean market gets more optimistic. Rise in demand for soybean has driven increase in production. Both the soybean yield and acreage in U.S. has risen nearly 20% over last decade, and the similar trend appears globally.
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References
1. https://www.tridge.com/intelligences/soybean
2. https://apps.fas.usda.gov/psdonline/circulars/production.pdf