The soy market is integral to the international and national economies of the world, and that market is in the early stages of major change. Although the industry is growing, there are several factors to take into consideration that will have impact, such as cost barriers and developing countries protein needs.
Express Markets Inc. (EMI) provides poultry market analysis for its diverse clientele of producers, further processors, distributors, foodservice, retailers and many allied companies. They also host a twice-yearly spring and fall protein conference, which provides a comprehensive outlook of the current and future protein markets. After this year’s fall conference in Dallas, Texas, Dr. Scott Carter, Chief Scientific Officer at ANIZOME, described the current state of the market as in the preliminary phases of transition. “Now, during a time of low volatility and price, is the time to prepare for major market changes that are only three harvest seasons away,” he said.
During this “eye of the storm” opportunity, buyers and sellers of soy should stay abreast of the multiple factors poised to shape the future of the soybean meal market, as these changes have the potential to transfer power, alter demand and influence value in significant, long-term ways.
KEY FACTS
- The international animal protein market remains a significant and growing market for soybean meal – with a preference for U.S. Soy’s quality.
- While U.S. Soy’s nutritional profile is preferred, cost is a barrier, given slim profit margins in the meat, egg and dairy industries. However, recent market changes may be helping U.S. Soy overcome this obstacle.
- Measuring improvements in developing countries economic health is a direct indicator of that country’s potential as a soybean meal importer. Several of these emerging economies like Egypt and India will shape the future markets for U.S. Soy.
- Corn and soybean prices trend together due to integration in production and consumption, creating a symbiotic relationship to weather market shocks.
- Human food consumer preferences have a trickle-down impact on soybeans crushed for soybean meal for animal feed.
Soybean meal is included in more than 90 percent of diets for poultry and swine, so the currently tumultuous animal protein industry is closely connected with the overall success of U. S. soybean meal.1Beyond that, soy has become an indicator of the price of protein around the world and directly connected to the stability of economies due to its tight connections with other commodities.2Though central to many market functions, soy’s usability and diversity of markets continue to widen. Understanding the various overlapping arenas soy in the marketplace is crucial in preparing for what’s to come.
Animal Protein Market Growth
More people equal more demand for animal protein. According to the latest data from the Food and Agriculture Organization of the United Nations, the growth rate of the world’s population has declined.3However, at close to 7.5 million people, the planet still has the largest total population to date, doubling since the 1960s. In addition to more people, more nations are considered “developed” and “developing,” which has a proven correlation with an increase in animal protein demand and development according to the FAO. The global animal protein market continues to show production growth at 3 to 4 percent year-over-year to meet this need, according to the latest industry data shared at the EMI Fall Protein Conference. Production expansion mainly centers around Brazil, China and the U.S. This fierce competition between world powers is cited as a major influence on the current low prices in the markets for meat, egg and dairy products.4
Profitability Challenges
Because of continuing profit-margin pressure, animal protein producers seek cost-effective protein that provides an attractive amino acid profile. EMI Fall Protein Conference presenters shared that they expect many protein producers to continue through negative profitability, despite low input costs. Low product prices make profit margins razor-thin for livestock and poultry sellers. The main nutritional focus is on meeting the necessary limiting amino acid requirements of the animal, so they meet their growth potential at minimal cost.
“This is good news for protein producers and nutritionists as it signals very low and consistent feed costs through 2020 and a strong measure of stability,” said Dr. Carter.
China still maintains the No. 1 spot in soybean meal production with an estimated 75.2 million metric tons in 2017.5The U.S., in comparison, produced 42.2 MMT. Not only does China have the largest supply, but it also has the lowest cost. The USDAcited that the Chinese government’s implementation of a “market-oriented soybeans price plus a direct subsidy to soybean farmers” helped offset low-priced meal.6However, Chinese farmers surveyed all reported a negative net profit from soybeans in MY17/18, leading to a reduction in forecasted planted acres for MY18/19. This will provide an advantage, though slim, to competing U.S. meal sellers as Chinese soybean farmers continue to struggle with growing yields and productivity per acre, unlike U.S farmers.6
African Swine Fever Support
With African Swine Fever inciting fear around the world and catastrophic damage in China and nearby regions, there is no doubt this will be a shaping event for the pig industry. ASF is transferred by contact, pig to pig and humans and feed to pigs. Its fatal potential is enough for producers to feel wary of sourcing their feed from affected areas for fear of bringing the virus straight to their pigs. The Swine Health Information Centerput out “holding time” instructions for managing feed imported from an ASF-affected area.7The time is based on a calculated half-life of viruses in soybean meal. SHIC recommended 78 days after a born-on date for sealed feed and 286 days for unsealed feed, but that recommendation only further instigated fear of ASF living in producers’ Chinese pig feed.
This virus has created a two-fold impact on the industry. First, it will continue to negatively impact the Chinese swine industry. As a result of reduced pig populations, China may reduce its imports by more than 10 MMT, pulling demand away from an already over-supplied global market.8On the other hand, swine producers in the U.S. who were previously importing cheap soybean meal from China are thinking twice. The risk of introducing a disease with a 100 percent mortality rate is a much heavier consideration than a few cents on the dollar for feedstuffs. Current market conditions make the switch away from Chinese soymeal easier than in the past and could allow the opportunity for U.S. Soy producers to prove the efficacy of their product and retain some of these consumers even after the disease is eradicated.
Opportunities in Aquaculture
Aquaculture is the fastest-growing agriculture segment in the U.S. with growth rates exceeding 6 percent.9Farmed fish currently comprise approximately half the global fish protein intake. The growth potential of this market makes it very attractive for several feedstuffs, but none more than soybean meal. Previously, farmed fish took in a certain amount of protein from other animal proteins such as fish and chicken byproducts. However, consumer preferences have brought criticism on this practice, prompting fish farmers to change the preferred protein source for their diets. Already, soy has taken a significant market share around the world.
As U.S. aquaculture grows in conjunction with the global sector, U.S. Soy has an opportunity to get in on the ground floor — as the U.S. farmed fish market is forecasted to continue to have successful growth. Tilapia specifically, dubbed “aquatic chicken,” is widely accepted by consumers worldwide, particularly those looking to move away from red meat or reduce meat consumption altogether (TFS). With many animal protein products facing disease or consumer concerns such as environmental friendliness and welfare, tilapia is an attractive choice. The fish have rapid growth rates, high-quality flesh, tolerance to disease and the ability to grow and reproduce easily in all climates, with no potential for impact from climate change. Using fish meal means expensive feed ingredients with consumer concerns but feeding soybean meal means low-cost protein and a supply big enough to service the exponential growth of the segment.
Developing Nations
Meeting global demand is a concern for much of the agriculture sector, but not for soy. Soy production reached another record level in MY17/18 (USDA). With abundance, however, establishing new markets becomes a top priority, particularly with complicated trade issues with two major players: China and U.S. After the U.S. issued China-specific tariffs on July 6, 2018, China retaliated with their own on August 3, 2018. This round of Chinese tariffs specifically applied to U.S. agricultural products (25 percent tariff). Both sides opted to shift the global trade flow for soy for the 2018 U.S. harvest rather than face crippling profit loss due to the tariffs – leading to increasing exports with previously minor trade partners and creating entirely new export avenues to handle the soy supply. “We did a great job of exporting to countries we didn’t normally export to, including developing countries,” John Baize, economic consultant for USSEC.
Developing countries provide new frontiers with little need for innovation or investment like the creation of a new product offering, making them attractive for producers all over the world. The U.N. cites that development correlates with animal protein consumption. New demand for meat products, in turn, bolsters new and developing production markets such as Egypt and India. According to the FAO, world meat production will continue steady growth after hitting approximately 336 MMT in 2018.10Developing markets benefit from favorable meat-to-feed price rations, enabling flock and herd expansions in key producing regions that would have otherwise been delayed. In many ways, developing countries are reaping the benefits from the conflicts between the U.S. and China. For example, the FAO projects the GDP growth of India at approximately 8 percent per year for the next decade. This economic growth will ripple throughout all development industries in India, including agriculture and livestock production.
Competing with Red Meat for Egyptian Share
Egyptian citizens and their government are demanding more meat production. In February 2017, Egyptian parliament established new leadership for its Ministry of Agriculture and Land Reclamation. The new administration is focused on “improving the nation’s livestock sector and expanding beef production”.6With the U.S. Soybean Export Council (USSEC) providing the feed, the Sustainable Transformation of Egypt’s Aquaculture Market System project by WorldFish, an international non-profit research group out of Malaysia, further supports opportunity for growth in the animal protein sector in Egypt. While Egypt prefers beef and red meat products, land and production costs make red meat expensive for many Egyptians. Overall, the demand for beef, poultry and aquaculture is predicted to grow in the region through Egyptian consumption as well as a push for a larger export market for the country. The overall GDP growth in Egypt of 1.89 percent per year points to continued opportunity.10
Poultry Partners
According to the most recent USDAreport, “Chicken meat exports are forecast a robust 4 percent higher to a new record.11Shipments by major traders are fueled largely by rising consumption in developing markets, such as the Philippines, Angola, Cuba, and Ghana.” Much of this growth is expected to be met by U.S. poultry producers with other countries in a supporting role. World poultry production was estimated at nearly 123 million tons in 2018, according to a WATTsurvey.10The same survey reports U.S. broiler production will remain “relatively flat” into next year, while U.S. turkey producers expect nearly 2 percent growth. Since 2016, poultry is the meat protein with the largest production in the world, with developing countries driving demand. The average meat consumption per person per year has increased to 34.3 kilograms, and it is expected to continue to increase. According to WATT, “developing regions like the Middle East/North Africa, Latin America and Asia Pacific will account for much growth in per capita meat consumption over the next decade.”
All this growth and expansion in poultry provides a stable and promising platform for soybeans, as poultry nutritionists have more feed additives than ever to manage the digestibility of soybean meal in poultry for favorable results. For the past five years, soybean meal has been the dominant protein supplement used in poultry diets. The meat-to-feed cost ratio is a key indicator of adoption by poultry producers looking to replace other, more expensive protein sources in their diets, both in the U.S. and abroad. Soybean meal also complements the energy profile of corn, currently readily available and widely used in poultry diets as well.
New Avenues in Argentina
South America has become a key focus in the soy trade conversation as export/import relationships in place for decades are suddenly shifting, with Brazil and Argentina in the center. Bloombergreported that as of November 2018, Argentina is the new largest buyer of U.S. soybeans.12Typically, Argentina processes its own beans for oil and meal, but now Argentina is exporting its beans to China and bringing in U.S. beans to provide its crushers. A drought in the 2018 growing season for Argentina also stymied its domestic supply. This presents an excellent opportunity to build preference for U.S. Soy in soybean meal for livestock, as Argentina and Brazil continue to see impressive growth in their livestock segment. The USDAestimates that Argentine beef exports alone will rise by 25 percent.13Beyond this, global demand leaves room for growth in the Argentine market without necessarily needing to reduce in other areas.
Baize projects global demand will grow by about 15 million tons in the 2018-2019 marketing year. “We have maintained about 12 to 14 million tons of demand growth worldwide in the last several years,” he says. “That means there will be room out there to export more even if it’s not going to China.” This further supports a long-term growth opportunity in Argentina.
GMO-Free/Organic Marketing
While genetically modified animals have yet to reach the public market, concerns around genetically modified soybeans fed to animals have arrived. Despite a study of over 100 billion animals published inScience Reviewin 2014 concluding that there is no harm in feeding livestock genetically modified crops, consumer preferences continue to move in the opposite direction.14Because most soy produced in the U.S. is modified, animal producers looking to meet these consumers’ demands must look internationally for their soy or face the reality of more expensive and less effective alternatives such as cereal or legume grains. The Non-GMO Project, responsible for the now-prevalent Non-GMO seal on product labels, characterizes the inclusion of GM-soy as “contaminated.”15These detrimental language choices make it difficult for GM-soy producers to advocate for their product’s use in processed foods or animal protein. Because even though the Non-GMO Project does not automatically void a meat, egg or dairy product for the animals’ diets containing GM-soy, it does state that it will void if “enough” GM-soy is found in the product to show up in their testing, which is a big risk for the retailer.
Beyond the Non-GMO label is the organic label, which doesn’t allow animals to be fed GM-grains for a single day of their lives. It also includes strict management requirements regarding facilities and health treatment. Retailers such as Whole Foods, which continue to prosper, market organic products as higher quality and with a higher price tag.16Premium prices on final products incentivize more animal producers to go organic, particularly in the current market climate where traditional meat products have slim profit margins.
Hormone Concerns
Dr. Jacqui Jacob of the University of Kentuckysays, “producers are also concerned about the hormone-like substances, called phytoestrogens, soybeans contain.”17Phytoestrogens are said to “mimic the action of the female hormone estrogen,” and consumers have worries around their intake level via meat, dairy and egg products. Although UK also shared that most studies on the impact of the hormone in humans have been inconclusive or reported benefits, concerns remain. Mainly, the confusion emerges when these naturally-occurring hormones, such as those found in soy, are discussed in similar contexts to growth hormones or other injected hormones.
A University of Nebraska-Lincolnstudy states, “All multi-cellular organisms contain hormones … When hormones are eaten, they are digested, broken down and largely neutralized, so they don’t act as hormones anymore.”18For comparison, there would likely be 1.9 nanograms of estrogen in an implanted beef animal, 520 nanograms of estrogen in ice cream, 2,000 nanograms in cabbage, and 170,000 nanograms of estrogen in soybean oil (all based on a 3-ounce serving size).
While these number could possibly incite fear in consumers, the fact remains that while estrogen can be linked as a carcinogen, it is still unlikely and unproven that the estrogen ingested from naturally-occurring foods has any impact on human health. As the University of Nebraska-Lincoln research put it, “It is easy to blame hormones and sometimes just meat for that matter, or food in general for health problems because the general public is removed from actual food production and processing.”
Clearly, combatting misinformation about hormones in soy and soy-fed animals and providing science-based facts will be crucial for the success of U.S. Soy in human food and animal feed.
Impacts of Corn on Soy
Diversification in investments is a widely known cautionary principle to avoid taking heavy losses; however, some commodity prices, such as corn and soy, often rise and fall together. In the U.S., many crop producers diversify the commodities they produce. They may raise beef cattle and have a rotating corn/soy crop production. In a column written for IFSauthor Manisha Pradhananga states, “It is not unusual for prices of related commodities to move together; if two commodities are either complements or substitutes in production or consumption, then a demand or supply shock in one commodity market may be transmitted to the other.”19In the case of corn and soy, they are not only often produced together but also often consumed together (soy as protein and corn as energy in a single animal diet). Pradhanaga also further explains in the IFS article, “If commodity speculators trade in two or more commodity markets, and the price of commodity A falls, speculators might have to sell commodity B to cover margin calls in the market for commodity A, thus leading B to move with A.” Essentially, when the soy market faces low prices and losses, everyone with a stake in the soy market behaves differently with their other investments to recoup losses and minimize additional loss. So, a shock to either market will cause a shock to the other because they are intertwined. Similarly, gains in either category can also help pull up a suffering commodity. Success in corn makes investors less likely to completely modify their soy behaviors as the loss is mitigated when looking at their overall net profits.
The current shock to the markets of corn and soy is caused by the trade issues between the U.S. and China. However, Dr. Carter says China’s emerging mandate for 10 percent ethanol will introduce volatility and price increases starting in 2021. The mandate is strongly influencing Chinese corn demand. According to Carter, the gap between Chinese corn production and consumption driven by ethanol demands by 2021 “will only continue to grow.” He maintains that the gap will start to have a significant impact on global corn prices, encouraging many to increase their corn production over soy to capitalize on the situation. “If this plays out as analysts expect, it would mean a return to high ingredient prices and nutritionists mandated to find creative ways to reduce expensive ingredients in their diets,” he says.
Summary
The global soy market has never been more complex. Soybean growers, crushers, soy product end marketers and even investors in other commodities are all facing an industry in flux. Trade issues with the U.S. and China (and how/if they are resolved) will determine the future of international trade for soy and the success of the various producer markets. In the midst of this political arena is a consumer whose preferences continue to evolve – putting additional pressure on the soy industry to deliver products to meet their needs or lose the business. But, in the face of challenge comes opportunity. For soy, the opportunities lie in developing economies and markets such as Egypt and India as well as the aquaculture industry at large. Additionally, the relationship between soy and animal agriculture around the world has never been stronger. Demand for meat continues to grow, and soybean meal is the high-protein, cost-effective solution livestock and poultry producers rely on. Soy market stakeholders that keep a careful eye on these various shifts and developments will be better poised to weather the storm and make the best strategic choices.
Citations.
3 http://www.fao.org/3/ca1796en/CA1796EN.pdf
5 https://www.mordorintelligence.com/industry-reports/soybean-meal-market
7 https://www.swinehealth.org/feed-safety-holding-time-calculation/
8https://www.dtnpf.com/agriculture/web/ag/news/article/2018/09/11/african-swine-fever-may-reduce
9https://thefishsite.com/articles/nile-tilapia-replacing-fish-meal-with-soybean-meal-and-yeast
10 http://www.poultrytrends.com/201811/index.php#/8
11 https://apps.fas.usda.gov/psdonline/circulars/livestock_poultry.pdf
13 https://www.fas.usda.gov/data/argentina-livestock-and-products-annual-2
15 https://www.nongmoproject.org/gmo-facts/high-risk/
16https://www.wholefoodsmarket.com/blog/whole-story/what-makes-organic-chicken-organic
17 https://articles.extension.org/pages/67352/feeding-soybean-to-poultry
18 https://newsroom.unl.edu/announce/beef/2846/15997
19 http://triplecrisis.com/why-did-commodity-prices-move-together/
