Industry

Long-Term World Soybean Outlook

Doane’s economists recently updated the International Agriculture Outlook report, which includes ten-year forecasts of harvested area, yield, production, utilization, per capita consumption and net trade of coarse grains, corn, soybeans, wheat, cotton, and rice for 17 countries or major regions that encompass the world; the countries and regions are displayed in the table below.  The report distills and conveys big-picture trends found in the global data on a semi-annual basis, and the following is focused on the world soybean market. The United States Department of Agriculture (USDA) Foreign Agricultural Service (FAS) provide the historical data.

In general, the international forecast is based on United Nations-sourced estimates of past yearly global censuses of population combined with long-term trends for per capita consumption to estimate world demand growth. Demand must be achieved by production from a combination of harvested area and yields with long-term trade netting the differences between demand and production. (A positive value for Net Trade in the tables represents a surplus of exports to imports. A negative value for Net Trade represents imports exceeding exports.)

Over the long term, world production comes into line with world consumption and world net imports approximate world net exports. In addition, the supply side (production plus net imports) of any country or region eventually comes into balance with the demand side (consumption + net exports). The projections are designed to provide a plausible scenario for the sectors covered, but not the actual outcomes in any particular year. China is handled differently because Chinese government officials are balancing domestic farmer needs, very large ending stocks, meeting tariff rate quotas (TRQ), and other political concerns. The baseline assumption is China’s rising consumption levels will allow it to simultaneously increase imports while reducing ending stocks or returning to a more normal stocks level.

Resting in the background of the analysis are the past estimates of global population growth, both for individual countries and accumulating to the global situation. The following chart clearly depicts that global population increases in a monotonous steady upward slope. As a starting point, world population is projected up 9% over the next decade, which will drive consumption increases.

The Asian Growth Center of China, India, Other Asia, and East Asia is experiencing great growth in food consumption, but has limited acreage available for cultivation. The current situation presents two key challenges.  The first is how to meet the increase in food consumption? The second is how to deliver the food to the people?

The Asian Growth Center accounts for 52% of the world population. The area consists of extreme poverty that is enjoying economic growth, which is very important for commodity consumption, but especially for food products. As income increases, a wealthy person responds by switching to high-end food products, eating at restaurants and maybe even hiring a chef. Although they are spending more money on eating, the volume of coarse grains, wheat, and protein meals consumed might not increase. By comparison, as income increases a poor person responds by adding ingredients to a basic diet. Eating tastier food often requires vegetable oil, meat, fruits, and vegetables. Meat production requires feed rations of grains and protein meals that are converted into weight gain. For example, if 1.6 pounds of feed is required to add 1 pound of chicken, switching or just adding chicken to the dish results in an increase in per capita consumption of grains and protein meals.

As meat consumption increases, a natural evolution is from backyard operations to commercial operations to gain economies of scale. African Swine Fever (ASF) is accelerating the trend towards commercial pork production, which will increase use of commercial feed rations. Commercial operations are more efficient at converting feed rations into meat due to feed rations that are more scientific and precise. The feed ration requires exact nutritional requirements that come from grains and vegetable meal versus table scraps. Long-term, ASF should be positive for grain and vegetable meal consumption. World-class operations feeding precise diets will increase consumption of grains and vegetable meals.  Also, the increase in commercial chicken production is forecast to continue to increase. The switch from backyard to commercial meat production is very beneficial to grain and vegetable meal consumption.

Meeting the Asian Growth Center’s increase in food consumption requires a world effort. Yields have continued to increase as the quality of machinery, seeds, and irrigation improves. Yields are expected to continue to increase, but additional acreage will have to be added. The additional marginal land will have lower yields than the average, which will pull the average yield gain down.

Total crop acreage in Asia, Australia, and Europe is expected to replace some hay and fallow land. South America and Africa have the most land available to enter crop production, but South America is best suited to add the quantity of land required to meet expanding world food consumption.

With food consumption growing faster than production in the Asian Growth Center, the area will continue to be grain and soybean deficit. As consumption increases over time, trade also increases. From 2009 to 2018, Asian Growth Center imports of soybeans increased 72% and over the next ten years, imports of soybeans are forecast to increase 48%.

A tremendous amount of infrastructure investment has occurred in the Asian Growth Center and Brazil. Examples of supply chain investment are new ports, deeper ports that can handle larger vessels, railroad tracks that service the ports, more sophisticate grain storage systems, and commercial animal operations.

One area of the supply chain that is often ignored occurs from marketplace to home. The expansion of commercial animal operations increases the amount of product flowing from one location, which requires more cold storage capacity and the development of the transportation cool chain. The cool chain requires dependable sources of power. In developed countries, the cool chain is fully developed and taken for granted. Marketplaces in developing and poor countries have wet markets. A wet market is when meat taken to a venue frozen and the meat thaws over the course of the day. All over Asia, marketplaces are converting from a wet market to a refrigerated store. Homeowners are investing in refrigeration, which allows them to buy more meat and produce on each trip to the market.

Soybean world per capita consumption (PCC) averaged 43 pounds in 1990. By 2000, that had increased to 62 pounds, up 42%. China’s consumption grew strongly during that decade before it began its massive soybean import program. However, China’s per capita was only 19 pounds in 1990, compared to the U.S. at 304 pounds. By 2000, China was at 47 pounds, whereas the U.S. was at 383 pounds. Argentina and Brazil also saw outstanding growth in the 1990s. Argentina increased from 502 pounds to 1,091 pounds. Brazil’s gain was from 226 pounds to 310 pounds.

The years 2000 to 2010 found world per capita increasing from 62 pounds to 81 pounds despite the U.S. decreasing from 383 pounds to 344 pounds. The decline in U.S. PCC is easily associated with the competition of distillers dried grains that competed on price with soybean meal. Argentina’s per capita jumped from 1,091 pounds to 2,135 pounds. Brazil went from 310 pounds to 436 pounds. China advanced to 110 pounds from 47 pounds in 2000.

The forecast for world per capita use over the next ten years from 2019 to 2028 increases from 102 pounds to 120 pounds, or an 18% increase. For these same years, the Argentine forecast advances 10%, Brazil by 14%, China by 33%, and the U.S. by 5%. After decades of increases, China’s 2019 consumption will decline due to the trade war and ASF but is expected to bounce back quickly.

The much slower growth for Brazil is somewhat an artifact of the current trade conflict with China, which is finding mainly Brazil sending most of its exportable beans to China to the relative detriment of its own crush. Meanwhile, the U.S. crush is enhanced by soybean meal export demand to partially offset beans being diverted by Brazil to China. Although the meal is exported, the crush itself is itemized as domestic demand for soybeans in the balance sheets. 

In 2019, Ag Processing Inc. (AGP) opened a 60 million bushel per year soybean crushing plant in Aberdeen, South Dakota and CHS Inc. announced it is expanding its Fairmont, Minnesota facility, which is why PCC continues to increase. As the U.S. Corn Belt continues to expand, more crushing plants will continue to emerge. The northern and western Corn Belt expansion has resulted in farmers located in the expansion areas receiving deeply discounted soybean prices while the animal operations receive expensive soybean meal. With a soybean crushing plant providing local consumption, soybean basis should improve and encourage more local soybean production. Likewise, the availability of local soybean meal should lower the cost of animal feed and encourage more animal production.

he domestic utilization forecast is derived from population and per capita forecasts. As noted above, population is projected by UN calculations to increase by 9% to 2027. Africa’s ten-year 23% rate of population expansion will make feeding its general population a challenge.

The increase in world meat consumption is the primary driver of increased consumption of coarse grains and soybeans. As meat consumption increases, a natural evolution is from backyard animal operations to commercial operations. Commercial operations are more efficient at converting feed rations into meat. The efficiency gain is due to feed rations that are more precise, which typically requires quality grains and soybean meal. Currently, no reason exists to doubt this trend will continue.

ASF will hurt consumption of coarse grains and protein meals over the next two years, but will result in other species operations expanding and accelerating the pork market conversion from backyard to commercial operations. Doane believes a widespread available vaccine for ASF is two years away. When the vaccine becomes available, the Asian sow inventory will be rebuilt.

Global soybean utilization is estimated at 353 MMT in 2019. It should come as no surprise that China is the largest constituent of the total at 103 MMT. The United States comes in second at 61 MMT. Argentina and Brazil are nearly identical at 52 MMT and 47 MMT respectively. The four-country total is 263 MMT or three-quarters of the global utilization total. The world outlook for 2028 totals 453 MMT, which represents an increase of 28%.

In the forecast period, China remains the dominant user at 139 MMT or a gain of 35%. For reference, between 2009 and 2018, China soybean use surged 71%. The Asian Growth Center experienced a 68% increase from 2009 to 2019 and is forecast to increase 38% over the next ten years. 

The global soybean yield averaged 1.9 metric tons/hectare (MT/HA) in 1991. By 2001, the yield was 2.3 MT/HA or an increase of 19% in the decade. As of 2018, the decade-to-decade comparison of the rolling three-year averages was up 17%. Global soybean yields are projected to trend higher with gains between the extremes of the past two decades to 3.0 MT/HA in 2028. The additional acreage from countries with lower yields than the U.S. soybean yields will moderate global soybean yield gains. Also, new land entering production generally has a lower yield, which is limiting Brazil’s soybean yield growth.

It takes only a quick glance at the production chart to recognize the past strength in the soybean production components and the anticipation that this leading protein meal source will experience strong gains in the outlook. The latest forecast for 2019 area is 123 million hectares. By 2028, the area forecast is expected to be 151 million, a gain of 23%. The increase in soybean acreage between 2009 and 2018 was 22%. Brazil continues to expand soybean acreage at an aggressive rate as shown on the chart below.

From 2009 to 2018, Asian Growth Center imports of soybeans increased 72% and over the next ten years, imports of soybeans are forecast to increase 48%.

From 2009 to 2018, world soybean production increased to 362 MMT or an increase of 38%. The projection between 2019 and 2028 is for production to top 455 MMT or increase by 35%.

With food consumption growing faster than production in the Asian Growth Center, the area will continue to be grain and soybean deficit. From 2009 to 2018, Asian Growth Center imports of soybeans increased 72% and over the next ten years, imports of soybeans are forecast to increase 48%. Global soybean trade is projected to 205 MMT in 2028 compared to 150 MMT in 2019.

To meet the challenge of feeding the world, a tremendous amount of infrastructure investment has occurred in the Asian Growth Center and Brazil.  Examples of supply chain investment are new ports, deeper ports that can handle larger vessels, railroad tracks that service the ports, more sophisticate grain storage systems, and commercial animal operations. For example, according to the National Grain Exporters Association, the amount of grain exported out of Brazil’s northern arc of ports could reach 35 million metric tons in 2019. Over the last five years, the amount of grain exported from Brazil’s traditional southern ports increased 16% while exports out of Brazil’s northern ports increased more than 300%. With all the investments made, the northern arc of ports could in theory ship over 70 million metric tons. The world appears ready to meet the challenge of feeding the world.

Alan Barrett
Alan Barrett

Director of Consulting

Doane Advisory Services

Alan Barrett is Doane’s project consultant and accomplished commodity economist with more than 25 years of experience in futures and cash markets with a focus on cotton, commodity projects, non-traditional agricultural products, transportation and supply chain studies. Alan spent six years as a commodity futures broker. His expertise encompasses feasibility studies of oilseed crushing plants (soybean canola, and cottonseed), grain elevators, export elevators, shuttle elevators, grain container operations, flourmills and other processing facilities. Alan also has conducted transportation supply chain studies for grains, oilseeds, fertilizer, coal, natural gas, crude oil, and petroleum products. Alan has considerable experience in non-traditional agricultural products such as coal, coke, natural gas, chemicals, hydraulic fracturing fluid, hydraulic fracturing proppants, glycerin, fertilizer, micronutrients, salt, limestone, cement, iron ore, pig iron, and steel, especially feed ingredients. Mr. Barrett has a BS and MS in Agricultural Economics from the University of Tennessee.