The World’s Two Largest Soybean Exporters Have Depleted Their Supplies.
Brazil and the United States are the two largest exporters of soybeans accounting for over eighty percent of total annual global soybean export sales. Brazil literally ran out of soybeans to sell last season; the U.S. seems to be headed down the very same path.
In October, Brazil, the world’s largest producer and exporter of soybeans, announced it had sold too many soybeans and would lift import restrictions in order to have enough domestic supply. Now the world’s second largest exporter, the United States, is running low on soybeans. The USDA predicts the US may actually have to follow Brazil’s lead and more than double the small volume of soybeans it usually imports prior to next season’s new harvest.
To be clear, there are enough soybeans in the world for everyone. The actual amount of soybeans the US is projected to import is truly minuscule, but the fact that the US has to import more soybeans than it normally does is reflective of an unusual tightness in supply. Soybean prices have already responded, having rallied significantly since August 2020.
How did the two largest soybean exporters on the planet run so low on supplies? The simple answer is demand from China. China is again expected to break its own record for soybean imports this season, with the USDA projecting 100 MMT (million metric tons) of soybean imports and some private forecasters predicting 101 million or more. That’s more than 3.6 billion bushels, or just under 28 percent of all the soybeans produced on the planet. It’s also just under six out of every 10 bushels of soybeans exported by all soybean producing countries combined. China is importing at a frenetic pace because it needs to feed its expanding hog herd; it also seems to be building inventories of excess soybean supplies for reasons unknown, but most likely just to have an adequate supply buffer in case of unforeseen supply or price disruptions.
Indeed, the Asian powerhouse and world’s most populous nation has increased its total usage of soybeans annually for years, with recent usage rising from 102 MMT in crop year 2018/19 to over 117 MMT estimated for the 2020/21 crop year. Over the the same time period, the USDA says total global production isn’t keeping pace with total global demand, with global ending stocks of soybeans falling from just under 113 MMT in the 2018/19 season to a projected level of just under 85 MMT in the current 2020/21 crop year. That’s why soybean prices rallied so sharply these past six months, although markets have now stalled a bit, with prices pulling back from recent highs.
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Late January is always an uncertain time of year in the world of soybean production; Brazil’s gargantuan soybean crop is planted but not yet harvested, and the United States’ bean crop isn’t yet in the ground because it’s midwinter. That’s what makes markets nervous this time of year. Some early season concern about dryness affecting Brazil’s crop caused prices to spike earlier this month to highs unseen in several years, but recent rains and projections that Brazil’s soybean crop is healthy and may actually be record high have eased concerns and prices for now.
The next few months will allow a more thorough assessment of South America’s soybean production potential, and US farmers will begin planting as Spring commences in the Northern Hemisphere. China will likely keep up its blistering pace of soybean imports, but another Chinese outbreak of African Swine Fever (AFS) was reported last week which bears watching – in 2018 an AFS outbreak began that lasted over a year; it decimated China’s hog herd by up to 50 percent and reduced China’s overall need for soybeans. The same could theoretically happen again, although one would assume that Chinese authorities have learned from prior experience and could contain any AFS outbreak more effectively than in 2018.
In any case, soybean supplies have tightened, usage has grown, and it will be several months before the next South American crop can be harvested and the new Northern Hemisphere crop can be planted. It is an interesting time indeed in global soybean markets.