New World Order
By Laura Temple
In those 30 years, developments like biodiesel, trade with emerging economies like China, and the increasing appetite for high-quality protein that comes with rising incomes have driven global soybean demand. It’s increased more than 240 percent, according to USDA. Soy helps feed and fuel the world, especially as high-quality feed for poultry, pigs and fish. And U.S. producers have adjusted to supply soybeans to fill that demand.
But the 2020 outlook for the global soybean market is bearish, especially for the U.S., says Dan Basse, president, AgResource Company, a Chicago commodities market research and analysis firm. Basse shared his worldwide demand drivers at the 2019 U.S. Soy Global Trade Exchange.
“World leaders are mixing politics into grain trading, which makes regional outlooks more difficult into 2020,” Basse says. “With issues like Brexit, trade between the U.S. and China and many others, it’s about nationalization, not globalization.”
He says data and historical evidence show free and open trade brings value to the world economy, and it has significantly reduced the percentage of people living in extreme poverty.
“Today, the U.S. soybean market is caught in political and weather crosscurrents, between large world crops and slow U.S. export demand because of issues with China,” Basse says. “The next five years offer a bearish market for soy and grain amid slowing trade.”
Along with global politics and trade uncertainty, several other factors contribute to this outlook.
Slowing Global Growth
World population growth is slowing down. “The annual percentage gain in population is expected to ease to one percent by 2026,” Basse notes. “The vast majority of future growth is projected to be in Africa, driving wheat demand growth most.”
Income growth pushes global food demand, as diet improvements top priorities for those emerging from poverty. But global gross domestic product (GDP) growth is also slowing down.
Basse says that when looking at data over each of the past two decades, GDP growth is slowing, especially in India, China and Sub-Saharan Africa. His projections for the next decade show this growth rate will hold steady or continue to decline.
Combined, these trends indicate that overall food demand growth will also slow. At the same time, Basse explains that global soybean stocks are high and increasing, despite the dismal 2019 U.S. growing season. South American soybean production has exploded, and it continues to increase (see article "South America Rising").
Uncertain High-Quality Protein Supply
Projections for modest global increases in household income are enough that Basse believes the next five years offer a bullish outlook for meat. However, African swine fever (ASF) will impact the global meat market – and, by extension, soybean meal demand.
“ASF is a global protein game-changer,” says Richard Fritz, president, Global AgriTrends. “The virus is hard to kill, with a mortality rate of more than 95 percent. We currently have no vaccine, and 75 percent of the world’s hogs are now threatened with outbreaks in Europe and Asia.”
ASF continues to spread in Asia, also infecting Cambodia, Laos, Mongolia, Myanmar, North and South Korea, the Philippines, Vietnam and eastern Russia. And wild boars continue to carry it west throughout Europe. The disease is decreasing the global hog herd and the market for hog feed – including soybean meal. Because the virus persists in the environment, it’s hard to predict a timeline for repopulation and renewed feed demand.
Fritz believes that even with the decline in pork demand and suggested high frozen pork inventories in China, a significant protein gap still exists. Both Fritz and Basse point to potential record global pork exports, with South America, Europe and the U.S. currently supplying China.
“But even with high stocks, exports, shifts from pork to chicken and growth in aquaculture, today the world doesn’t have enough protein to fill the gap in China and the rest of Asia in the near future,” Fritz says.
As a result, the global soybean meal market will be reshaped. Fritz says filling the short-term protein gap with pork exports and other proteins like poultry, beef and seafood, will dictate feed needs. Long-term shifts in pork demand due to fear of ASF may reduce the size of the global herd, and timing and location of rebuilding of the global hog herd will determine when and where soybean meal is needed and who supplies it.
New Global Demand Drivers
“U.S. farmer net revenue shows the need for another soybean demand driver,” Basse says. “U.S. soybean production costs are increasing, and thanks to the strength of the U.S. dollar, exchange rates favor non-U.S. farmers.”
The soybean industry is working to develop such drivers and markets.
“We’re shifting our international focus to markets that can replace lost demand for U.S. soy and grow overall global demand,” says Jim Sutter, CEO, U.S. Soybean Export Council (USSEC).
According to Sutter, USSEC is focusing on countries in two market categories; basic markets that are countries beginning to stabilize and build economies and expanding markets, countries with stable economies, commercialized animal agriculture and notable growth potential.
“Basic markets like India, Morocco and Pakistan can provide the highest return,” Sutter says. Other countries in this category include Egypt, Honduras, Myanmar, Nigeria (see article on page x) and Sri Lanka.
“At the same time, we’re reaching out to existing customers in expanding markets, like Indonesia, Mexico and Thailand,” he says. “We’re listening to their needs and concerns, while reinforcing the U.S. soy advantage.” Columbia, Cuba, Peru, Turkey and Vietnam (see article on page x) are other examples of expanding markets.
U.S. soy export companies see meeting high-quality specifications with identity-preserved soy as a growing opportunity. Illinois has the infrastructure available to grow, clean, store and load soybeans in shipping containers to meet defined customer requirements. And USDA reports such shipments have been increasing, reaching more than three million tons last marketing year.
For example, CHS, a global cooperative with several locations in Illinois, has increased its volume of container soybean exports in the past couple years.
“U.S. soybeans are growing in popularity in countries like Indonesia, where they are used for foods,” says Caryn Lee, grain marketer with CHS in Singapore. “More Indonesians are seeking protein-rich diets, driving demand for U.S. soy. To preserve quality, customers buy soybeans by container. They tend to be cleaner. There is less handling and opportunity for contamination.”
At the same time, the national soy checkoff supports research to find new uses for soybeans to further expand demand. Soy can supply renewable ingredients that reduce or replace petroleum-based products in everything from fuels and building products to tires and shoes. Such efforts developed soybean oil as a biodiesel feedstock, which is now used around the world. Future innovations have the potential to further reshape domestic and global soybean demand.
These market analysts agree. New soy uses, resolving political trade issues and managing ASF would improve the soybean outlook for 2020 and beyond.