Last week’s rally in oilseed prices was largely attributed to strong exports of American soybeans to China and a smaller than expected soybean crop in Argentina.
The growth of China’s soybean imports is one of the great stories of agricultural trade in the new century.
In the early 1990s, China at times exported soybeans. By 1998-99 it imported 3.85 million tonnes of soybeans. This year it is expected to import 36 million tonnes, single handedly accounting for the spectacular growth in global soybean trade over that period.
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Since 1998-99, global soybean trade has grown by 90 percent, far outpacing wheat trade, which grew by 27 percent, corn by 12 percent and rice by eight percent.
The demand for oil and meal does not stop there.
Global palm oil trade has grown to 31.6 million tonnes from 12 million 10 years ago, an increase of 163 percent. Again, China is a big buyer, as is India.
The growth in vegetable oil and meal demand has mostly been a developing world phenomenon, fueled by rising incomes and a desire for a better diet that includes meat. Price is a major factor, so the oilseed demand growth has generally not extended to more expensive canola-rapeseed, whose global trade has been fairly flat over 10 years. Another factor working against canola was a discriminatory tariff system in China and India that favours soybeans over canola.
For a few years in the late 1990s, China was a big canola buyer but then dropped off through most of 2000s. Its absence was filled by increasing imports by Mexico, Pakistan and recently by the United Arab Emirates. China has reappeared as a major buyer this year, expected to take more than two million tonnes.
The growth in vegetable and oilseed demand has made oilseeds generally more lucrative for farmers to grow than wheat and other grains.
That potential for profit helped drive the agricultural expansion in Brazil and Argentina.
But this year South American production is down because of tight money for inputs at seeding time and lack of rain. Also, friction between Argentine farmers and their government have disrupted sales from that country.
The result is that China has bought more of its needs from the United States.
How long will China keep up this pace of purchasing?
Its voracious demand this year is a little surprising given the slowdown of the Chinese economy, but that has been offset by the government’s program of rebuilding stocks.
Stung by food shortages that caused food prices to soar last year, the government has committed itself to rebuilding stocks that it had allowed to decline.
It is buying domestically grown soybeans at a high set price to support local growers and build stores. But it has not restricted imports, so crushers, many of them foreign owned and located close to ocean ports, are importing cheaper product from the U.S.
The same thing is happening with the Chinese rapeseed crop, leading to strong canola imports from Canada.
Officials in Beijing are wondering how long to continue the stock-building policy, but are unsure how much grain is in storehouses.
To determine stocks, the government is now auditing storage facilities.
Companies that store grain get paid to hold it and so are enticed to overstate the amount of grain they carry. There were two scandals last year where storage companies were found to have sold all their grain but still collected storage fees.
The UN Food and Agriculture Organization advises having food stocks equal to 17 to 18 percent of a country’s annual consumption as a safe minimum.
Yuan Longping, China’s most renowned agriculturalist, was quoted at www.chinadaily.com this weekend as saying the country should have more, perhaps a third to a half of annual consumption in storage.
