March 15, 2005
China 2005-06 soybean imports estimated at 22.5 million tonnes
Post forecasts 2005/06 soybean imports at 22.5 million tonnes and its preliminary estimate for MY04/05 imports is 21 million tonnes. A bumper harvest in MY04/05 of most domestically grown oilseeds will dampen import growth. Post forecast China's MY05/06 soybean production at 17.5 million tonnes, according to USDA report posted Monday on the Foreign Agricultural Service Web site.
The current year's bumper harvests notwithstanding, there are favorable factors that will fuel import growth: 1) soybean prices have fallen from US$10/bushel to US$5-6/bushel; 2) freight rates fell to US$60-70/ million tonnes from over US$80/ million tonnes; and, 3) the impact of avian influenza has subsided so soybean meal demand has returned to normal.
Executive Summary
Last year's problems of high freight rates, high soybean prices, and avian influenza have all subsided and China's oilseeds market is back on track for modest growth in the year ahead. Post forecasts MY05/06 soybean imports at 22.5 million tonnes and the preliminary estimate for MY04/05 to finish at 21 million tonnes. China's record production of all oilseeds in MY04/05, including soybeans, rapeseed, cottonseed, and peanuts, will dampen demand for imported oilseeds, especially for the small and medium-sized crushers in the north and central regions of China.
The large southern crushers will continue to rely on imported soybeans. With a 9.5 percent GDP increase in 2004, population growing by 7.7 million per annum, and a growing middle class that has more disposable income to spend on meats, oils, fish, and dairy products, the long-term outlook for oilseeds and related products in China remains very bright.
For an economic overview of China, see the World Bank's, "China Quarterly Update, February 2005."
Oilseeds Situation and Outlook
To comply with FAS's; recently revised reporting instructions, this report includes cottonseed, cottonseed meal, and cottonseed oil. These products were not included in last year's Oilseed Annual Report (CH4010), but they have been included in the current report's previous year's; Production, Supply, and Demand tables. Given China's large cotton crop last year, this change significantly increases the totals for oilseeds, meals, and oils.
Total Oilseeds
The MY05/06 total oilseed production forecast is 56.8 million tonnes from a planted area of 29.9 million hectares. These figures are 3.9 percent and 1 percent lower respectively than in MY04/05. This forecast reduction is attributable to large cotton, soybean, and rapeseed harvests due to higher than average yields in MY04/05 that are not expected to repeat next year. Soybeans account for 30.8 percent of the total production, followed by peanuts (26.4 percent), rapeseed (21.1 percent), cottonseed (18.5 percent), and sunflower seed (3.2 percent). These percentages are consistent with recent years. Competition for land from other crops, especially cotton and grains, and urbanization will continue to limit any substantial increases in planted areas. China's continued "go slow" approach on the commercialization of biotech products, together with less than optimal agronomy practices, will limit yield increases. China's caution on biotech, however, has shown some signs of easing, especially with respect to biotech rice. Chinese scientists have been among the worlds leading researchers on this product and China's state-run media has published several articles over the past year in which highlighted the benefits of biotech rice. At the same time, however, China has positioned itself as a supplier of "GMO Free" food grade soybeans for export to Japan. So, it remains to be seen whether China's ongoing move toward supporting the planting of biotech rice in China will ever apply to its domestically grown soybeans.
Freight rates for Panamax vessels departing US Gulf ports to China have fallen to US$60-65 per million tonnes from last year's historic highs of over US$80/million tonnes. Although these rates are less than last year, China's seemingly insatiable appetite for raw materials, especially minerals, is keeping freight rates higher than the long-term average.
Total crushing capacity is estimated to be 60 to 70 million tonnes. Most trade sources estimate crush capacity to be 60 million tonnes. However, a survey published by China's Ministry of Commerce in Jan 2005 estimated total crushing capacity to be 70 million tonnes. For details on that survey, see GAIN report CH5019. Consolidation of the crushing industry continues. Inefficient small and medium-sized crushers are being force out of business while large efficient crushers expand capacity.
Most crushers report they easily can switch between crushing soybeans and rapeseed. Consolidation of the crushing industry continues.
Soybeans
Production
Soybean production for MY05/06 is forecast at 17.5 million tonnes, which is 0.5 million tonnes less than the MY04/05 preliminary estimate of 18.0 million tonnes. This decrease is attributable to a return to average yields from the higher than average yields that occurred in MY04/05. The large drop in cotton prices that followed last year's large cotton crop will lessen competition for land from cotton in Shandong, Anhui, and Henan, where farmers can grow cotton or soybeans. Competition from grains, which have favorable prices, however, will limit any significant shift to planting soybeans. Also, the GOC's agricultural policy makers continue to express concern about the drop in grain production and are encouraging farmers to plant more grain to alleviate the shortfall. Also, given the government's very cautious approach to the application of biotechnology, less than optimal agronomy practices, and small production units, no dramatic increases in yields are expected in the foreseeable future.
Trade
Post's forecast for MY05/06 soybean imports is 22.5 million tonnes and the preliminary estimate for MY04/05 is 21.0 million tonnes (Note: USDA's Feb 2005 official estimate of the latter is 22.5 million tonnes). In MY03/04, high soybean prices, very high freight rates, and avian influenza (AI) deflated import demand. Post's current forecasts reflect its recognition that the heady import growth rates that occurred from MY99/00 to MY03/04 cannot be extrapolated indefinitely into the future; the import growth curve has begun to level off to a more sustainable, long-term growth rate.
The United States remains the number one soybean supplier. As the table below shows, Brazil's market share dropped significantly Oct 03-Sept 04 because of China's discovery of prohibited fungicide-treated soybeans, which resulted in a temporary import ban on Brazilian soybeans. However, large Southern Hemisphere crops and the resulting low prices are likely to result in making Brazil and Argentina competitive exporters in the coming year.
Policy
As reported in the 2004 Oilseeds Annual (CH4010), on February 20, 2004, China's Ministry of Agriculture's Office of Agricultural GMO issued final approval of Roundup Ready® (RR) soybeans. Issuing the final approval in February allowed traders to apply for and receive necessary certificates in time to ensure no trade disruption. In bilateral negotiations US officials have suggested that shipment-by-shipment certification is unnecessarily burdensome.
Despite this breakthrough, China's policy makers remain ambivalent about biotechnology. Although they approved the import of RR soybeans, farmers still cannot legally plant them. Moreover, articles continue to appear in the Chinese press touting China as a producer of "GMO-Free" soybeans. Although China is not a major exporter of soy-based food products, its "GMO-free" policy for domestic soybeans would ensure that it could still export such products to those European and Asian markets that restrict the import of biotech-derived foods.
China's application of sanitary and phytosanitary measures to control soybean imports remains a cloud over the policy front. In August 2003, just prior to China's soybean harvest, China's quarantine officials announced that four major trading companies would be "blacklisted" because they had a history of shipping soybeans contained excessive levels of phytophthora, which is a soil-borne disease. In summer 2004, China's quarantine officials found prohibited fungicide-treated soybeans in several cargos of Brazilian soybeans and banned such imports for several months. Although Brazilian officials admitted that the problem existed, some traders alleged that the Chinese quarantine officials were providing Chinese soybean buyers with a pretext to renege on contracts they had signed when soybeans were US$10.00 per bushel but had fallen to US$6.00 per bushel.
Also, on June 16, 2004 AQSIQ issued Announcement No. 73, Items on Handling the Review and Approval for Entry Animal and Plant Quarantine ("Decree 73"). It was implemented on July 1, 2004. This created havoc in the soybean market because, if implemented as written and depending upon one's interpretation, it could severely hamper soybean imports. High level meetings between US and Chinese government officials resulted in assurances from the Chinese that Decree 73 would not restrict soybean imports and, as of this writting, it has not. (See CH4020 for more details.) Nevertheless, this is the latest example of how China's unpredictable implementation of often-vague SPS measures causes uncertainty and increases risk for soybean traders in China.
Marketing
China's soybean market continues to be characterized by two segments - small crushers in the Northeastern provinces of Heilongjiang and Jilin, that rely primarily on domestic soybeans, and large crushers in the Southeast that rely primarily on imported soybeans.
Although highway infrastructure is improving, the rail infrastructure is barely adequate and logistics problems persist. Crushers in the Northeast continue to report problems finding rail cars to transport domestic soybeans to their plants at harvest time. The perennial problem of rail officials demanding an arbitrary "facilitation fee," i.e., a bribe, for rail cars shows little sign of improvement. These problems notwithstanding a few sizable crushers are emerging within a several hour drive of Beijing. A well-known multi-national crusher, for example, has a 3,400 million tonnes /day joint venture operation in the port city of Qinghuangdao. A solely owned Chinese crusher located on the outskirts of Beijing is equipped with installed capacity of 8000 million tonnes /day, and actual capacity of 6000 million tonnes /day; the largest crusher in Heilongjiang has total daily capacity of 7000 million tonnes, and yearly capacity of 2 million tonnes.
For general marketing information, contact the American Soybean Association (ASA). ASA is actively involved in marketing activities in China. FAS's Agricultural Trade Office in Beijing also can provide marketing assistance via atobeijing@usda.gov.
Stocks
MY05/06 ending stocks are forecast to be 3.5 million tonnes, up from 3.3 in MY04/05.
MY 05/06 imports are forecast to be 800,000 million tonnes T, the same as last year's preliminary estimate. Canada is expected to be the major supplier, as its production is expected to rebound after several disastrous crops. Exports are insignificant.
Soybean Meal
Production & Consumption
The MY05/06 soybean meal (SBM) production forecast is 23.2 million tonnes, up 7 percent from MY04/05's preliminary estimate of 21.7 million tonnes. The dairy and aquaculture sectors are expected to consume most of the increase. Also, swine producers are expected to replace some fishmeal with SBM, which also will contribute to increased demand. Analysis of the individual sectors follows:
Poultry - Although China's broiler production fell during the first half of 2004 due to highly pathogenic avian influenza (HPAI) outbreaks in the country, broiler production recovered in response to the government's favorable policies to support poultry production. The production recovery is also in response to recovered consumer demand and China's success in re-opening cooked poultry exports to some countries. Unlike cattle or swine, poultry farmers can expand more rapidly broiler placements. As a result, China's total poultry meat production in 2004 ended up almost the same level of the previous year, and chicken meat production ended up with only a 0.3 percent decrease. China's poultry egg production in 2005 is forecast to increase 5 percent from 27 million tonnes to over 28 million tonnes. (See CH5011 for additional details.)
Swine - As reported in CH5010, China's pork production for 2005 is forecast to increase 4.8 percent from 47.3 million tonnes in 2004 to 49.6 million tonnes. The pig crop production is forecast at 651 million head. As people leave the farm for jobs in the city, they will leave their backyard pigs to be raised by commercial operators that will feed them rations high in soybean meal. Aquaculture - Aquaculture continues to be a bright spot in the soybean meal picture. It consumes approximately 5 million tonnes of soybean meal per year, which converts to approximately 6.3 million tonnes of raw soybeans (see table below). The raising of fresh water fish is the most important consumer of SBM. Although current production of cage-raised marine species is small relative to pond-raised fresh water species, production is expanding rapidly and the long-term growth potential for SBM is significant. ASA/China continues to be actively involved in promoting the use of soybean meal in aquatic feeds.
Estimate of SBM Use by Aquaculture (CY2004):
Factor Quantity/percent
Fresh Water Cultured Fish 18 million tonnes
Cage-raised Marine Cultured Fish .5 million tonnes
Total Cultured Fish production 18.5 million tonnes
Less not fed commercial feeds 6 million tonnes
Net Feed Consuming Cultured Fish 12.5 million tonnes
Average Feed Conversion Ratio 2:1
Estimated Feed Consumption 25 million tonnes
SBM Inclusion Rate .2
Estimated Soybean Meal Use 5 million tonnes
Crush Rate .79
Estimated Raw Soybean Use 6.3 million tonnes
SBM inclusion rate in aqua feed varies from 20-50 percent. ASA's marine fish trial diets currently include 35 percent SBM. The 20 percent inclusion rate used in the calculation above is deemed conservative, thus SBM use may be even more. (See CH4015 Fishery Report for detailed Aquaculture Production).
Trade
Exports: SMB exports continue to be a residual market. Industry sources indicated that whenever the export price is more profitable than the domestic price and crushers have extra SBM, they will continue to export it, but they have no intention of expanding their crush capacity solely to serve the export market. Japan accounts for 88 percent of SBM exports with South Korea and Malaysia as a distant second and third place respectively. Exports are forecast to be 4 to 5 percent of total production.
Imports: Imports of SBM continue to be insignificant because of an over expanded crushing industry produces sufficient SBM to meet domestic demands.
Soybean Oil
The MY05/06 soybean oil production forecast is 5.2 million tonnes, up 6.1 percent from last year's preliminary estimate. MY05/06 imports are forecast at 2.7 million tonnes, which is up by 700,000 million tonnes as compared to the estimated 2 million tonnes for MY04/05. The relatively low imports for MY04/05 are attributed to high domestic production. MY03/04 imports were 2.73 million tonnes, which increased by 59 percent over MY02/03 imports. This occurred along with a declined soybean imports because of reduced SBM consumption as a result of outbreak of avian influenza and surged price for SBM. High imports of soybean oil indicate the strong demand for soybean oil as the table below shows. Argentina was the number one supplier with 67 percent of total imports, followed by Brazil with 33 percent and other suppliers, including the United States, with less than 1 percent. Brazil's market share has been increasing at the expense of the United States's share.
Note: For purposes of calculating per capita consumption, according to China's National Statistics Bureau, as of Dec 31, 2003, China's official population, not including Taiwan or Hong Kong, was 1,292,270,000. This represents a net increase of 7,740,000 people compared to a year earlier. On Jan 7, 2005, China announced the birth of its 1.3 billionth citizen.
