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FEED Business Worldwide - July 2012
Soy imports, price trends and the true cost of China's meat consumption
by Eric J. BROOKS
Just how much will China's demand for imported soy grow? Will Africa be required to bridge any supply gaps? After commencing a third decade of higher than expected soy import volumes, this question is coming to the fore in the analyst community. As a general rule, import growth commences at an exponential rate, then tapers off with time.
Higher protein intake, higher soy imports
This is also true of China's soy imports but the question is becoming whether the slowdown in import growth still implies a doubling of shipment volumes in less than ten years. From a few hundred thousand tonnes in 1994, import multiplied by a factor of 20, to 10 million tonnes in 2001/02. They then more than quintupled to 56 million tonnes in 2011/12. The question is whether China's soy import growth contains enough momentum to double in-bound shipments by 2020.

Analysts are starting to come around to the idea that this is possible. Australia's Macquarie recently projected that China would import 100 million tonnes of soy by 2020/21. But this is actually a mid-range estimate, and not by any means on the high end: Standard Chartered Bank recently announced that it expects 2011/12's 56 million tonne China soy import volume to double to 112 million tonnes by 2020/21. This would represent 10% average annual import growth, and is far higher than even the USDA's own 87 million tonne estimate for that year.
But there is plenty of hard-headed reasoning behind Standard Chartered Bank's radical projection: It points out that in developing countries, 53% of calories are obtained from carbohydrates, versus 63% in China. This imbalance reflects China's urban-rural disparities. Whereas meat consumption in Chinese cities is comparable to western levels, the country side lags strongly and is still playing 'catch up.'
To close that nutritional gap, most of that 8% percent difference between Chinese and western carbohydrate intake levels will need to be bridged with additional protein - and soy is by far the most important protein meal that livestock convert into meat, milk and eggs. Even in aquaculture, high fishmeal prices are causing the proportion of aqua feed accounted for by soymeal to skyrocket.
The conclusion is obvious: No matter which protein line China uses to up its population's nutritional intake, it cannot avoid using more soy as the building block of rising protein intake.
With crop yields flattening out, for the rural half of China's 1.4 billion population to narrow the protein consumption gap with their urban counterparts, Standard Chartered estimates that 100 million acres of new arable land must be brought under cultivation.
Bountiful land, costly soy
The question is where this arable land is to be found, and how easily can it be brought into production. Where eFeedLink disagrees with Standard Chartered Bank is in its statement that, "The good news is that land is not in short supply, at least outside of China."
Technically speaking, Standard Chartered is correct: Although it is a land mass the size of Germany, the 100 million acres of untapped farmland required to meet China's soy demand is out there. The World Bank estimates that Brazil alone has an extra 62.5 million acres of untapped farmland suitable for growing soy, and Argentina an extra 40 million acres. When the fact that Sub-Saharan Africa is estimated to have nearly 100 million acres of virgin land suitable for soy cultivation, the first impression is one of soy abundance, not shortages.
The problem is that most of Brazil and Africa's spare farmland is in areas almost completely devoid of highways, railways and even lack feed crop storage facilities. Brazil is far ahead of Africa but even here, despite a half decade of historically high corn and soy prices, the consensus is that only three million additional acres of Brazilian farmland will be brought into production by 2015 - far less than the 62.5 million acres that are, in theory, available for cultivation.
The crucial factor is soy cultivation's break-even-point. The less transport infrastructure and storage facilities in place, the higher soy cultivation's break-even cost. With transport deficiencies pushing average soy farming break-even-costs to around US$9.00/bushel, most Brazilian farmers find it far more profitable to purchase existing farmland than bring new acres under cultivation.
Sub-Saharan Africa may have more land than Brazil but it has far fewer highways and railways per capita than even Brazil. Standard Chartered may be correct in saying that, "If China's hungry pigs are to be fed, though, Africa will become a bigger strategic focus for Asia's agri-industry."  - Although this statement is valid, it does not take into account that because of serious logistical deficiencies, Africa's soy farming break-even cost will be higher than even that of Brazil. With high transport costs undermining net returns, it becomes very difficult to bring perfectly good soy growing land into production.
All this leads to a hopeful, but highly troubling conclusion: Yes, thanks to Africa and Latin America's abundant, fertile land, the world will not run short of meat or of the soymeal so vital to its production.
The bad news is that to opening up these new lands will requires considerable sums of investment in the heaviest, mostly costly and permanent type of infrastructure. Chinese investors need to lure Brazil and key African nations with offers of new roads and railways that coincidentally lower the cost of growing soy in those respective countries.
Even so, to finance the roads, railways, storage bins and soy farming returns required to bring Brazil and Africa's spare land under soy cultivation, within ten years, US$13/bushel to US$15/bushel may go from being soy's price top to its price floor.
The above are excerpts, full versions are only available in FEED Business Worldwide. For subscriptions enquiries, e-mail membership@efeedlink.com
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