The U.S. currently leads the world in soybean production, which is a leading agricultural export. As the world's most widely used edible oil, soybeans are a critical commodity in the food market. While farmers in the U.S. appear to be leveling off production and shifting fields to corn, South American suppliers have been trying to fill the gap emerging in the market. Overall worldwide demand for soybeans is high, fuelled by China's development and need to feed people and livestock. Elsewhere in developing nations, too, food preferences are shifting to foods dependent on soybeans for production. These demand factors, considered in conjunction with reduced acreage planted and reduced yield, have each contributed to the 61.74% spike in pricing between 2006 and 2007. It was anticipated that biodiesel would have a significant impact on demand, but that has yet to be borne out in statistics.
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According to the USDA 2007-2016 Soybean Projections, U.S. soybean producers are expected to reduce their planted areas in soybeans in favor of corn through next spring. This trend is being primarily driven by federal incentives for farmers to grow corn. However, the agency projects yields to steadily increase. Since 2000, soybean crop yield was 38.1 bushels per acre, peaked at 43.0 in 2005 and ended at 41.2 for 2007. This is a net increase in yield of over 8%. The USDA notes, in recent years, growth in soybean yields barely offset the loss of acreage, but it does account for marginal increases in overall U.S. output.
Behind the U.S., Brazil and Argentina are the world's largest producers of soybeans. Together, the three countries account for over 90% of world soybean, soybean meal, and soybean oil exports. In recent years, their supply of crops has been increasing. In 2007, Brazil increased soybean acreage by 2.0 million acres and Argentina increased by 2.2 million acres. This trend appears to be continuing as Brazil recently announced it expects its 2007/2008 crop to increase by 0.8% or 500,000 tons.
According to the USDA, Brazil is expected to satisfy the majority of the projected global growth in soybean exports through 2008 and 2009, putting them on track to outpace the U.S. Similarly, Argentina is expected to retain its position as the leading exporter of soybean meal and soybean oil. This is only expected to continue in the short term as Argentina reaches productive capacity limits and Brazilian producers pick up the slack. Rising transportation costs and global currency market instabilities will certainly impact the degree to which South American exports of soybeans and related products will be valued.
In March, Argentinean farmers began protesting export taxes. The tax will be set using future prices for soybeans traded in Chicago and were estimated to raise export taxes from 35% to 46%. This appears to be a direct effort by the government to stop the expansion of soybean production in the country and encourage growth of other crops.
The USDA reduced its projection of U.S. soybean ending stocks, in March, by 12.5% to 140 million bushels, the lowest level in years. One year ago, it was expected that ending stocks would be more than four times today's projections. The agency's projection for world ending stocks increased 3.5%, largely driven by Argentina's revision in its 2006-2007 ending stocks and Brazil's 2008 outlook.
China is the world's largest importer of soybeans. They purchase one quarter of the U.S. crop annually. Consumption of soybean oil in China is expected to be 14% higher than last year and 29% higher than two years ago. This demand has been driven by China's continued economic development and a need to feed people and livestock. Food preferences have increased demand for food products made from soy derivatives. China is making efforts to curb its imports. It was recently reported that significant increases in their soybean acreage is on the horizon.
Not just China is driving the increase in demand. As economies in developing countries continue to grow, demand for higher protein and higher calorie foods is abounding. As the middle-class in these nations grow, more people will be able to afford, and will demand, food products derived from soybeans. As soybeans are high in protein, they are a key ingredient in animal feed and are thus essential to the supply of products derived from livestock.
A variety of oils can be used to produce biodiesel, including soybean oil. As fuel alternatives are explored, many analysts projected that demand for soybeans would increase as a result of the rising interest in biodiesel. However, recent numbers appear to show minimal impact on demand. The Census Bureau reports that soybean oil used for biodiesel was 469.4 million pounds in August 2007, or 23.3% of total domestic consumption. Over the next five months, use declined more than 30% to merely 12.2% of total domestic consumption. For the 2007/2008 marketing year, the USDA forecasts that use of soybean oil for biodiesel will remain stable. The reason for this is likely driven by the high prices of the crop and a shift to less expensive alternatives.