Soybean Sector Evaluation Update

The Issue
The global recession has raised a new set of questions for U.S. soybean farmers. For example, the sharp fluctuations in energy prices have a significant impact on global soy demand.

Why it Matters

The forces applied to the U.S. soy sector have changed and the U.S. soy industry continues to evolve. The soybean checkoff, through its GO program, helps U.S. farmers examine challenges and opportunities to prepare for the future.

 Caption: 2011 will probably go down in history as one of the wildest weather years in the United States as flooded farm fields like this, once dry and planted, suffered later from drought. The U.S. Department of Agriculture predicts U.S. soybean farmers will harvest 3.06 billion bushels of soybeans this fall, down 8 percent from 2010.
 

 Issue Summary
After the rise of some commodity prices in 2007, the world economy suffered a sharp recession. The shift affected several sectors of the U.S. economy, including agriculture. The United Soybean Board (USB) commissioned a series of studies to examine these shifts, which included changes in price, and in supply and demand of soybean meal and soybean oil.

The latest USB-funded study illustrates that shifting energy markets continue to play a key role in the development of soybean oil opportunities, which experienced a dip in demand surrounding the financial crisis of 2008. The recession distorted forecasting for the unforeseen shifts in the market. Lower incomes as well as shifting preferences for certain oils also had a significant impact on aggregate soybean oil and soybean meal demand. In terms of price forecasting, petroleum prices have become a pivotal influence on vegetable-oil and animal-fat prices because of the link with the ability to use soybean oil to produce energy such as biodiesel. The study also digs into the current state of supply and demand issues for soybean meal and soybean oil with trend predictions through 2025.

In addition to soybean oil issues the study examined soybean meal. It found that soybean meal provides the greater part of returns to U.S. producers, at an average of 65 percent of total revenue and that soybean meal is more pivotal for global oilseed meal production when expressed on a protein equivalent basis with other oilseed meals.

The study concludes with an examination of “the startling growth of canola oil demand” in the United States that has provided “an effective cap to U.S. domestic soybean oil sales into the food sector.” But the study did not consider the development of new U.S. value-added soybean varieties that produce oils which may have the potential to compete with canola and other vegetable oils used for edible purposes.

Critical Facts
• Petroleum prices have become a pivotal influence on vegetable-oil and animal-fat prices.

• Food use remains the major use for major vegetable oils.

• Consumption trends hint at a few new opportunities in key markets for oilseed products due to increased biofuel production, global economic downturn, and shifting human diet patterns of food oil and meat demand.

• By 2025, China and India together will account for a third of global edible oil consumption, up from a quarter in 2000, due to strong economic growth, urbanization and expanding populations. As populations and incomes grow across the world, so does consumption of oilseed products for food.

• Economists forecast that world soybean-oil prices could increase further through 2012, especially with higher petroleum costs.

• Though the link with petroleum is strong and the main outlet for major vegetable oils is overwhelmingly food, biodiesel use is very sensitive to vegetable oil price changes.

• Forecasts of soybean meal consumption should be determined by forecasts for meat demand.

• Chinese shares of world poultry and pork consumption is projected to expand from 35% to 45% by 2025.

• By 2025, the incorporation rates of soybean meal in the poultry, livestock and aquaculture industries in the developing economies will rise, in line with past trends. For countries such as China, which currently has less meal-intensive meal production, the study predicts their incorporation rates will grow more rapidly and move closer to U.S. rates by 2025.

• Global oilseed meal consumption should expand 3.5% per year until 2025.

Issue Conclusion
In a global economy, a significant shift in demand in one soy sector can affect another. To view the entire Soybean Sector Evaluation study click here.

The United Soybean Board’s (USB) Global Opportunities program publishes the GO Briefing. If you would like permission to redistribute, reprint or repost this information with credit given to the USB/Soybean Checkoff, please contact USB at info@unitedsoybean.org.