Soybean Market: China’s involvement

Jason C. Morris

Heading into the summer of 2021, we can look back and see many ag market imbalances during the previous year. None of these weighs more than the financial burden related to disruptions in the food supply chain. As 2020 ended, we saw an emerging challenge facing soybean producers. To end the year, we recognized an extremely tight supply and demand ratio. In 2019, there was a total surplus of 909 million bushels of soybeans. The USDA states that the final estimate FY 2020 soybean crop produced is down 35 million bushels from the previous estimation of 4.135 billion total bushels.

According to weekly USDA reports last year, soybean export sales slowly rose to larger-than-expected levels. However, cash prices for beans were slow to rise and only matched in October when it went above $10 per bushel. Ag economists were not concerned as the USDA had reported an estimated 610 million soybean bushel surplus last August. However, as we now know, China was a major player in surplus purchasing. As a major trading partner across many avenues of trade, we know China has a major impact on American trade regarding many types, not just agriculture products.

Free trade has been a boon to U.S. farmers and those involved in exporting U.S. farm products. However, security in food production is an important part of agriculture production and, this security comes in many forms, not just point-sourced production. What we are seeing now is a potential threat as a reduced feed source for animals could potentially be on the horizon. Reviewing data from the past several decades, we can note the last time scarcity impacted food security at this level and how it occurred. Similar to China in siphoning the over stocked bean supply, the Soviet Union created a troubling market shake up several decades ago with wheat purchasing.

The Soviet Great Grain Robbery is an example many row crop farmers may remember. During 1972, Russia purchased large quantities of American wheat at a relatively low price. While quietly doing so, this caused the market spot prices to increase from $1.45 a bushel during that summer to $5 per bushel in early fall of 1973. This was good for wheat producers but had a major impact on costs to those in livestock production. Currently, China has been doing the same albeit with U.S. soybeans and they have been doing it quietly as well. China and other countries are able to silently impact U.S. agriculture markets due to the lack of published data. As the USDA gathers information from farmers and producers as well as industry insiders, China and other similar countries keep that information in-house or do not even attempt to garner that data much less publish it. Due to this, the China in-country grain supply is mostly hidden from outsiders including the U.S. and its markets. This lack of reliable information related to foreign stocks of agriculture products can impact local markets and prices. With this, China’s problems related to their own food insecurity can become a U.S. problem. The end result of the Great Grain Robbery was an increase in total food prices of 30 percent and the decimation of grain stockpiles. If not checked, there is a potential the U.S. could see that occurring again.

Jason C. Morris is a County Engagement Specialist Agriculture Business for the University of Missouri Extension.