THE SOY ECONOMY: PAST, PRESENT AND FUTURE
, by Rich Pottorff
The soybean has been around for centuries, but only relatively recently has it become a staple in the lives of Americans. Today it is almost impossible to go through a day without consuming soybean products or products that depend on soybeans. In addition, industry is constantly finding new uses for this very versatile plant. It has gone far beyond a food crop and is now found in renewable fuels, inks, lubricants and a variety of other industrial products. The soybean really is a miracle crop.
The soybean dates back about 5,000 years to China where the crop became an important food source. For centuries, the soybean has been the cornerstone of nutrition in East Asia. The soybean was one of five sacred grains in China's culture, grains that were considered essential for the existence of the Chinese civilization.
Soybeans made it to America in the early 1800s. At first, the crop was used to produce soy sauce and vermicelli. Soybeans made it to the Corn Belt in the mid-1800s and were generally cooked before being fed to chickens or hogs. In 1888, German scientists demonstrated that legumes, such as soybeans, fix nitrogen when specific microorganisms were in the soil, which led to commercial soybean inoculation in 1905.
In 1922, the Staley Corporation built the first major soybean processing facility, which provided a guaranteed market for soybeans grown in Illinois. During World War II, domestically produced soybean oil replaced imported fats and oils and was used to manufacture glycerin. The meal was used as a vegetable protein extender in Europe. Soybeans also played a key role in the Marshall Plan and helped feed millions of starving people in developing countries.
Soybean Production Growth
The growth in U.S. soybean production has been phenomenal. In the early years, soybeans were grown as a forage crop. It wasn't until the 1940s that a majority of the crop was harvested for the soybean itself. In 1924, production totaled about 5 million bushels, with an average yield of 11 bushels per acre. Today, production is near 3 billion bushels with a yield near 40 bushels per acre. Soybean acreage has increased from about 1.5 million acres in 1924 to more than 75 million acres in 2004.
Changes in policy have contributed to the rise in soybean production in recent years. Throughout most of the 1900s, farm policies provided price and income support based on the crops a producer grew. Soybeans were not considered a program crop so farmers were encouraged to plant other crops to be eligible for government support programs. That began to change in the 1990s when government programs became more flexible, allowing farmers to shift some of their land to non-program crops and still receive payments. By the mid-1990s, the farm law allowed for complete planting flexibility and U.S. soybean acreage has since soared.
The big gains in soybean acreage are strongly related to economics. Farmers in the Corn Belt have found that a crop rotation of corn following soybeans provides real benefits. The nitrogen-fixing properties of soybeans cut the cost of fertilizer for corn the following year. In addition, rotating crops breaks up disease and insect cycles. In the heart of the Corn Belt, the share of land planted to corn has declined to about 50 percent, with soybeans accounting for the other half.
New varieties have also allowed for dramatic increases in soybean acreage outside of the Corn Belt. The biggest increases are in the Northern Plains states. Soybean acreage has nearly doubled in this area in the past decade, taking land away from spring wheat. Soybeans are also making inroads in the hard red winter wheat producing areas.
The United States is the world's largest soybean-producing country, but that position is being challenged. A series of events in the early 1970s led to a shortage of world protein sources. Foreign demand for U.S. soybeans increased dramatically, and prices rose to all-time highs. President Nixon imposed an embargo on soybean and soybean meal exports in 1973. Major soybean importers, especially Japan and Europe, invested in Brazil to create another supplier of soybeans and products. Brazil's soybean production has increased from
5 million tonnes in 1973 to more than 50 million tonnes today, and the boom in production is continuing. Argentina has also become a major soybean producer and exporter.
A decade ago, the United States and the European Union were the major players in the world soybean market. While those two regions are still important, the dynamic part of the market has moved elsewhere. On the production side, much of the growth is in Brazil and Argentina, and China is the big factor for demand.
World soybean trade has more than doubled in the past decade, rising from about 30 million tonnes to close to 67 million tonnes this year. More than 60 percent of that growth can be traced to China. A decade ago, China was a modest net exporter of soybeans, but in 2003/2004, they are expected to import more than 20 million tonnes. China has eclipsed the EU as the world's largest soybean importer and all signs point to further growth.
An explosion in demand has fueled China's emergence as a major soybean importer. In 1993, China's soybean use was estimated at less than 15 million tonnes. In 2003/2004, use is put at 39 million tonnes. Production in China is nearly stagnant so almost all of the increased use has been met with imports. Even with less robust growth in consumption, the forecast calls for production of 18 million tonnes and use of 52 million tonnes by 2012/2013. A continuation of current trends would make the deficit closer to 45 million tonnes.
The increase in area in Brazil and Argentina is actually accelerating. In Brazil, soybean area increased about 2 million hectares in the first half of the past decade, compared to an 8 million-hectare increase since 1998. For Argentina, the increase was 2.5 million hectares in the first half, compared with a 5.5 million-hectare increase in the last few years. There are few signs that the expansion will slow in the next few years. Both countries appear to have room for further expansion. In Brazil the total amount of unused cropland suitable for crop production has been estimated at 240 million acres.
Over the next decade, U.S. soybean exports and the EU's soybean imports are expected to stabilize near recent levels. The U.S. loan rate of $5 per bushel for soybeans is high enough to prevent a significant drop in soybean acreage and probably high enough to encourage further expansion in the Plains states. However, the very positive outlook for the corn sector suggests some decline in soybean acres in the Corn Belt states. Policy reforms will encourage more grain consumption in the EU keeping soybean needs fairly flat.
Most developing countries could significantly boost per capita soybean consumption, but there has been little movement in that direction. Still, soybean imports by countries in East Asia and the Middle East and Mexico will help to boost world soybean trade over the next decade, which is expected to rise from about 67 million tonnes this year to 79 million tonnes by 2012/2013. However, with more aggressive demand growth in China, trade could be significantly higher.
The outlook for the U.S. soybean sector is affected by the continuing surge in competitive supplies from South America and an improving outlook for alternative crops in the United States. Soybean export growth will probably be much smaller in the future, and growth in domestic use will be influenced by the livestock sector. On the other hand, demand for corn is rising at a rapid pace as China cuts back on competitive exports, and domestic demand for corn for ethanol continues to boom. These factors suggest a leveling off of U.S. soybean acreage; however, the development of new uses for the soybean could brighten the future. Y
Rich Pottorff is chief economist for Doane Agricultural Services, St. Louis.