In the article, China's Ministry of Agriculture and Rural Affairs lauded success of the "soybean revitalization plan" ordered up by this year's "Number 1 Document." The Ministry expects this year's soybean output to increase to 17.2 million metric tons (mmt) from last year's 16 mmt. The plan's objective was to reduce reliance on imported soybeans by 1 percentage point in 2020 and another percentage point by 2022. The Ministry projects a slight increase in imports from 83.1 mmt in 2018/19 to 84 mmt in 2019/20, but the Ministry projects a slight decrease in soybean consumption in 2019/20 to ensure that the increased self-sufficiency target is met. (Actually, the Ministry's decrease in soybean consumption of less than 1 percent still seems over-optimistic in view of the large reduction in the number of swine due to African swine fever.)
The marginal subsidy cost of increasing soybean output is even more outrageous. A Ministry official attributed the increase in China's soybean output to soybean producer subsidies of 17 billion yuan (about $2.4 billion) and 80 million yuan (about $11.4 million) in transfer payments made to soybean-producing counties. That works out to nearly 1,000 yuan (about $140) in subsidies per metric ton produced.
At the current average purchase price for soybeans the crop would be worth 58.8 billion yuan, so the 17 billion yuan in subsidies equal 29 percent of the value of this year's soybean crop.
This year's soybean subsidy works out to an average of 1875 yuan ($268) per hectare, 125 yuan per mu, or $109 per acre. The subsidy payment is made only in northeastern provinces, so the national average is much lower than the subsidy levels in the northeast. According to another article, the average soybean subsidy in northeastern provinces averaged more than 300 yuan per mu in 2018 and was as high as 560 yuan/mu in parts of Jilin Province. (It is unclear what soybean subsidies are paid in regions outside the northeast.)
The Ministry of Agriculture and Rural Affairs official said this year's soybean subsidies were increased by 4 billion yuan from last year. That means the Chinese government spent an additional 4 billion yuan to increase soybean output by 1.2 mmt, which represents a subsidy price tag of 3,333 yuan ($476) per additional metric ton. That's 97 percent of the current farm gate price of 3,421 yuan ($489) per metric ton. The average landed value of imported soybeans (before tariffs and taxes) during 2018/19 was 2821 yuan ($408) per metric ton. The cost of imported soybeans would be 3,130 yuan/mt with the 1-percent tariff and 10-percent VAT.
The market for the additional soybeans is weak. Nearly all domestic soybeans are used for food processing, and the National Grain and Oils Information Center estimates that only 2 mmt of domestic Chinese soybeans will be used by crushing plants to make oil and meal in 2019/20. According to one market report last week, the increase in soybeans available is putting downward pressure on prices. The government's grain reserve corporation, Sinograin, has been buying up soybeans to prop up the price, but another report says prices per metric ton have nevertheless fallen about 40 yuan to 60 yuan since new soybeans started coming on the market in Heilongjiang Province. Analysts worry that a commitment to purchase more U.S. soybeans could put further downward pressure on prices.
The futures price for domestic soybeans has been trading at about 5-to-15 percent below year-ago prices. In October last year Sinograin went into the market to buy soybeans when the price was 3800 yuan but the price soon crashed anyway. The average price fell to 3150 yuan in December 2018--a 17-percent decline. The futures price now--in November 2019--is teetering at 3380 yuan, slightly below year-ago prices. Will the price crash again this year?
Closing prices at Dalian commodity exchange.
No. 1 soybean contract for non-GMO soybeans delivered in northeast China.
Officials also emphasize the importance of diversifying soybean imports. However, China purchased 74 percent of its imported soybeans from Brazil during 2018/19, up from 48.5 percent in 2016/17--that does not sound like diversification. No. 1 Business News says that China can control trade to ensure a steady supply via foreign investment, cooperation, and other measures. Officials acknowledge that most soybeans are grown on the American continent but say the "one belt one road" initiative can help diversify by promoting production in regions suited for growing soybeans such as Russian, Ukraine, Kazakhstan, and Africa. However, China's soybean imports from belt and road countries were stagnant in 2018/19 and they together supplied less than 1 percent of China's soybean imports.