Sunday, October 2, 2011

Heilongjiang Tour: Vanishing Soybeans

"Buy soybeans" (source: Futures Daily News)

The fall crop tour organized by the Dalian Commodity Exchange also sent teams to investigate the soybean-corn-rice situation in Heilongjiang Province. The main finding was that soybean acreage plunged by 30 to 50 percent--less in some areas and more in other areas.

On the giant "Friendship Farm" (a state farm built by the Russians in the 1950s when they were "friends") soybean plantings declined 60% from 315,000 mu last year to 125,000 mu this year. The farm increased corn plantings by 50,000 mu (9%) and increased rice plantings by 120,000 mu (18%).

The crop tour reports that some areas were affected by storm damage and drought, but the impacts were not widespread. Yields are estimated to be down from last year but still good.

Low earnings from soybeans have discouraged farmers from planting soybeans. Corn is said to have net profits per hectare 3 times higher than soybean profits. Returns from rice are about double those from soybeans. The prices of the main competing crops -- corn and japonica rice -- have been high this year. One of the phrases thrown around this year in Heilongjiang is "dry land switched to paddy," a reference to soybean fields converted to irrigated rice fields.

The decline in soybean area might have been even greater if not for some natural limits. One of the limits on the loss of soybean area is lack of water to irrigate rice. Some farmers wanted to plant corn, but had to plant soybeans because wet fields last spring delayed planting. Some poor quality land is only suited for soybeans. Some farmers who lack labor plant less labor-intensive soybeans. There is a saying in Heilongjiang, "Those who want exercise plant corn; the old, weak and sick people plant soybeans."

The Heilongjiang Statistics Bureau estimated 2010 provincial soybean area at 67.177 million mu and the ITG Futures crop tour report estimates that this year's area could be down to about 47 million mu.

One crop tour report observes that soybean area is not likely to rebound in the next 3-to-5 years since it takes 3 years to get a harvest after soybean fields are converted to rice paddy (apparently because pesticide residues prevent good rice yields). The ITG Futures report observes that the government's emphasis on hitting a numeric target for grain production is unfavorable to soybean production. Since soybeans have a lower yield than corn or rice, the target can be reached more easily by encouraging planting of higher-yield crops.

Like Chinese grain prices, soybean prices are rising, but the rate of increase is limited by competition from imported soybeans. During 2008-09 the government tried to support domestic soybean prices but no one would buy them at the support price since imported beans were available at a lower price. This may be why the crop tour observes that the government has been raising its "protection price" for soybeans by only a few cents (fen) each year. This year's price for government warehouse purchases is expected to be around 2 yuan per 500g, up from 1.9 yuan last year. Private traders are trying to stockpile soybeans at an initial price of about 1.95 yuan. The report from ITG Futures conjectures that the government give up trying to control the price of soybeans and imports are likely to keep increasing their prevalence in the Chinese market.

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