Can China Kick its Soybean Meal Habit?

Chinese officials say they will cut back on use of soybean meal in animal diets this year in order to accommodate lower expected imports of soybeans from the United States. At least one Chinese official has said that his country has been consuming "too much" soybean meal and has room to cut back. The Ministry of Agriculture and Rural Affairs' September CASDE report cut its estimate of 2018/19 soybean imports to 84 mmt from 94 mmt last month.

China has spent the last two decades building a dependence on soybean meal that cannot be easily broken. Let's take a look at the numbers.

China is by far the top consumer of soybean meal in the world. The USDA Production, Distribution and Supply database shows that China consumed over 70 million metric tons of soybean meal during 2017/18, while the number-2 and number-3 consumers, U.S. and EU, each consumed less than half as much as China. Brazil--with the world's most plentiful supplies of soybeans--used only 17.5 mmt. Other countries were in single digits.

Top 10  consumers of soybean meal, 2017/18
Country	Million metric tons
China	70.4
United States	31.8
European Union	30.0
Brazil	17.5
Vietnam	6.0
Mexico	5.9
India	5.0
Indonesia	4.5
Thailand	4.3
Russia	3.6
Source: USDA PS&D

China's 70-mmt consumption of soybean meal far exceeds its consumption of other protein meals. China consumes less than 12 mmt of rapeseed meal, about 4 mmt each of cottonseed and peanut meal, 1-2 mmt of fish meal and sunflower meal, and 0.5 mmt of palm kernel meal. China is already the world's leading consumer of peanut and fish meal, and number-2 consumer of rapeseed and cottonseed meal.

Major protein meals used for feed in China (million metric tons)
Type of Meal	Used during 2017/18	World rank
Soybean meal	70.4	1
Rapeseed meal	11.9	2
Cottonseed meal	4.0	2
Peanut meal	3.9	1
Fish meal	1.6	1
Sunflower meal	1.1	5
Palm kernel	0.5	6
source: USDA PS&D

Another measure of China's extraordinary use of soybean meal is the high proportion of soybean meal in its feed rations. The chart below shows the ratio of soybean meal use to feed use of major grains (corn, wheat, sorghum, and barley) by China, the United States, European Union, and Brazil from 2000/01 to 2018/19, again using estimates from USDA's PS&D database. China's ratio of soybean meal use to feed grain use rose from a ratio of 0.15 in 2000 to over .35 this year. The U.S. ratio has been fluctuating between .20 and .25, and the EU is at about .20. Even Brazil--the leading soybean producer--uses a lower proportion of soybean meal to grain, at about 0.30.

Calculated from USDA PS&D data.

No one ordered Chinese farmers or feed mills to use soybean meal. The high use of soybean meal is simple economics: soybean meal is relatively cheap in China compared to other feeds. The price of soybean meal in China is about 50 percent higher than in the U.S., but the price of corn in China is about double the price in the U.S.

In China, a ton of soybean meal costs about 1.65 times the price of a ton of corn. Market prices for feeds reported by the Ministry of Agriculture and Rural Affairs this month are 3450 yuan/mt for soybean meal and 2040 yuan for corn, a ratio of 1.69. By comparison, soybean meal is more expensive compared to corn in the United States--the U.S. futures price of soybean meal has been 2.5-to-3 times the price of corn this year.

Similarly, soybean meal prices would have to rise relative to the price of other protein meals to induce Chinese livestock producers to substitute other meals for soybean meal.

One substitute--distillers dried grain--can be ruled out since China has slapped prohibitive antidumping duties on DDGS from the United States, the sole major supplier.

The price of soybean meal would have to rise faster than the prices of alternative feed ingredients in order to induce farmers and feed mills to make the change--but there is no sign of this happening. On Friday, the futures price for soybean meal delivered in northeastern China December 2018 was 3176 yuan/mt, while the price for corn delivered in December was 1894 yuan/mt--a ratio of 1.68, not much different from the price ratio that has prevailed most of this year.

Will India, Ukraine and Canada give China bargains on cottonseed, sunflower, and rapeseed meal to replace 10-mmt U.S. soybeans? Surely they will want higher prices to supply the volumes Chinese officials want.

Meanwhile, U.S. soybean export prices have dropped nearly enough to put their China C&F price at near parity with Brazilian C&F prices. With the world flooded with soybeans and bargains galore, it will be hard for China to snub cheap U.S. soybeans and the tax revenue. It will be hard to break the soybean meal habit this year.