By Karl Setzer

 We have started to see a shift in the way the world import market is working. Historically, importers have focused their interest on raw commodities and then processed them when received. In recent years, importers have shifted to a hand-to-mouth buying approach to the market though, and many are now buying finished products instead. This has actually favored U.S. markets as processing margins can generate as much or more revenue than raw commodities can.

For the first time in three years, China’s annual soybean imports declined in 2021. Yearly Chinese soybean imports totaled 96.5 mmt in 2021 compared to 100.3 mmt in 2020. A primary reason for this decline was a reduction in feed demand as poor margins cut animal numbers in the country. China has also increased the use of feed wheat in rations which is higher in protein than corn and requires less meal as a supplement.

Forecasters are expecting to see China’s soybean demand rebound in 2022 and are projecting imports will again reach 100 mmt. While this is possible, the question in the market is where the soybeans will be sourced from, as the U.S. market share continues to decrease. This will depend heavily upon how big the South American crop is, and if drought lowers production from current estimates.

Chinese corn demand estimates are starting to be lowered by country officials. Authorities in China claim the country will need less corn as animal numbers remain depressed and poor margins are limiting any interest in herd building. A heavier use of wheat in Chinese feed rations is also lowering corn use. While this will not totally negate losses in the South American crop, it will help ease concerns on global corn balance sheets.

Chinese officials have announced the country is making plans to become more self-sufficient on soybean needs. At the present time China imports 85 percent of its yearly soybean requirements. The country intends to expand its soybean plantings over the next four years to boost production by 4 percent. This would put the country’s soybean production at 23 mmt. China is trying to avoid future global supply line issues such as the ones they experienced with the COVID outbreak.

Production focus in South America has shifted from Brazil to more on Argentina in recent weeks. The most attention has been on corn as forecasters have made sizable reductions to production estimates. These may be too aggressive though, and even Argentine officials have been hesitant to lower their yield forecast. One reason for this is elevated plantings, but also from a spread-out planting season. Reports indicate two-thirds of the Argentine crop was planted in December and will miss much of the current stressful conditions.

What is becoming more of a market topic in Argentina is the country’s crush volume. Argentina scaled back their soy acres this year and now is facing drought losses as well. Argentina is sitting on a large volume of old crop soybeans, but some analysts are questioning their ability to supply new crop demand. COVID is also an issue in Argentina as 25 percent of the country’s crush capacity is off-line due to a lack of workforce. Argentina is the world’s largest supplier of soy products and these factors have importers nervous, which may benefit U.S. sales.

The semi-annual cattle inventory report showed us the smallest U.S. cattle herd in the past seven years. This decline is credited to the result of the drought in the western United States and how pasture conditions have been greatly affected. This led to heavy culling of cattle herds, and these may be slow to rebuild given ongoing dry conditions and high feed costs. The U.S. beef inventory is likely to continue declining as a result. In turn, the U.S. consumer should expect to see little relief from high beef costs in the near future.

The United States is starting to see more export competition in global beef trade from Brazil. Brazilian beef exports for the month of January totaled 140,500 metric tons. This was a 33,000 metric ton increase from January 2021. The easing of restrictions on Brazilian beef imports in the global market following last fall’s BSE discovery are behind the rebound in demand. This is especially the case with China who was a leading importer of Brazilian beef up to that point. Their restriction elevated U.S. beef sales to a record high last year, but the return of Brazil will likely temper demand this year.

Food inflation remains a major market concern. Food values in the month of January increased 1.1 percent and are now at their highest level since April 2011. The greatest increase was to vegetable oils at 34 percent, followed by meats at 17 percent and cereal grains at 12.5 percent. Given recent market activity, these values will likely increase again this month.

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