Soybean and soybean meal prices have been rising steadily over the past few months. The price rise has primarily been caused by a projected drop in global supplies due to unfavorable weather in major soybean-producing countries like the US and Brazil, as well as an increase in demand in top consumer China, analysts said. China currently imports about 85 percent of the soybeans it consumes, and that proportion may grow larger in the future. To reduce the country's reliance on imports, the government has instituted incentives for farmers to plant more soybeans. But analysts said it will take a long time for those efforts to bear fruit.

 After the roller coaster price swings of steel and iron ore futures in March and April, it seems that soybean meal futures have taken the baton as the new investor favorite.

In May, the trading volume of soybean meal futures, primarily used as an animal feed, skyrocketed 161 percent year-on-year on the Dalian Commodity Exchange (DCE), where they made up 40.78 percent of the total trading volume on the exchange in May, according to monthly trading reports released by the DCE.

Meanwhile, the volume of iron ore futures fell 7.89 percent on an annual basis, accounting for 15.72 percent of the total volume, exchange data showed.

The figure has plunged in recent months. Iron ore futures accounted for 26 percent of the DCE's total trading volume in April and 36 percent in March.

Volumes of soybean meal futures have gone in the other direction, rising from 12 percent of total volume on the DCE in March to 18.6 percent in April, according to the exchange.

Soybean and soybean meal futures prices have also surged over the period.

The settlement price of the DCE's July soybean meal contract has jumped 26 percent since May 3, while the price of the same contract for soybeans has risen around 8 percent.

Both domestic and overseas factors have contributed to the surge, analysts said.

Weather forecasters in the US, a major supplier country of soybeans to China, have recently predicted that a "dangerous" heat wave is on the way for the southern plain states in the US, which could damage soybean crops there, Dow Jones Business News reported on Friday.

Dry weather in Brazil and flooding in Argentina have also threatened soybean supplies this year, according to media reports.

Meanwhile, demand shows no sign of shrinking soon. A recent rise in pork prices in China has given farmers a good reason to raise more hogs, which will boost demand for soybean meal.

Over the longer term, demand from China is also on an upward path, underpinning a further rise in soybean prices and greater speculation in the futures market.

China is expected to import a record 85 million tons of soybeans from October 2016 to September 2017, up from some 82 million tons projected during the 12 months ending in September this year, Li Xigui, division director of the China National Grain & Oils Information Center, told the IGC grain conference in London on June 14, Reuters reported.

Growing interest

China, the world's largest soybean consumer, is involved in about 70 percent of the world's soybean trade. It became a net importer of soybeans in 1996, and imports have risen steadily ever since.

China produces only 12 million tons of soybeans each year, so it relies on imports for 85 percent of the soybeans it consumes. The situation leaves the country vulnerable to events overseas, analysts said.

"Soybean imports are expected to continue to grow in the near future, due to Chinese farmers' low interest in growing the crop," Li Bing, an industry analyst at Zhejiang-based SunSirs Commodity Data Group, told the Global Times on Wednesday.

The provinces of Heilongjiang, Jilin and Liaoning in Northeast China are the country's major soybean producers. However, farmers there have been reluctant to plant the soybean, Li said. Instead they prefer to grow corn.

Price is one factor. Imported US soybeans cost about 250 yuan ($38) less per ton than domestic soybeans, according to DCE data.

Soybeans also cost more to grow in China. In 2015, it cost about 2,100 yuan more to produce one hectare of soybeans in China than in the US, according to data from Beijing Orient Agribusiness Consultant and the US Department of Agriculture.

"It is getting increasingly difficult to collect domestically produced soybeans because the profit margin is tiny," a soybean trader surnamed Li in Jixi, Heilongjiang, told the Global Times on Wednesday.

Support measures

The central government has been trying to encourage farmers to plant more soybeans. In 2014, it launched a pilot subsidy program to support soybean farmers in North China's Inner Mongolia Autonomous Region, as well as in Heilongjiang, Jilin and Liaoning provinces.

Under the program, farmers can get subsidies based on a target price set by the government.

For instance, the target price in 2016 was set at 4,800 yuan per ton in April by the National Development and Reform Commission, unchanged from 2014 and 2015.

Although some farmers have complained that the measure hasn't been enough, the subsidies have played a positive, if limited, role in boosting soybean planting, analysts said.

"This year's total production of domestic soybeans is expected to grow slightly to about 13 million tons, up from some 12 million in 2015," Lu Ning, an industry analyst at Shandong-based commodity information provider SCI International, told the Global Times on Thursday.

Also, corn prices have been sluggish recently due to oversupply, which will prompt farmers to grow more soybeans, Ma Wenfeng, a senior analyst at Beijing Orient Agribusiness Consultant, told the Global Times on Sunday.

Domestic soybeans also have some advantages, Lu said.

For one thing, they contain higher levels of protein. In some cases, the protein levels of domestic soybeans can hit 40 percent, compared with 34-37 percent for imported soybeans.

Some 80 percent of soybeans are used to produce oil, analysts said. This market has been dominated by imported soybeans.

However, the demand for high- quality edible beans has created a thriving market for domestic soybeans, Lu said, as high protein levels would definitely be a plus.

Besides, the fact that most domestically grown soybeans are not genetically modified may also help win more consumers, analysts said.

Although China has a limited influence on soybean prices, that may change as domestic production gradually picks up, Lu noted.

"But it will take a very long time," Lu said, adding that overseas mergers and acquisitions by leading Chinese agricultural firms may also help.
Newspaper headline: Soybeans surge