By Scott Gerlt • ASA Chief Economist

China remains the goliath of global soybean demand. Over 60% of soybean trade around the world is destined for the country. The U.S. exports about half of its whole beans, and over half of those are generally bound for China[1]. The Asian nation depends on the high-protein oilseed to feed its hog herd, which is the largest in the world. Almost 60% of the world’s sows are in China[2] to provide the high levels of pork demanded by the country. Events in China can therefore cause major swings in soybean markets. This article looks at several recent issues within the country.

China’s population decline has been making headlines[3]. It is the first decline in citizens in over 60 years. According to government data, China had 9.56 million births compared to 10.41 million deaths last year[4]. The annual births have fallen by about half since 2012. Several factors have contributed to this. First, China’s fertility rate has dropped dramatically. This rate is the number of children that would be expected to be born to a woman if she lived through her child-bearing years. Between 1950 to 1970, the fertility rate ranged between four and births per woman. By 2016 that dropped to 1.772, and by 2021 it fell to 1.164. The rate to maintain the population is about 2.1 children per woman. Not only has the fertility rate dropped, but the gender ratio at birth in China is skewed toward boys. In 2021, there were 1.12 males born for every female. The ratio became increasingly skewed after the one-child policy went into effect in the 1970s. The skewed ratio with the low fertility rate brought China to the point of a declining population.

The population decline affects soy demand in multiple ways. The obvious is that with fewer people there will be fewer consumers of pork and, subsequently, soy. However, it is also detrimental to the economy. Societies depend on workers to provide enough output for everyone. Since not everyone can work due to age, illness and other factors, those in the workforce must generate enough economic activity for themselves and those out of the workforce. China currently has about two working-age adults for every one outside that age. The United Nations forecast several scenarios on how that could change. In its medium variant that ratio changes to about one-to-one by 2100. This change will strain the government budget and reduces per capita income. Lower incomes reduce overall demand for red meat.

[1] ASA calculations from Trade Data Monitor data

[2] ASA calculations from USDA FSA data

[3] https://www.reuters.com/world/china/chinas-population-shrinks-first-time-since-1961-2023-01-17/ https://www.pewresearch.org/fact-tank/2022/12/05/key-facts-about-chinas-declining-population/

[4] https://www.nytimes.com/2023/01/16/business/china-birth-rate.html

Fortunately, China’s population decline is not expected to accelerate for several decades. Unfortunately, the country’s declining population is not unique. Europe is undergoing the same trend. India, which may now be the largest country, is expected to reach its peak population in 2063, Western Europe in 2034 and South America in 2055. Africa is an exception to this trend and is expected to experience massive growth through the century. The U.N. forecasts the continent’s population will increase from over 1.4 billion people currently to over 3.9 billion in this period.

China’s declining population will have a limited effect in the short term. China’s zero-COVID policy severely hampered economic activity in the country for nearly three years. The country had only a 3.0% growth rate in 2022. It was the first time it lagged the global pace in more than 40 years[5]. China’s prospects have increased since the zero-COVID policy was recently lifted and ended mandatory quarantines. The International Monetary Fund (IMF) is now projecting gross domestic product growth of 5.2% in 2023 as activities resume in the country. However, current forecasts have the GDP remaining below pre-pandemic levels for several years.

[5] https://www.reuters.com/markets/imf-lifts-2023-growth-forecast-china-reopening-strength-us-europe-2023-01-31/

Given the lockdowns in China and slow economic growth, the continued growth in year-over-year (YOY) poultry production has been amazingly strong, according to official Chinese data. Year-over-year pork production fell hard during the African Swine Fever outbreak, reaching a trough of almost a 30% decline. Since that time, the herd had been on the rebound and appeared to be potentially overbuilt. The pace of growth has slowed, yet the direction has continued. For the last eight quarters, China’s pork production has continued to increase, according to the official data. The Chinese government reported 2022 pork production was at its highest level since 2014.

Despite official numbers showing an increase in pork production in China, soybean crush in China has fallen the past few years. For instance, crush fell by about 1.5 million metric tons between 2021 and 2022. While not shown, soybean meal stocks also have been decreasing—but only a few hundred thousand metric tons after correcting for seasonality.

Despite a lower crush, soybean stocks also have been decreasing in China as a result of imports being down over this period. A poor South American crop last year, transportation issues in the United States, combined with high soybean prices and lower hog prices in China have reduced the supply and demand for them by China. The last month of data, December, did start to show an uptick in imports as U.S. supplies started making their way to Asia. Brazil’s harvest is starting, which should bring more supplies to the country. At some point, China will need to replenish state stocks that were released to help contain domestic prices when exports were lacking[6].

[6] https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/agriculture/122322-chinas-soybean-imports-to-recover-in-2023-on-improved-margins-restocking-needs

The short-term outlook for China’s soybean demand is likely to improve given the relaxation of COVID lock-down policies. USDA is predicting China will crush 7.5 million metric tons more soybeans this year. China will likely also need to rebuild soybean stocks. All of this should pull more imports into the country. USDA is currently expecting about a 4.5 million metric ton increase by China for this marketing year. Additionally, USDA predicts China will increase its domestic soybean production by 4 million metric tons this year. The lack of soy crushing and imports recently raised suspicions about the level of pork production reported within the country. Longer term, China will face challenging issues with its declining population that may prove detrimental to pork demand.