Soya bean prices propped up by surplus processing capacity

SA soya bean production has increased markedly over the past couple of years. As drought hits our western production regions, farmers expect to harvest marginally less of the oil seed than last year. Jaco Visser analyses the domestic and world outlook for soya bean production and prices.

Steady demand for soya beans from China is not enough to offset price flat-lining in response to over-supply.
Photo: FW Archive

Soya bean production in South Africa has shown a steady increase over the past nine years. Production increased from 205 000t during the drought of 2007 to an estimated 942 000t in the current marketing season, according to the Crop Estimates Committee (see Graph 1).

In anticipation of the increased availability of locally-grown soya beans, companies have set up plants to crush the oilseed, which is used as animal feed, especially in the poultry sector. Farmers increased their plantings of soya beans from 240 570ha in 2006 to an estimated 687 300ha this year, according to the Crop Estimates Committee (see Graph 2).

“The major driver behind soya bean production has been the additional demand from the newly established soya bean crushing plants, the profitability of soya bean production in relation to other crops and conservation agriculture practices,” said Wandile Sihlobo, an economist at Grain SA.

The local price of the beans has tracked the Chicago Board of Trade (CBOT) prices, adjusted for the rand-dollar exchange rate. The soya bean contract for delivery this month reached a weekly high of R5 284/t in November and is currently trading at around R4 800/t (see Graph 3). This compares with a similar movement in the generic futures contract in Chicago, which reached a six-month weekly high of US$386/t (R4 648/t) and is currently sold at US$359/t (R4 323/t) (see Graph 4).

“Internationally, soya bean prices have been moving sideways in the past few months,” Sihlobo said. “The reason for this has been the large supplies from South America as well as the US. “Nonetheless, China has been showing steady demand, which continues to provide slight support to soya bean prices. The increasing soya bean demand in China has been driven by increasing appetite from their poultry feed industry.”

In South Africa, the soya bean price is still derived from the soya bean oil cake price, according to him. In 2012, the domestic soya bean processing capacity was around 600 000t, Sihlobo said. In 2013/2014 the additional crushing capacity was around 1,5 million tons. Together, this makes up an estimated crushing capacity of 2,1 million tons.
“This clearly shows that additional demand has been the major driver of prices,” Sihlobo said. “It’s important to note that domestic commercial production is still around 940 000t.”

Imports steadily decreasing

South Africa’s imports of soya bean cake and oil have been declining over the past few years. Soya bean oil imports declined to about 171 000t in 2014 from 272 952t in 2010, according to Trade Map data. The major exporters to South Africa have been Spain, Argentina, Netherlands, Romania and Brazil. Imports of soya bean oilcake dropped to 623 968t in 2014 from 843 834t in 2010, according to SA Revenue Services data.

Soya oil slides
The price of soya bean oil, a derivative of the beans, has been trading lower for the fourth year on an average basis and is forecast to trade between US$66 139/t (R796 232/t) and US$72 752/t (R876 005/t) during the 2014/2015 marketing year, according to the US Department of Agriculture (USDA). Soya bean oil has been following a similar trend as sunflower seed oil and peanut oil over the past four years, according to USDA data. Sunflower seed oil is the only exception, with an increase forecast for this season (see Graph 5).

Worldwide, soya bean production is forecast to increase to 317 million tons in 2015/2016 from 285 million tons the previous season, according to the International Grain Council’s latest dataset. The major producers of the crop are Brazil, Argentina and the US. Thanks to greater profitability, soya bean production remains an attractive activity to South African summer grain producers,

Phone Wandile Sihlobo on 012 816 8045.