Lesson 7: Agriculture – focus on soybeans

In yesterday’s lesson you learnt more about the vital role that oil plays in the modern global economy and why it is so strategically important.

Today’s lesson takes a detailed look at one of the other major commodities – the soybean market.

Richer economies means higher protein foods

The demand for meat is closely linked to a country’s economic development, with richer consumers generally consuming a greater amount of meat in their diets. Urbanisation and rising incomes mean that more of the world is converging on European and American levels of meat consumption, which is approximately 100 kg a year per person. At the moment, most of Africa and South Asia eats less than 20 kg of meat a year per person.

The most important global crop for livestock is soybeans. Soy is a legume which produces beans containing high levels of protein and oil. The harvested beans are processed to extract the oil (approximately 20% of the bean), which is used primarily as a vegetable cooking oil or a food ingredient.

The high protein soymeal that is left over after oil extraction is toasted and ground and is used mainly for animal feed, particularly for cattle, pigs or poultry. The Food and Agriculture Organization of the United Nations (FAO) estimates that for every tonne of soybean oil, 4.5 tonnes of soybean meal are produced.

Fuelling cars as well as animals

Soybean oil is used in cooking of course, but it is also used to produce biodiesel in the US. In a bid to reduce dependence on foreign oil the US government introduced the Renewable Fuel Standard in 2006. It requires that fuel used in transportation contains a minimum quantity of renewable fuel such as biodiesel.

Growing crops for food has been controversial. Not only has it been blamed for pushing agricultural food prices higher, environmental campaigners believe that it has also accelerated habitat loss and other problems.

Trade ties that bind

Soybean cultivation is highly concentrated: four countries – the US, Brazil, Argentina and China. Historically, the US was by far the largest producer and exporter of soybeans, but there has been significant expansion of production in Argentina, and in particular Brazil.

Thanks to abundant land, high soybean protein levels and better infrastructure, the Chinese soybean market is Brazil’s to lose. Brazil’s agricultural exports to China have played a critical role in strengthening trade ties between both countries over the last decade.

Perhaps the biggest boon to Brazil’s soybean producers however has been the trade spat between the United States and China. The development presents Brazilian soybean producers a significant advantage over their U.S. counterparts in the Chinese market.

I hope you found this lesson on the soybean market.

In the next lesson we focus on how to trade or invest in commodity markets.

Go to lesson 8

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