3.1.1.
Demand drivers
A common characteristic of agricultural crops is the derived nature of their demand (Schnepf 2006). Demand for soybeans arises almost entirely out of the demand for the two processed products. Soybeans are mainly crushed to produce soybean oil and soybean meal. Food and other uses of whole soybeans remains a small share of total soybeans’ utilisations. In 2010, for instance, 71% of world soybean production was diverted to soybean oil and meal production, while only 5% was diverted to food use and 6% to other uses, with the residual 16% remaining as stock (FAPRI 2010b).
Processed soybeans are the largest source of protein feed and vegetable oil in the world (USDA 2011b). While soybean meal demand depends mainly on market conditions in the feed grain sector, soybean oil is affected by market conditions in the edible oil sectors, both in the domestic and international markets (Susanto 2006). Soybean meal is the world’s most important protein feed due to its high content of crude and digestible protein and low fiber content, including nearly 65% of world supplies (Soyatech 2008). Livestock feeds account for 98% of soybean meal consumption, being almost the single utilisation of soybean meal, as feed grain in the poultry and pork industries. Additional uses include human foods such as bakery ingredients and meat substitutes (USDA 2011b). Similarly, soybean oil is the world’s largest source of vegetable oil. Soybean oil accounts for about two-thirds of all vegetable oils and animal fats consumed in the world. It is mainly used in salad and cooking oil, bakery shortening, and margarine, as well as in a number of industrial applications (Houck et al. 1972b). In recent years, its use as feedstock for biodiesel production has significantly grown, becoming an additional driver of soybean oil demand.
Biodiesel demand has significantly increased in recent years, mainly due to the implementation of biofuel policies in several countries. Demand for biodiesel is mainly driven by biodiesel consumption mandates (Ponti and Gutierrez 2009) and biodiesel is primarily used as fuel in different blending proportions ranging in average from 5 to 20% depending on the type and level of the mandate (Sorda et al. 2010).
Oilseeds and feed grains’ total demand is mainly influenced by macro-economic variables. Population and income dynamics in consuming countries are largely responsible for the increased demand of oilseeds and feed grains (Schnepf 2006). In the international market, import for whole oilseeds in consuming countries depends on the deficit between a countries’ domestic oilseed production and its consumption. Divergent requirements for protein meal and vegetable oil, as well as constraints on domestic processing capacity, determine the amount of oilseed products that a country will import (Schnepf 2006), defining the required volume of trade in the international market.
MARKET ANALYSIS
On the other hand, the residual export demand faced by a producing country depends mainly on the countries competitiveness, which is, the ability of a country to supply a good to the international market at a competitive price. Competitiveness depends, among others on production, transport and marketing costs, macroeconomic policies, sector-specific policies, infrastructure and the supporting institution. Export shares and growth trends also depend on domestic demand, relative returns to other crops, and other conditions (Smith 2009).
3.1.2.
Substitutes
The share of soybean on oilseeds demand is driven mainly by consumer preferences for a particular type of oil or meal and the price of soybean products relative to substitutes (Soyatech 2008). Soybean is categorised as oilseed together with palm kernel, rapeseed, sunflower seed, cotton seed, and canola, among the main produced and traded oilseeds. Most of these crops, when crushed for their oil also yield high-protein meals that are widely used in livestock and poultry rations. As a result, most of them are relatively close substitutes and their prices are strongly correlated (Knipscheer et al. 1982).
In the international market, palm oil is the main substitute of soybean oil. Worldwide, soybean oil is still the largest source of vegetable oil. However, the rapid growth in palm oil production and the relatively low domestic demand in producing countries have driven the increment in palm oil imports in several countries (OECD 2006). In the domestic markets, soybean oil substitutes differ among consuming countries. In the EU, for instance, rapeseed oil is domestically produced and the main substitute for soybean and palm oil imports (Ponti and Gutierrez 2009).
The feed grain market allows for a more diversified availability of soybean meal substitutes (Knipscheer et al. 1982). Livestock feed rations are produced from a mix of protein sources, including among others corn, fish meals and rapeseed meal. In recent years, dried distillers’ grains with solubles (DDGS), a co-product of corn-based ethanol production has gained attention as a substitute of soybean meal as protein feed (Lawrence 2006). The degree of substitution among these products depends mainly on the protein and fiber content of each product and the relative prices of these products in the market (Vandenborre 1966).
In the biodiesel market, fossil diesel is the main biodiesel substitute as fuel for transportation. However, technical constraints limit pure biodiesel utilisation without adapting fuel engines (Sims et al. 2008).
3.1.3.
Production technology and factors
Soybeans are mainly produced in good agricultural land using a variety of agricultural inputs. The key production factor however is land. Soybean yields vary in average between 1.5 and 4.5 ton/ha, depending on land productivity, cultivation methods and inputs applied (USDA 2001). Soybeans compete for agricultural land mainly with rapeseed, sunflower, corn and wheat. Among these crops, corn requires basically the same growing conditions as soybeans. This agronomic characteristic, among other factors, may explain the tight relation in land supply dynamics for both crops. In the US for example, due to the increased corn prices in 2007/8 corn acreage increased by 11 Mha while soybean area has been reduced by 13 Mha (Soyatech 2008).
Two different oilseed-processing methods are applied in the crushing industry. The common procedure is to use hexane gas in a solvent-extraction method to separate the oil embedded in the cell structure of the beans to produce soybean oil and meal. The second process, mechanical crushing by beans pressing, is much less efficient. Solvent extraction, consequently, is the primary method used by large soybean crushers (Soyatech 2008). Soybean oil and soybean meal are joint products and obtained simultaneously in rather fixed proportions in the processing operation (Ryan and Houck, 1976). On average, each ton of crushed soybeans yields 0.2 and 0.8 tons of soybean oil and meal, respectively (USDA 2011b). Soybean meal is the most valuable component obtained from soybeans, ranging from 50 % to 75 % of the soybean value (Houck et al. 1972b). Soybean oil, on the other hand, has generally a smaller contribution to the value of soybean, as it constitutes around 20 % of soybean’s weight (USDA 2011b).
Biodiesel production technologies vary depending on the type of feedstock. Biodiesel is mainly produced from rapeseed in the EU-27, from soybean in the US, Brazil and Argentina and from palm oil in Malaysia and Indonesia. Transesterification with methanol is the traditional process to convert vegetable oils into biodiesel (Rajagopal and Zilberman 2007). In average, 1 ton of soybean oil yields 0.96 and 0.1 tons of biodiesel and glycerine, respectively. Glycerine is a co-product from biodiesel production that is used mainly in the pharmaceutical industry (Jungbluth et al. 2007).