When most people think about soybeans, their first thought is probably of food. After all, this tiny bean has grown to become one of the top ten most valuable agricultural products in the world. Sweet, sour, salty, bitter and umami – this oilseed is the foundation for thousands of dishes and central to many Asian cuisines today.
But recipes are not the only way we use soybeans. In fact, although there are more than a thousand soy-based products currently on the market, only a small percentage of soybean harvests are actually made into edible items like soy milk and tofu. Much more commonly, soybeans are crushed in order to make anything from cooking oil and animal feed to tires, motor fuel, glue and plastics.
From edamame to particleboard, soybeans exemplify the miracle of the globalized economy, where innovation, diplomacy and trade all come together for the good of the consumer.
An Abridged History of Soy
Most scholars agree that the modern, domesticated soybean probably originated in China around 6,000 to 9,000 years ago. From China, it spread to wider North Asia, and then to the rest of the world before finally arriving in the United States in 1765, where it was used primarily as a forage crop.
In 1904, it was discovered that using soy in crop rotations promotes better soil quality and harvest yields through the replenishment of nitrogen into the ground. After this discovery, soy production in the U.S. exploded; by the 1940s, the U.S. surpassed traditional soy producing nations such as China and Japan to become the largest producer of soybeans in the world.
During the same period, China was embroiled in internal conflict, which significantly decreased their exports, but didn’t abate China’s hunger for soy.
China’s Insatiable Appetite
China emerged from 50 years of economic stagnation in the 1980s, with the succession of Deng Xiaoping and his liberalization initiatives. In the following three decades, China’s GDP rose 45-fold, from $309 billion in 1985 to $14 trillion in 2019, according to the World Bank. This rapid growth led the world’s largest population to demand not only more food, but also higher value food items such as meat and dairy. Dining out became commonplace, and protein intake shifted from plant-based to animal-based as incomes grew.
With 1.41 billion people, an emerging middle class and a penchant for fried food and animal products, China houses more than half the global hog population (over 400 million heads). As a result, both soybean oil and soybean meal are in greater demand than ever. While China’s soybean imports reached a record 99.8 million metric tons in USDA marketing year 2020/21, imports for 2021/22 are anticipated to grow further, hitting 101 million metric tons, according to the USDA. China’s demand for soybeans is so sizeable that it imports close to 60% of all the soybeans shipped in the world.
A key factor behind surging soybean imports has been China’s need to rebuild and feed its hog population following a calamitous outbreak of African swine fever. By some estimates, the virus wiped out half the domestic hog population in 2018 and 2019, but has since been restored to nearly 90% of previous levels. Furthermore, much of this new capacity is industrial-style, large-scale hog operations, which use a significant amount of soybean meal crushed from soybeans instead of the ad hoc feed materials that small backyard hog operations had used.
Full Circle – Soy’s Mileage
And so the humble soybean, which began its important existence in the Far East several millennia ago, journeyed west, only to return back to the East from where it came. Had British economist Adam Smith lived to see this, he most certainly would have approved, for it is free trade in its finest form. Efficient allocation of resources meant that China would produce labor intensive manufactured goods to send west, while the U.S. would produce land intensive farmed goods to send east.
Though Brazil has surpassed the U.S. to become the biggest producer of soybeans, the United States’ role remains central in the global soybean trade flow. U.S. institutions such as the Chicago Board of Trade, which has its origins dating back to 1848, have highly liquid futures and options contracts on soybeans, soybean meal and soybean oil. These global benchmarks are used daily by merchants, traders, and importers to determine where prices are, thus facilitating the international trade of soy.
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