OIL CROPS YEARBOOK November 13, 1998 November 1998, OCS-1998 Approved by the World Agricultural Outlook Board --------------------------------------------------------------------------- OIL CROPS YEARBOOK is published annually by the Economic Research Service, U.S. Department of Agriculture, Washington, DC 20036-5831. This release contains only the text of the OIL CROPS YEARBOOK--tables and graphics are not included. Printed copies of this Yearbook are available from the ERS-NASS order desk. Call, toll-free, 1-800-999-6779 and ask for stock # OCS-1998, $21. ERS-NASS accepts MasterCard and Visa. --------------------------------------------------------------------------- Contents Summary U.S. Soybean Situation World Oilseed and Protein Meal Situation World Vegetable Oil Situation Situation for Other U.S. Oil Crops. Cottonseed. Peanuts Sunflowerseed Other Minor Oilseeds Corn Oil Other Fats and Oils Highlights Imported Oils Animal Fats End Uses of Fats and Oils Special Articles Soybean Supply and Use Tables Published for First Time in China Despite Rise of Market Forces, Continued Government Intervention in China's Soybean Economy Adds Uncertainty in World Oilseed Markets Coordinators Scott Sanford (202) 694-5309 Mark Ash (202) 694-5289 Principal Contributors Mark Ash (202) 694-5289 (Soybeans) Scott Sanford (202) 694-5309 (Peanuts) Mae Dean Johnson (202) 694-5299 (Statistics) Approved by the World Agricultural Outlook Board. Summary released October 30, 1998. Summaries and text of Situation and Outlook reports may be accessed electronically via the ERS Web Site (http://www.econ.ag.gov). The United States Department of Agriculture (USDA) prohibits discrimination in all its programs and activities on the basis of race, color, national origin, gender, religion, age, disability, political beliefs, sexual orientation, and marital or family status. (Not all prohibited bases apply to all programs). Persons with disabilities who require alternative means for communication of program information (Braille, large print, audiotapes, etc.) should contact USDA's Target Center at (202) 720-2600 (voice and TDD). To file a complaint of discrimination, write USDA, Director, Office of Civil Rights, Room 326-W, Whitten Building, 14th and Independence Avenue, SW, Washington, D.C., 20250-9410 or call (202) 720-5964(voice or TDD). USDA is an equal opportunity employer. Summary Tight Carryin Stocks, Record Oilseed Harvests Led to Robust Demand in 1997/98 Following 2 years of delayed plantings, firm soils advanced U.S. soybean planting in 1997 to the fastest start since 1994. U.S. farmers planted 70.6 million acres of soybeans in 1997, 6.3 million more than in the preceding year. Very strong soybean prices (versus corn, sorghum, wheat, and cotton), the absence of acreage set aside programs, modifications of farm rotations to include more soybeans, declining costs of production, and optimum planting conditions led to the surge in soybean area. U.S. soybean production in 1997 was 2,703 million bushels, surpassing the 1994 record by 186 million bushels. The final U.S. average soybean yield settled to 38.8 bushels per acre, second only to 1994. Tight world supplies and brisk foreign demand spurred 6 months of heavy U.S. exports until the record 1997/98 South America soybean harvest appeared. U.S. soybean exports for the season, however, totaled 870 million bushels, down from 882 million a year earlier. The resurgence of soybean oil prices and the drop in the cost of soybeans enhanced crushing margins in the first half of the marketing year. Greater investment in U.S. capacity and the advent of the large South American harvest created very narrow margins in the second half, but U.S. processors continued to successfully defend their world market share. As a consequence, 1997/98 domestic crush rose to a record 1,597 million bushels. Despite the 264-million bushel increase in supplies, year ending soybean stocks increased only 68 million bushels. U.S. crushers produced a record 18.1 billion pounds of soybean oil in 1997/98 in response to a global shortfall in vegetable oil. Domestic disappearance of crude soybean oil increased from 14.3 billion pounds in 1996/97 to 15.2 billion. Soybean oil prices rose steadily since the summer 1997, with the 1997/98 average price increasing to 25.8 cents per pound. The spike in demand cut 1997/98 U.S. soybean oil ending stocks to 1,387 million pounds, down from 1,520 million a year earlier. U.S. 1997/98 soybean oil exports swelled to 3.25 billion pounds, surpassing the previous high of 2.7 billion set in 1979/80. A strengthening world oil market in 1997/98 accelerated the crush, generating ample volumes of soybean meal and cutting soybean meal prices. The central Illinois cash price for high protein soybean meal averaged $186 per short ton, considerably less than the $271 a year earlier. Total 1997/98 meal exports were 9.4 million short tons, far surpassing the 1979/80 record. With a larger U.S. livestock inventory and considerably lower soybean meal prices, domestic disappearance rose to 28.7 million short tons from 27.3 million in 1996/97. Global trade in major oilseeds reached an estimated peak of 53.4 million tons in 1997/98, surpassing the previous season's total by 3.9 million tons. Soybeans remained the undisputed leader with 40.0 million tons traded. World meal use in 1997/98 was estimated at 155.5 million tons. Global soybean meal consumption was about 99.4 million tons, up 7 percent from 1996/97. World protein meal trade also reached a high of 51.4 million metric tons in 1997/98. Global vegetable oil output rose to 76.8 million tons, the smallest increase since 1992/93. Drought throughout Southeast Asia held down production of tropical oils throughout 1998. However, growth in world vegetable oil consumption outstripped the increase in production, rising to 77.3 million tons. As a result, world vegetable oil ending inventories dropped to only 8.5 percent of use, the lowest since the early 1970s. Estimated global vegetable oil trade in 1997/98 increased to 29.3 million tons, up 430,000 from 1996/97. Lower yields in 1997 caused cottonseed production to fall 2.9 percent to 6.935 million short tons. Cottonseed crush and exports were up 15,000 short tons each from the previous year at 3.885 million and 146,000 short tons, respectively. Other use of cottonseed, primarily whole seed feeding, was 2.929 million short tons, 8 percent below the 1996/97 season. Ending stocks as of July 31, 1998, modestly tightened to 490,000 tons. The lower value of cottonseed in 1997/98 in both oil-and-meal output from crushing and in feeding was reflected in a lower average price received by farmers. U.S. farmers received $121 per short ton in 1997/98, down from $126 a year earlier. U.S. peanut producers planted 1.431 million acres of peanuts in 1997, up 2.1 percent from a year earlier. Production totaled 3,537.1 million pounds, in-shell basis, down 3.4 percent from the previous year. Average yield per harvested acre was 2,507 pounds, a 146-pound drop from the 1996 yield. Food use of peanuts rose 3.4 percent to 2,099 million pounds, in-shell basis. On an in-shell basis, peanuts crushed in 1997/98 totaled 544 million pounds, 21 percent below the previous year. Peanut exports remained strong, however, rising to 681 million pounds from 666 million the previous year. The tighter supply notwithstanding, the 1997/98 U.S. average farm price for peanuts fell to 26.1 cents per pound from 28.1 cents a year earlier. Despite lower crushing, large beginning stocks of peanut oil were adequate to support a modest increase in domestic use of peanut oil to 216 million pounds. U.S. farmers planted 2.92 million acres of sunflowers in 1997, up 14 percent from 1996. But delays in planting, a dry summer, and severe midge infestations trimmed the average yield to 1,320 pounds per acre from 1,435 pounds in 1996/97. Year to year production increased 177 million pounds to 3,763 million, on the strength of 353,000 more acres harvested. Sunflowerseed crush soared to 2,338 million pounds in 1997/98. The major reason for the surge is that exports of sunflower oil increased nearly one- fourth from 1996/97, to 805 million pounds. Season ending sunflowerseed stocks fell sharply to 202 million pounds following 2 years of large carryover. Despite ample supplies, the 1997/98 average farm price for sunflowerseed stayed firm at $11.85 per hundredweight. U.S. Soybean Situation, 1997/98 Bumper 1997 Soybean Harvest Replenished Slender Supplies Every State (except Ohio, which held steady to its 1996 record acreage) increased soybean acreage in 1997. A dozen States had record soybean planting, many of them the top producing States. Very strong soybean prices (versus corn, sorghum, wheat, and cotton), the absence of acreage set-aside programs, modifications of farm rotations to include more soybeans, declining costs of production, and optimum planting conditions led to the surge in soybean area. The westward expansion of hog production into the Great Plains also increased local demand and production of soybeans. U.S. farmers planted 70.6 million acres of soybeans in 1997, 6.3 million more than in the preceding year. This was the first time in history that U.S. planted acreage for soybeans exceeded wheat area. A late grain and soybean harvest in 1996, along with much lower wheat prices, lowered winter wheat area from a year earlier. Reduced winter wheat acreage curtailed double-cropped soybean area, which tends to have a lower average yield. Following 2 years of delayed plantings, firm soils advanced U.S. soybean planting in 1997 to the fastest start since 1994. Most of the soybean crop went into the summer in very good shape with adequate soil moisture reserves. A period of hot weather in July drew down soil moisture levels throughout the Midwest, but rains during August secured good yield potential. Below average August temperatures also helped moderate moisture needs and warmer temperatures by the end of August helped advance maturity. Pod development was slightly ahead of average, and well ahead of the late 1996 pace, when there was significant frost risk. In the western Corn Belt, September pod counts were the highest ever recorded. The swift harvest pace was advanced by quicker soybean maturity and nearly ideal dry weather, although an absence of frost in some areas delayed the drydown to desired moisture levels. In late October, heavy snow in the western Corn Belt interrupted farmers' harvesting activities, although most of the affected areas had nearly finished with soybeans. U.S. soybean production in 1997 was 2,703 million bushels, surpassing the 1994/95 record by 186 million bushels. The final U.S. average soybean yield settled to 38.8 bushels per acre, ranking behind only 1994 as the highest yield ever. Persistent summer dryness cut yields in several southeastern States. However, some southern farmers were able to harvest early and take advantage of prices for September delivery that were at least $1.00 per bushel higher than prices for October delivery. This situation was reflected by the very tight September 1 soybean stocks of 131 million bushels. Until the record 1997/98 South America soybean harvest appeared, tight world supplies and brisk foreign demand led to 6 months of heavy export trade from the United States. Like the U.S. industry, many importers had drawn down soybean inventories the previous summer, waiting until the less costly new U.S. crop was available before replenishing stocks. Sales to the EU, China, and even Brazil and Argentina were particularly strong in response to excellent crushing margins. By late spring, U.S. soybean exports became quite sluggish as South American supplies emerged and U.S. exports of soybean meal and oil took precedence. Some glitches in the transportation system also hindered U.S. exports in 1997/98. The United States has long dominated Mexican soybean trade, but continuing railcar backups at the border motivated Mexican importers to substitute some Brazilian soybeans. And, a low water level in the Panama Canal restricted the maximum draft for ocean vessels. The associated limits on cargo weights raised per unit freight costs to Asia via the canal, and compelled some shippers to take longer alternate routes. The restrictions offset the decline in ocean freight rates to Asia. U.S. exports for the season totaled 870 million bushels, down 12 million from a year earlier. Early in the season, domestic soybean crushing exceeded all previous rates, and mills operated near capacity well into the spring. The resurgence of soybean oil prices and the drop in the cost of soybeans enhanced crushing margins in the first half of the marketing year. Greater investment in U.S. capacity and the large South American harvest created very narrow margins in the second half, but U.S. processors continued to defend their world market share. As a consequence, the 1997/98 domestic crush rose to a record 1,597 million bushels. Despite the 264-million- bushel increase in supplies, year ending soybean stocks increased only 68 million bushels. Beginning stocks of soybean oil sharply declined to 1.5 billion pounds due to expansion of the previous season's domestic offtake and exports. Responding to a global shortfall in vegetable oils, U.S. processors generated a record 18.1 billion pounds of soybean oil. Aside from the outstanding crush pace, warm summer temperatures also boosted the oil extraction rate to 11.3 pounds per bushel, the highest since 1991/92. Domestic soybean oil disappearance increased from 14.3 billion pounds the previous season to 15.2 billion in 1997/98. Soybean oil prices rose steadily since summer 1997, with the 1997/98 average price increasing to 25.8 cents per pound. Despite the surge in output, the spike in demand cut 1997/98 U.S. soybean oil ending stocks to 1,387 million pounds, down from 1,520 million a year earlier. Despite declining global stocks and rising prices for vegetable oils, China expanded its oil imports in 1997/98. Even with an increase in the soybean oil tariff, China's smaller oilseed production in 1997 extended the oil deficit. China accounted for more than one-fourth of the world's soybean oil imports. U.S. 1997/98 soybean oil exports swelled to 3.25 billion pounds, surpassing the previous high of 2.7 billion set in 1979/80. A strengthening world oil market in 1997/98 accelerated the crush, generating ample volumes of soybean meal. When demand for vegetable oils is stronger than protein meal demand, prices for soybean oil and soybean meal go in opposite directions. Soybeans produce 4 times as much meal than oil, so the more that are crushed to satisfy the world oil market, proportionately greater supplies of soybean meal are created. Unlike oil, meal cannot be stored very long, so meal prices must fall to clear the market of excess supplies. The world's dependence on U.S. supplies last fall kept meal prices relatively firm. Eventually, record large 1997/98 U.S. and South American meal supplies, weaker corn and wheat prices, and weaker Asian demand pressured soybean meal prices. The central Illinois cash price for high protein soybean meal averaged $186 per short ton, considerably less than the $271 per ton in 1996/97. U.S. exports of soybean meal, especially to the European Union, were another very bright spot. Total 1997/98 meal exports were 9.5 million short tons, far surpassing the 1979/80 record. But the U.S. predominance eroded once South American crushers had new-crop production available. Asian meal imports were also rationed by a serious economic recession. With a larger U.S. livestock inventory and considerably lower soybean meal prices, 1997/98 domestic disappearance rose to 28.7 million short tons from 27.3 million in 1996/97. A solid expansion in hog production and a moderate gain in poultry production fueled the increase. But a mild winter and expanded wheat feeding suppressed U.S. soybean meal consumption. The expansion in hog numbers began slowing down by the spring and summer, with more moderate increases in the breeding herd and farrowings. World Oilseed and Protein Meal Situation After stagnating in 1996/97, world oilseed production climbed 10 percent in 1997/98, to 286.6 million metric tons. Soybeans accounted for 95 percent of the increase in 1997/98 global oilseeds production. World soybean production increased 18 percent to 156.1 million tons. After a decline in 1996, a strong recovery in European and Canadian production raised global rapeseed output 8 percent in 1997/98, to 34.1 million tons. However, lower harvested area and disappointing yields left 1997/98 global sunflowerseed production unchanged from the preceding year at 23.9 million tons. Global trade for major oilseeds reached an estimated peak of 53.4 million tons in 1997/98, surpassing the previous season's total by 3.9 million tons. Soybeans remained the undisputed leader with 40.0 million tons traded. The major beneficiary of the increased trade in oilseeds was Argentina, whose October- September soybean exports more than tripled to 2.8 million tons from the drought-reduced 1996/97 volume. China continued to be a large net importer of soybeans (3.0 million tons) as well as of soybean meal (4.0 million). Also benefitting from abundant exporter supplies, worldwide rapeseed trade increased 12 percent in 1997/98 to 6.5 million tons. Global sunflowerseed trade was little changed at 3.9 million tons. Compared with 1996/97, soybean meal forfeited its typically predominant role in determining soybean value, as meal production rebounded and came into closer balance with world consumption. World oilmeal use in 1997/98 was estimated at 155.5 million tons. The 3-percent increase was largely due to growth in soybean meal use, with a smaller increase in rapeseed meal. Global soybean meal consumption was about 99.4 million tons, up 7 percent from 1996/97. Rising global use was attributed to sustained growth in the demand for soybean meal in China, Mexico, and the United States. World protein meal trade also reached a high of 51.4 million metric tons in 1997/98. Major trade gains were made by the United States with 8.5 million metric tons of soybean meal exports (up one-third from the previous year), and Argentina with 9.9 million tons (up 14 percent). However, India's soybean meal exports (2.5 million tons) were held down by economic difficulties experienced by its traditional Asian customers and quality problems. The shortage of Brazilian supplies last fall set the stage for a surge in 1998 soybean plantings to a record 13 million hectares. Timely planting and generous rainshowers throughout South America were quite favorable for soybean development. Despite harvest delays, the ample moisture enabled Brazilian soybean farmers to harvest a record 31.0 million metric tons in 1998. In 6 out of the last 7 years (including 1998), Brazil has established a record soybean yield. Generally good weather, adoption of better management practices, and increasing use of inputs are responsible. A tremendous surge in Brazilian soybean exports greatly depleted Brazilian supplies last fall. Brazilian crushers were compelled to import U.S. supplies in 1997/98, as the United States was one of the few sources available to sustain operations until the Brazilian 1998 harvest. However, Brazilian legislation banning imports of genetically modified organisms (GMOs) created much uncertainty whether U.S. imports would be allowed. A Brazilian government commission agreed in October to reverse a stance on imports of genetically modified soybeans. The commission's decision still prohibited planting GMO seed but allowed Brazil to import 1.55 million tons of soybeans for crushing under the drawback plan, which requires reexporting an equivalent volume of the products. But this uncertainty and the government's halving of the time permitted for re-exporting products under the drawback program to 90 days curtailed soybean imports from the United States. From October 1997 through September 1998, Brazil's soybean exports rose at a more moderate pace (to 9.1 million tons) compared with 1996/97, when the export sales taxes were removed. With greater competitor supplies and weaker world demand, Brazilian soybean processers crushed 20 million tons, virtually the same volume as in 1996/97. A slight decrease in soybean meal production trimmed exports to 10.3 million tons but Brazil remained the world's single largest exporter of soybean meal. Brazilian soybean oil exports dipped slightly to 1.28 million tons. Given the drought-ravaged 1997 soybean harvest of 11.2 million tons, the supply situation in Argentina began just as tight as in Brazil. Argentina's soybean imports rose to an unprecedented 0.65 million tons. Attractive prices motivated Argentine producers to raise harvested soybean area to a record 7.0 million hectares, largely at the expense of wheat and corn area. Yields soared because of ample moisture and a greater proportion of first-crop soybeans. Varietal improvements, including wider adoption of herbicide resistant soybeans, also enhanced productivity within Argentina. Expanded area and better yields culminated in a record soybean output of 18.7 million tons, even though frequent showers hampered harvest progress. Greater supplies raised the 1997/98 Argentine soybean crush to 13.0 million tons. This permitted Argentina to export more soybean meal, with 1997/98 exports at 9.9 million tons, up 1.2 million from the previous year. In Paraguay, favorable prices and declining production costs boosted relative returns for raising soybeans. Soybean plantings expanded to a record 1.3 million hectares. Despite flooding along the Parana River, fields were relatively unharmed, and production dipped to 2.7 million tons. Paraguay has a negligible domestic market for meal and oil and its larger neighbors have advantages in crushing. So, unprocessed soybean exports (including to Brazilian and Argentine crushers) bring the best returns for the country's output. Paraguayan exports totaled 2.1 million tons, compared to crushings of 0.5 million tons. India's 1997/98 soybean crop was a record 5.35 million tons, up from 4.1 million the year before. This was due to a larger area harvested and the best soybean yields ever seen in India (yet still among the world's lowest). Worries about the impact of El Nino dissipated with timely monsoon rains. Most of the increased supply was crushed, but rain delays for the Indian soybean harvest extended the virtual U.S. monopoly last fall on the international market a little longer than usual. Indian soybean meal prices were about $20 per metric ton less than U.S. Gulf quotes, creating a significant competitive advantage in several major Asian markets. However, part of the discount was related to quality problems that discouraged sales to some markets. India's soybean meal exports in 1997/98 were estimated at 2.5 million tons. The additional soybean oil produced lifted India's domestic soybean oil consumption to 1.1 million tons. A financial crisis forced Thailand to float its currency, the baht, in July 1997. Thailand's action triggered a wave of devaluations throughout Asia. Currencies in Thailand, Indonesia, and the Philippines have fallen to historic lows against the U.S. dollar. In return for economic and banking reforms, several Southeast Asian countries accepted multi-billion-dollar loan packages from the International Monetary Fund. The baht fell about 80 percent against the U.S. dollar in the last year. As a consequence, prices of agricultural imports in dollar terms increased dramatically. Thailand had already begun reducing tariffs, pulling in a record volume of soybeans and soybean meal. The U.S. market share in 1996/97 was 28 percent for soybeans and 16 percent for meal. To help Thailand compensate for the steep rise in import prices, USDA increased Thailand's credit under the Export Credit Guarantee Program (GSM-102) from $100 million to $300 million. Changes in Thailand's soybean and meal imports were moderated by a still vital poultry export trade, which was supported by the devaluation and Hong Kong's wholesale poultry slaughter (to control transmission of the bird flu). Thai soybean imports increased to 0.6 million tons in 1997/98, compared with 0.55 million a year earlier. Soybean meal imports were down 19 percent to 0.8 million. South Korea struggled with a serious short term debt problem late in 1997. Korea's GDP growth in 1998 may drop in half from 1997's 6 percent. South Korea is the world's eighth largest soybean importing country and the eighth largest importer of U.S. soybeans. The United States accounts for 90 percent of South Korea's soybean imports. In 1997/98, U.S. soybean exports to Korea fell 24 percent from a year earlier. USDA approved $100 million in GSM-102 credit for South Korea to help purchase soybeans. Total South Korean soybean imports in 1997/98 were 1.4 million metric tons, down from 1.5 million a year earlier. South Korea imports comparatively little soybean meal from the United States, but market access gains under the Uruguay Round agreement may encourage more soybean meal imports in the future. Drought in soybean producing areas of Java reduced Indonesian 1997 soybean output to 1.4 million tons. The fall in domestic supplies increased Indonesian soybean imports 18 percent to 0.8 million tons despite volatile foreign currency swings. The rupiah was devalued more than three-fourths since mid-1997, dramatically raising the cost of imported goods. USDA increased Indonesia's total GSM-102 allocation from $250 million to $400 million. Indonesia had already dropped the import duty on soybeans to zero in summer 1997. Indonesia has no crushing facilities, so the supply reduction only slightly curtailed the growth in food consumption of soybeans. Indonesia imported 0.68 million tons of soybeans in 1996/97 (nearly all from the United States) and imported 0.81 million in 1997/98. Indonesian 1997/98 soybean meal imports took the brunt of the impact, falling in half from the previous season to 550,000 tons as swelling feed costs slashed poultry consumption. India is the major supplier of soybean meal to Indonesia, with a typically much smaller share from the United States. Malaysian 1997/98 soybean imports were also down dramatically this year, to 0.45 million tons. U.S. soybean shipments to Malaysia declined 53 percent from a year earlier. The Malaysian ringgit depreciated more than 40 percent between summer 1997 and mid-1998. USDA extended a new credit line of $100 million to help Malaysia purchase U.S. agricultural commodities. While Taiwan's consumption of pork recovered from last year's outbreak of foot and mouth disease in hogs, the loss of its pork exports to Japan suppressed Taiwanese soybean consumption. On the other hand, the wholesale destruction of the poultry flocks in Hong Kong due to avian influenza represented an opportunity for Taiwan to expand chicken production and exports. Taiwan's soybean imports declined to 2.4 million tons from the 1996/97 level of 2.6 million. Even Japan's relatively stable economy slipped into recession as the yen fell to the lowest level versus the dollar in 8 years. Flat consumption by Japanese livestock, greater rapeseed availability, and rising meat imports slightly cut Japanese soybean imports and soybean meal consumption. Despite expanded area, dry weather limited China's 1997 soybean harvest to just 14.7 million tons. The disappointing oilseeds output and unabated consumption accelerated Chinese imports of soybeans last fall. China has not suffered financial problems to the same extent as its neighbors, but Chinese economic growth slowed as export competition from the other Asian countries intensified. China's soybean meal demand for 1997/98 reached 12.4 million tons, 17 percent above 1996/97. This surge increased 1997/98 soybean meal imports to a record 4.0 million tons, 11 percent higher than the previous year. Bigger harvests of high-oil yielding, European-produced oilseeds and cheaper foreign soybean meal prices undercut EU crushing margins for soybeans. This curbed imports of soybeans by the EU (still the world's largest import market) relative to soybean meal. While EU soybean imports increased modestly to 15.6 million tons, EU soybean meal imports increased to 16.2 million tons from 14.7 million in 1996/97. Record yields on near-record area raised 1997 EU rapeseed production to a record 8.6 million tons. Given low beginning inventories, EU crush demand began very briskly in 1997/98. The Polish and Czech rapeseed harvests did not fare as well, as winterkill and floods damaged 1997 yields. Although better than the poor 1996 crop, the 1997 harvest led to a continuing supply shortage relative to domestic crush capacity, requiring Poland to import 260,000 tons of seed from neighboring countries. Canadian farmers harvested 4.9 million hectares of rapeseed in 1997, rebounding from 3.5 million harvested a year earlier. The 6.4- million-ton crop was Canada's third largest, and allowed for a surge in crushing given the profitable world vegetable oil market. Japan, the principal foreign market, increased rapeseed imports a modest 3 percent to 2.05 million tons. Persistently wet and cold weather hampered the 1997 sunflowerseed harvest in Russia and the Ukraine. Lower yields dropped projected output by all the New Independent States below the previous year's disappointing level to 5.2 million. Similar shortfalls occurred in Romania and Hungary. Larger domestic supplies curtailed EU sunflowerseed imports and margins favored greater processing of soybeans and rapeseed. This contributed to the increase of oilseed exports from the United States to the EU, which were 16 percent higher than the preceding year. Excessive rain damaged Argentina's production and quality of sunflowerseed in 1998, forcing farmers to abandon 0.2 million hectares. The optimistic early season forecast for record sunflowerseed output gave way to a less exceptional 5.4 million tons. Consequently, Argentine sunflowerseed oil and meal exports suffered, especially to European Union countries. Global cottonseed production increased only 1 percent in 1997/98, to 34.7 million tons. Despite better yields in China and Uzbekistan, lower area and yields in India, Pakistan, and the United States moderated supply growth. Late plantings and weather problems also plagued the Argentine cotton crop, which scaled back cottonseed production and domestic crush there. World 1997/98 peanut production slipped to 27.1 million tons, down from the 1996/97 output of 28.4 million. Reductions in China, India, and the United States were mostly responsible. Modest production gains throughout Africa and Argentina partially offset losses in these countries. With global consumption of peanuts for food use rising, consumption for crushing declined 9 percent to 13.8 million tons. Although it is a relatively minor component of demand, international trade in peanuts and peanut products increased slightly. In China, drought in the major northern producing provinces of Shandong, Henan, and Hebei damaged peanut yields and quality. Chinese peanut production dropped to 9.65 million tons (in-shell basis). Chinese consumption of peanuts for food is relatively inelastic, so most of the shortfall reduced peanuts crushed for oil and exports. Chinese peanut exports dropped about 60 percent, as many of its traditional Southeast Asian buyers, particularly Indonesia, scaled back imports because of struggling economies. Lower crushing decreased Chinese peanut meal output about 190,000 tons. India's 1997 peanut production also fell, declining 1.0 million tons to 8.0 million. The principal peanut regions of western India received adequate summer rain for early development, but successive dryness pinched yields. As in China, India's peanut shortfall was entirely borne by a reduction in crushing, which widened the nation's deficit in domestic vegetable oil supplies. Conversely, good weather helped Argentine peanut production reach a record of 0.65 million tons. Argentina exported about three-fourths of the crop, becoming the world's leading peanut exporter in 1997/98. El Nino dramatically cut fishmeal production in Peru and Chile (which account for about 60 percent of world output). This climatic phenomenon involves an abnormal warming of equatorial Pacific Ocean waters. Fish move to colder, deeper waters and normal migration patterns are altered, hampering the South American coastal fish harvests. A higher proportion of the fish caught were small juveniles, leading the governments of both countries to impose seasonal fishing bans to prevent overfishing during the 1998 spawning period. As a result, the catch of sardines and anchovies for reduction into fishmeal declined. Global fishmeal output dropped nearly one-fifth in 1997/98 to 5.1 million tons. World fishmeal prices increased about one-fifth from a year earlier. China is the world's largest consumer of high protein fishmeal. The price hike reduced Chinese 1997/98 fishmeal imports by 17 percent. World fish oil production also fell to the smallest volume since 1972. Sharply rising prices curtailed fish oil imports and consumption by the major buyers in Western Europe. World Vegetable Oil Situation Global vegetable oil output rose 2 percent to 76.8 million tons in 1997/98, the smallest increase since 1992/93. Soybean oil accounted for virtually all of the gain. World rapeseed oil production also increased 7 percent, with most of that increase due to greater EU area. Aside from these two oils, world production of other vegetable oils stagnated. World palm oil production fell slightly (compared with an 8-percent increase in 1996/97). Drought throughout Southeast Asia held down production of tropical oils. The growth in world vegetable oil consumption outstripped the increase in production by about 0.7 million tons this year, leaving stocks at 6.6 million, the lowest since 1994/95. World use of vegetable oils increased 2 million tons to 77.3 million in 1997/98. Estimated global vegetable oil trade increased to 29.3 million tons, up 430,000 from 1996/97. World exports of palm oil grew more slowly. Consequently, world import demand for soybean oil benefited (as well as the soybeans imported to produce it). Global production of soybean oil jumped 10 percent to 22.8 million tons. Soybean oil constituted 6.8 million tons of world vegetable oil trade, up from 5.9 million in 1996/97. Exports of soybean oil surged from the United States and Argentina, to 1.4 million and 2.1 million tons, respectively. Brazil emphasized greater soybean exports than crushing, so its soybean oil supplies and exports negligibly changed. For years, China has been the premier import market for vegetable oils. In 1997/98, Chinese soybean oil imports were 1.9 million tons and palm oil imports were 1.5 million tons. Import growth by India moderated as domestic oil production (particularly soybean oil) kept pace with consumption. A prolonged drought reduced palm oil yields throughout the major Southeast Asian producing countries. Had global palm oil production grown the same 8 percent as in 1996/97, it would amount to about 1.3 million metric tons more oil. In terms of soybean oil, this would be equivalent to losing 6.5 million acres of soybeans, or one-tenth of U.S. acreage. Competing oilseeds and vegetable oils had to pick up the slack, reflected by escalating world trade and prices. The discount under soybean oil narrowed and favored more world soybean oil trade. Malaysian palm oil production fell to 8.6 million tons (down from 9.0 million in 1996/97), because of a year-long drought. Monthly oil production has fallen since December. The currency devaluation and the restrictions on Indonesian exports made Malaysian palm oil exports more competitive. Despite the slippage in production, Malaysia's 1997/98 palm oil exports stayed relatively firm at 7.4 million tons. However, this led to very low stocks and rising domestic prices. Malaysia's domestic use showed little growth in 1997/98 as the weak currency made palm oil cheaper for foreign buyers and more expensive for internal consumers. Indonesia, the world's second largest producer of crude palm oil, also suffered from severe drought. Indonesian palm oil production fell from 5.4 million to 5.0 million tons in 1997/98. In mid-1997, the Indonesian government dramatically reduced export taxes on crude palm oil. But that regime was replaced by a quota system, where exporters were to limit their exports to one-fourth of their total palm oil production to stabilize domestic prices. To restore dollar reserves to service a large foreign debt, Indonesian exports (including palm oil) also needed to expand greatly, which raised the domestic prices for these goods. But, to stabilize palm oil prices for Indonesian consumers, the government instead instituted a ban on exports that lasted until late April. Customary imports of palm oil from Malaysia would only exacerbate the foreign exchange difficulties. The export ban made palm oil prices for the world market even more volatile. Lower production and imports from Malaysia shaved Indonesian 1997/98 palm oil exports to 2.3 million tons, from the 1996/97 export volume of 2.4 million. In the interim, Malaysia became the focal point for world demand, and the steady depletion of palm oil stocks hiked prices to $690 per ton by May from less than $500 a year earlier. International palm oil prices eased after the ban ended, although riots on Sumatra temporarily disrupted shipments between palm plantations and local refineries and ports. The price decline was moderated by an increase in Indonesia's export tax on crude palm oil from 5 to 60 percent, as well as higher tax rates on refined palm oil and palm kernel oil. Smuggling to evade the export ban and export taxes was common. The government also subsidized lower consumer prices for palm oil with proceeds from the export tax. However, the economic crisis cut 1997/98 domestic consumption to an estimated 2.8 million tons from 3.0 million a year earlier. Tight capital will constrain future expansion of palm area. World supplies of rapeseed and sunflowerseed oil came into short supply as well, as a brisk crushing pace depleted seed stocks. Global 1997/98 sunflowerseed production was down nearly 0.3 million tons. Exports of U.S. sunflowerseed and oil were uncommonly strong, reflecting Argentina's disappointing sunflowerseed harvest. On the demand side, declining stocks and widening vegetable oil deficits in China, India, and Pakistan raised import needs. Situation for Other U.S. Oil Crops Cottonseed In the 1997/98 season, U.S. farmers planted 13.8 million acres of cotton, all kinds, a 5.6-percent decline from the previous season. Despite the lower plantings, cotton harvested area actually increased in 1997 as abandoned acreage was much lower than in the 1996 season. However, lower yields in 1997 caused final cottonseed production to fall 2.9 percent to 6.935 million short tons. Total supply of cottonseed in 1997/98 was 7.522 million short tons, 2.1 percent below the previous year. Cottonseed crush and exports were up 15,000 short tons each from the previous year at 3.885 million and 146,000 short tons, respectively. Other use of cottonseed, primarily whole seed feeding, was 2.929 million short tons, 8 percent below the 1996 season. Ending stocks as of July 31, 1998, modestly tightened to 490,000 tons. Cottonseed Oil Prices Buoy Products Value, While Meal Tumbles In the 1997 cottonseed products marketing year, cottonseed oil prices averaged near 30 cents per pound, compared with 25.58 cents for the 1996 season. For the first quarter of the October- September season, the price of cottonseed meal held very steady near $190 per ton. By February, the monthly average price fell to $139 per ton. The 1997/98 average cottonseed meal price was $146.50 per short ton, compared with $192.06 in 1996/97. For the 1996 season, cottonseed oil represented 48 percent of the oil- and-meal value of products and cottonseed meal represented 52 percent. In 1997/98, cottonseed oil rose to 58 percent of the oil and meal value, while meal fell to 42 percent. The total value of oil and meal per ton of seed crushed in the 1997 season was $160, compared with $169 for the 1996 season. Thus, even with a significant shift in the relative value of oil and meal, the total value of these products was relatively stable. In the 1997 season, prices for competing feeds were lower than in the previous season, which likely contributed to the lower level of cottonseed feeding. Corn prices in the 1997 season averaged about $2.50 per bushel, compared with $2.73 a year earlier, while soybean meal prices averaged about $186 per short ton, compared with a whopping $271 for the 1996 season. In the 1996 season, the feed value of cottonseed was very competitive with the value of oil and meal from crushing, while in the 1997 season, the product value from crushing exceeded the implied feed value of cottonseed. The lower value of cottonseed in the 1997 season in both oil-and- meal output from crushing and in feeding was reflected in a lower average price received by farmers for cottonseed in the 1997 season. U.S. farmers received $121 per short ton in the 1997 season, down from $126 a year earlier. Based on a crop of 6.935 million short tons, the farmgate value of the 1997 cottonseed crop is placed at $876 million, below the previous season's $916 million but still the second highest on record. Peanuts On December 16, 1996, USDA announced a national peanut poundage quota for the 1997 marketing year of 1.133 million short tons, in-shell basis, or 2,266 million pounds, up 3 percent from 1996. This amount equaled the estimated quantity of peanuts needed for domestic edible and related uses, excluding seed, and allowed for underdeliveries of up to 4.5 percent. On February 14, 1997, USDA announced a national average price support for 1997 quota peanuts of $610 per short ton, unchanged from a year earlier, and a national average support rate for additional peanuts of $132 per short ton, also unchanged. U.S. peanut producers planted 1.431 million acres of peanuts in 1997, up 2.1 percent from a year earlier. By region, 1997 peanut plantings declined in the Southeast (AL, FL, GA, and SC) by 1.3 percent to 817,000 acres, declined in the Virginia-North Carolina region by 2.5 percent to 197,000 acres, and rose in the Southwest (TX, OK, and NM) by 12.2 percent to 417,000 acres. In Virginia and North Carolina, plantings of 75,000 and 122,000 acres, respectively, were the lowest in at least 50 years. U.S. peanut production in 1997 totaled 3,537.1 million pounds, in-shell basis, down 3.4 percent from the previous year. Average yield per harvested acre was 2,507 pounds, a 146-pound drop from the 1996 yield. Larger beginning stocks and imports helped to moderate the production decline, but total supply was nonetheless down 1.6 percent from the 1996 season to 4.473 billion pounds-- the lowest since the drought-stricken 1990 crop. The 1997 U.S. peanut crop got off to a slow start, but was helped by rains in July in many areas. Early season yield prospects were good, but lack of moisture in August and September cut yield prospects significantly. When the final tally was taken, the average yield fell from the previous season in every State and region except the Southwest. The average yield in Texas rose to a record 2,610 pounds per harvested acre as production continues to expand on irrigated acreage. U.S. 1997 Peanut Food Use Rises The 1997 peanut crop year saw another rise in food use, the second consecutive annual increase, following several seasons of decline. Food use of peanuts rose 3.4 percent to 2,099 million pounds, in-shell basis. The increase was comprised of a 2.9- percent growth rate for primary products and a 9.5-percent rise in roasting stock use. At 184 million pounds, roasting stock use was record high for the second straight year and for 3 of the last 4 years. New products, such as, flavored in-shell peanuts, are likely aiding consumption of roasting stock. Individual categories of primary product use in 1997 saw peanut candy fall 2.7 percent, snack peanuts rise 5.8 percent, peanut butter rise 4.5 percent and "other" use rise 4.9 percent. In the important peanut butter category, an 11.8-percent rise in government purchases helped boost domestic disappearance. Assuming constant stocks of peanut butter and adjusting for trade, the associated rise in non-government purchases of peanut butter was 1.7 percent. Peanut Crush Falls on Lower Supply, Exports Stay Strong The tighter supply of peanuts in the 1997 season weighed on peanut crushing for oil and meal. On an in-shell basis, peanuts crushed in 1997 totaled 544 million pounds, 21 percent below the previous year. This level represents the smallest annual peanut crush since the 1986 season. Peanut exports remained strong, however, rising to 681 million pounds from 666 million in 1996. The lower peanut crush in 1997 dropped peanut oil production to 176 million pounds, its lowest since the 1987 season. Exceptionally large beginning stocks of 86 million pounds helped boost total supply, which nonetheless totaled 31 million pounds lower in the 1997 season to 270 million. Although peanut oil prices averaged 49.0 cents per pound in the 1997 season, versus 43.7 cents a year earlier, domestic consumption of peanut oil rose to 216 million pounds. Average annual use of peanut oil is usually about 200 million pounds. With peanut oil production much lower and use strong, ending stocks in the 1997 season were halved from their beginning levels to 41 million pounds. Production of peanut meal in 1997 likewise fell sharply, and with no large beginning stocks to boost supply, domestic use fell 33 percent to 95,000 short tons. The season average price for peanut meal rose to $210.29 per short ton, up slightly from 1996. U.S. 1997-Crop Peanut Prices and Farm Value Fall The tighter supply notwithstanding, the 1997 U.S. average farm price received for peanuts fell to 26.1 cents per pound from 28.1 cents for the 1996 crop. Based on the outturn of 3.537 billion pounds, the farm value of the 1997/98 crop was $923.2 million, the first crop valued at less than $1 billion since 1983. Sunflowerseed With greater planting flexibility gained through the 1996 farm legislation, farmers have a renewed interest in producing minor oilseeds. In the spring of 1997, grain prices plummeted from their high 1996 level while oilseed prices remained stable. And near-record snow depths during the winter of 1997 led to spring flooding and late planting in the Northern Plains. These factors shifted acreage from wheat to sunflowers, which have a shorter growing season. Sunny skies prevailed throughout May and accelerated drying of soils, allowing farmers to catch up on sunflower planting. U.S. farmers planted 2.92 million acres, up 14 percent from 1996. Virtually all of the area increase was in North Dakota. But delays in planting, a dry summer, and severe midge infestations trimmed 1997 average sunflowerseed yields to 1,320 pounds per acre from 1,435 pounds in 1996/97. Year to year production increased 177 million pounds to 3,763 million, on the strength of 353,000 more acres harvested. Despite record harvested acreage of 628,000 acres, production of non-oil varieties fell 4 percent because of lower yields. The sunflowerseed crush soared to 2,338 million pounds in 1997/98. The major reason for the surge was that sunflower oil exports increased nearly one-fourth from 1996/97. By late summer, that robust growth had considerably shrunk available supplies. Season ending sunflowerseed stocks fell sharply to 202 million pounds following 2 years of large carryover. A stronger world vegetable oil market supported prices of high oil content oilseeds such as sunflowerseed. Despite ample supplies, the 1997/98 average farm price for sunflowerseed stayed firm at $11.85 per hundredweight. U.S. sunflowerseed oil exports were about 100 million pounds higher than 1996/97 shipments of 709 million. This is mainly because of greater oil exports to Algeria, Mexico, and Egypt. The spurt in sunflower oil production caused an unusually small price premium relative to soybean oil. Sunflowerseed oil prices averaged 27 cents per pound in 1997/98, compared with 22.5 cents the previous season. The average price for sunflower meal was pressured by much higher soybean meal supplies, and dropped from $111 per short ton the previous year to $84. Other Minor Oilseeds The upward trend in U.S. canola acreage resumed after the previous season's downturn. Canola plantings for 1997 totaled 728,000 acres, nearly double 1996's 366,000 acres. Production of canola rose to a record 914.4 million pounds. Despite expanded domestic supplies, canola seed imports from Canada surged 30 percent. Strong canola oil demand spurred a 65-percent increase in domestic crush to 1,427 million pounds. Very brisk Canadian crushing swelled U.S. canola meal imports 44 percent to 1.4 million tons, which continue to be in great demand by western cattle producers. Plantings of flaxseed soared 52 percent in 1997 to 146,000 acres. Near trend yields allowed a reversal in the long slide in flaxseed production, which rose to 2.2 million bushels. The domestic increase was not enough to slow flaxseed imports from Canada, however, which climbed to 9.6 million bushels. The recovery in supplies rebuilt ending stocks from the very low 1996/97 carryout of 0.5 million bushels to 1.2 million. This eased the 1997/98 average farm price to $5.80 per bushel, down from $6.37 in 1996/97. Linseed meal prices fell along with the rest of the protein meal sector, declining from $159 per short ton to $110. A more modest 9-percent increase in 1997 safflower acreage, to 263,000 acres, was also reported. U.S. safflowerseed production increased a modest 2 percent in 1997 to 430 million pounds. Corn Oil Domestic producers manufactured 2.3 billion pounds of corn oil in 1997/98, up nearly 5 percent from the previous year. Corn oil prices rose to 31-33 cents per pound as carryout stocks declined slightly to 120 million pounds. The main reason for the tightening supplies was the expansion in U.S. corn oil exports (largely to Spain and Italy) to 1.1 billion pounds, up from 988 million a year earlier. Rising European sunflower oil prices aided foreign demand for corn oil. Between fall 1997 and summer 1998, the corn oil price premium over soybean oil widened considerably, from less than 1 cent per pound to as much as 7 cents. Higher prices led to only a slight increase in total domestic disappearance of corn oil, although consumption in finished products (including frying oils and margarine) declined 9 percent. Other Fats and Oils Highlights Imported Oils U.S. imports of coconut oil increased dramatically in 1997/98 to 1.4 billion pounds from 1.19 billion in 1996/97. Global production of coconut oil is anticipated to drop in 1999 because of drought in the Philippines, so some imports were made to build up U.S. stocks. Coconut oil also gained at the expense of palm kernel oil, which became relatively more expensive following sluggish growth in 1998 output. U.S. palm kernel oil imports dropped about one-fifth in 1997/98 to 350 million pounds. Global olive oil production totaled 2.4 million metric tons in 1997/98. More normal Spanish harvests, which typically account for 45 percent of world output, eased world olive oil prices about 30 percent from a year earlier. Sharply lower costs and growing public appeal raised U.S. 1997/98 olive oil imports to a record 365 million pounds. Animal Fats Despite a slight reduction in cattle slaughter, higher slaughter weights countered to raise U.S. 1997/98 tallow output. Edible tallow production rebounded to 1.5 billion pounds, following the 1996/97 decline to 1.4 billion. U.S. tallow exports increased more than one-third, to 240 million pounds, because of greater supplies and higher world prices for palm stearin, a competing feedstock in the manufacture of fatty acids for soaps, detergents, pharmaceuticals, and cosmetics. Export gains were most apparent for Latin American countries. But tumbling Asian currencies near the end of 1997 put downward pressure on tallow prices, which averaged 20.7 cents per pound, compared with 23.0 cents a year earlier. Prices regained some momentum after the postponement of an EU proposal to ban the use (for all purposes) of tallow made from materials with a higher risk for Bovine Spongiform Encephalopathy (BSE). U.S. rendering plants do not exclude applicable tissues such as cattle brains and spinal cords prior to processing. Without an exemption for BSE-free countries, such as the United States, the ban would have blocked tallow exports to Europe. Based on higher use for inedible products, growth in domestic disappearance was more modest, rising 2 percent to 1,250 million pounds. Lard production also bounced back in 1997/98, rising 9 percent to 1,065 million pounds. Higher prices in 1996/97 (averaging 23.0 cents) had cut domestic disappearance. But greater supplies in 1997/98 moderated the average lard price to 19.8 cents per pound, lifting domestic disappearance 6 percent to 917 million pounds. Taiwan, Japan, and several Latin American nations increased lard imports, boosting U.S. exports to 120 million pounds. End Uses of Fats and Oils The sole area of growth in the vegetable oils market last year was for salad and cooking oils, already the largest channel for oil consumption. U.S. production of salad and cooking oils was up nearly 3 percent in calendar 1997 to a record 6,725 million pounds. Consumption of soybean oil for salad and cooking oils increased 12 percent to 6,192 million pounds. Imports of refined canola oil continue to expand into U.S. salad and cooking oils. Domestic consumption of corn oil dropped 16 percent, as foreign demand increasingly bid away supplies. Continuing a downward trend since 1993, U.S. production of baking and frying fats declined 5 percent to 5,656 million pounds. Per capita consumption of baking and frying fats declined to 20.9 pounds, the lowest since 1983. Consumption of soybean oil for baking and frying was 4,517 million pounds, down 4 percent from 1996. Margarine production also declined in 1997, down 5 percent to 2,367 million pounds. Per capita margarine consumption fell to 8.7 pounds, the lowest level in three decades. Consumption of soybean oil for margarine dropped 3 percent to 1,650 million pounds. Likewise, butter production declined 2 percent in 1997 and was 9 percent lower than the preceding 10-year average. Per capita consumption of butter has declined over the last 20 years as more butterfat has been used for dairy products other than butter, such as cheese and premium ice cream. By the end of 1997, butter stocks had become very tight and prices had risen to record highs. Consumption of oils for inedible uses (particularly fatty acids, animal feed, and soap) surged in 1997 to 6.5 billion pounds. Use of soybean oil in inedible products soared 29 percent to 393 million pounds. For edible tallow, a drop in food uses also allowed much greater inedible consumption. List of Tables 1. Soybean stocks: On-farm, off-farm, and total U.S., by quarter, 1986/87-1997/98 2. Soybeans: Acreage planted, harvested, yield, production, value, and loan rate, U.S., 1955/56- 1998/99 3. Edible fats and oils: Supply and disappearance, U.S., 1985/86-1998/99 4. Peanuts: Acreage planted, harvested, yield, production, and value, U.S., 1967/68-1998/99 5. Peanuts (farmers' stock basis): Supply, disappearance, and price, U.S., 1975/76-1998/99 6. Peanuts: Planted acreage, by State and region, 1970-1998 7. Peanuts: Harvested acreage, by State and region, 1970-1998 8. Peanuts: U.S. production, by State and region, 1970-1998 9. Peanuts: Yield per harvested acre, by State and region, 1970-1998 10. Corn oil: Supply, disappearance, and price, U.S., 1976/77- 1998/99 11. Corn oil: Supply and disappearance, by month, U.S., 1995/96- 1997/98 12. Flaxseed: Acreage planted, harvested, yield, and production, and value, U.S., 1966/67- 1998/99 13. Flaxseed: Supply, disappearance, and price, U.S., 1966/67- 1998/99 14. Linseed meal: Supply and disappearance, U.S., 1966/67- 1998/99 15. Linseed oil: Supply, disappearance, and price, U.S., 1966/67-1998/99 16. Soybeans: Supply, disappearance, and price, U.S., 1966/67- 1998/99 17. Soybean meal: Supply, disappearance, and price, U.S., 1966/67-1998/99 18. Soybean oil: Supply, disappearance, and price, U.S., 1965/66-1998/99 19. Soybeans: Supply and disappearance, by month, U.S., 1993/94- 1997/98 20. Soybean meal: Supply and disappearance, by month, U.S., 1994/95-1997/98 21. Soybean oil: Supply and disappearance, by month, U.S., 1994/95-1997/98 22. Soybean product prices, by month, U.S., 1994/95-1997/98 23. Soybeans: Monthly value of products per bushel of soybeans processed, and spot price spread, U.S., 1988/89-1997/98 24. Supply and use: Soybeans, soybean meal, and soybean oil, U.S., major foreign exporters, importers, and world, 1995/96- 1998/99 25. Cottonseed: Acreage planted, harvested, yield, production, and value, U.S., 1965/66-1998/99 26. Cottonseed: Supply, disappearance, and price, U.S., 1975/76- 1998/99 27. Cottonseed meal: Supply, disappearance, and price, U.S., 1965/66-1998/99 28. Cottonseed oil: Supply, disappearance, and price, U.S., 1965/66-1998/99 29. Cottonseed: Supply, and disappearance, by month, U.S., 1994- 1998 30. Cottonseed meal: Supply, and disappearance, by month, U.S., 1993/94-1997/98 31. Cottonseed oil: Supply, and disappearance, by month, U.S., 1993/94-1997/98 32. Cottonseed: Products and prices, by month, U.S., 1992/93- 1997/98 33. Sunflowerseed: Acreage planted, harvested, yield, production, and value, U.S., 1965/66-1998/99 34. Sunflowerseed: Supply, disappearance, and price, U.S., 1977/78-1998/99 35. Sunflowerseed meal: Supply, disappearance, and price, U.S., 1977/78-1998/99 36. Sunflowerseed oil: Supply, disappearance, and price, U.S., 1977/78-1998/99 37. Canola seed: Supply and disappearance, U.S., 1988/89-1998/99 38. Canola oil: Supply and disappearance, U.S., 1988/89-1998/99 39. Canola meal: Supply and disappearance, U.S., 1988/89-1998/99 40. Fats and oils used in edible products, by use, U.S., 1989/90-1997/98 41. Prices: Farm, wholesale, and index numbers of wholesale prices, by month, U.S., 1990-1998 42. Fats and oils: Domestic consumption in food products, U.S., 1975-1997 43. Fats and oils: Use in selected industrial products, U.S., 1975-1997 44. Salad and cooking oils: Supply and disappearance, U.S., 1975-1997 45. Salad and cooking oils: Fats and oils used in manufacture, U.S., 1975-1997 46. Baking and frying fats: Supply and disappearance, U.S., 1975-1997 47. Baking and frying fats: Fats and oils used in manufacture, U.S., 1975-1997 48. Margarine (actual weights): Supply, disappearance, and price, U.S., 1975-1997 49. Margarine: Fats and oils used in manufacture, U.S., 1975- 1997 50. Lard: Supply, disappearance, and price, U.S., 1975-1997 51. Butter (actual weight): Supply, disappearance, and price, U.S., 1975-1997 52. Edible tallow: Supply, disappearance, and price, U.S., 1975- 1997 53. World oilseed production, 1992/93-1998/99 54. World vegetable and marine oils production, 1992/93-1998/99 55. World protein meal production, 1992/93-1998/99 Special Article Soybean Supply and Use Tables Published for First Time in China by Hsin-Hui Hsu and Frederick W. Crook 1/ Abstract: This year, China's Ministry of Agriculture Information Center published for the first time a supply and demand balance sheet for the soybean complex. The report indicated that China produced about 14 million tons of soybeans in 1997/98, making it the world's fourth largest soybean producer behind the United States, Brazil, and Argentina. The report also showed that yearend soybean stocks are forecast at 1.8 million tons, up 300,000 tons from the previous year. Because of rapid expansion of the economy, accelerated demand for meat products, and limited cropland for additional sown areas, China's imports of soybean, soymeal, and soyoil have increased dramatically in recent years. Imports of soybeans, edible vegetable oils, and protein meals are expected to continue rising because of the increasing gap between domestic demand and supply. However, there is uncertainty as to whether the mix of products will include proportionally more oil and meal or more beans for crushing domestically. Keywords: soybeans, soymeal, soyoil, China 1/ Agricultural economists, Economic Research Service, USDA. Background The monthly world supply and use table issued by the U.S. Department Agriculture's World Agricultural Outlook Board lacks information about China's soybean economy. Under the Emerging Markets Program, USDA's Foreign Agricultural Service (FAS) and Economic Research Service (ERS) initiated a project to help nine agencies 2/ in China establish single commodity supply and use balance sheet tables. The program began in spring 1997. Analysts from the Ministry of Agriculture (MOA) Information Center attended ERS training sessions in Beijing and in Washington, D.C. In spring 1998, MOA presented an article entitled "China's Soybean Complex Market Review and Forecast," that was included in a booklet published by China's State Administration of Grain Reserves (SAGR) National Grain Information Center entitled Soycomplex Market Analysis and Forecast in 1998, in Chinese. (4) 2/ ERS is assisting the following nine government agencies in establishing single commodity supply and use balance sheets. They are State Council Research and Development Center, State Council Office for Restructuring Economic Systems, Ministry of Agriculture Information Center, Ministry of Agriculture Research Center for Rural Economy, State Planning and Development Commission, State Statistics Bureau, State Administration of Grain Reserve National Grains and Oils Information Center, Bureau of Cotton and Jute, and China National Cereals, Oils & Foodstuffs Import and Export Corporation (COFCO). This article presents a MOA analyst's view of China's soybean supply and use. The information was obtained from meetings with MOA and SAGR officials during a trip to China by a USDA Soybean Team in July 1998. 3/ While the supply and use tables do not represent formal or official tables from MOA or SAGR, they do give insights with regard to soybean supply and use in China from well trained and well-qualified analysts. These tables also do not represent USDA estimates. 3/ The International Cooperation and Development Office of the Foreign Agricultural Service coordinates annual scientific exchange programs between the U.S. Department of Agriculture and China's Ministry of Agriculture. Soybean Supply and Use China planted 8.3 million hectares of soybeans with an estimated production of 14.7 million tons in 1997/98 (October/September). Currently, China is the world's fourth largest soybean producer behind the United States (79 mmt), Brazil (29 mmt), and Argentina (15.5 mmt). The general consensus among government officials and oilseed analysts in China was that the demand for soybeans and their products (soymeal and soyoil) will exceed domestic supplies and that China will continue to import soybeans products. In the coming decade, USDA projects that area sown to soybeans is unlikely to expand, yields will increase a little bit, and output will gradually increase to around 16 million tons (1 and 3). In addition to soybeans, China has many varieties of oilseeds, including rapeseed, peanuts, sunflower, and cottonseed. However, because more than 40 percent of soybeans are used for direct food consumption, soybeans are treated as a grain and are subject to stringent grain regulations in seven major soybean production provinces. 4/ All other oilseeds are produced, bought, and sold under free market conditions. China's statistical system defines edible oilseeds as rapeseed, peanuts, sunflower, sesame, and huma (flax) but excludes cottonseed and soybeans. Rapeseed output is likely to expand in south China, because it is a winter crop and does not necessarily compete with rice for land use. Output of edible oilseeds was estimated at 21.6 million tons in 1997. (5) 4/ These seven provinces are Heilongjiang, Jilin, Inner Mongolia, Liaoning, Shandong, Hebei, and Henan. In terms of use, there is a clear distinction between domestic soybeans and imported soybeans. Of domestic production, 38-44 percent (6.2 million tons) is consumed directly, or used in other food products, primarily tofu. Low production will lead to lower disappearance for food use. Using a 5-year average, 4.2 percent (0.6 million tons) of domestic production is used for seed. Using the same data, approximately 3 percent of local production is attributed to industrial purposes and waste. When China's officials referred to 'industrial use', the term included oil used in food processing and manufacturing. The remaining share of domestic production--between 49 and 55 percent--is crushed. Beginning in 1996, China became a major soybean importer as the demand for meal and oil continued to increase, and investments in the oilseed processing industry took place. (2) It is generally understood that domestic soybeans have a lower oil content than imported soybeans-- 15 percent (domestic) compared to nearly 18 percent (U.S. and Brazil). As a result, most soybean imports are destined for the crushing industry. The total soybean crush, while averaging 8 million tons over the 5-year period, grew to 9 million tons in 1996. Growth in the crushing industry has been fueled by soybean imports during the past 3 years. Demand for animal protein and vegetable oil (soybean oil accounted for about 50 percent of total edible oil) should continue to rise because of population increases and increases in per capita income. With the accelerating output of processed food, use of vegetable oil in processed foods has increased. Traditionally, stocks of food grains and oils are kept for national security reasons. China's officials seldom reveal concrete numbers, magnitude, or current direction of buildup or depletion. The State Administration of Grain Reserves (SAGR) is responsible for procuring and storing grains and oilseeds. There are three levels of reserves: central government, local reserve, and on-farm stocks. Under the new grain marketing reform, SAGR is responsible for storing selected grains and oilseeds for purposes of food security and for balancing prices in disaster years. Provincial government officials manage local stocks. In terms of the state's priorities for securing grains, wheat and rice (food grains) rank higher than corn and soybeans (feed ingredients). The MOA Information Center provided no explanation or identification about the nature (ownership) of the stock numbers listed in table A-1. Officials at SAGR implied that farmers generally do not hold stocks for commercial purposes (above and beyond their annual use). According to the above data, it is evident that the stocks-to-use ratio has decreased from more than 23 percent in 1993/94 to just under 10 percent in 1996/97. In other words, stock levels declined from 84 days' use to 36 days' use. These data are consistent with the increase in total soybean disappearance that has been driven by rising soybean meal and oil demand and rising prices. Soymeal Supply and Use Soybean meal supply has increased dramatically beginning in 1996/97. Total availabilities of soybean meal increased to nearly 11 million tons in 1997/98, up 126 percent from 1993/94. Soymeal supplies during the 1997/98 marketing year are to the point of surplus in certain areas. Analysts at MOA constructed table A-2, which is the first soymeal supply and use table coming from China. Use of soymeal, like soybeans, can be distinguished between domestic production and imports. Soymeal production from domestic soybeans has remained relatively stable, following domestic soybean production. It might be inferred that the consumption of this meal is concentrated in livestock producing areas, with a relatively large share consumed by small-scale farm operations. In contrast soymeal imports have grown dramatically, underpinning growth and development of the feed and livestock industry. Soymeal imports are largest in the ports of Shanghai and Guangzhou, which are both far to the south of the major soybean producing areas. Domestic crushers that import soybeans for processing into meal and oil are unable to compete with soymeal imports because of the low tariff and the absence of a value added tax (VAT) on soymeal imports. This situation has created a severe imbalance, as numerous agents have continued to import soymeal despite growing stocks. Soymeal accounts for about 16-20 percent of swine and poultry rations, and approximately 25 percent of commercial aquaculture feedstuffs (1). In 1998, soymeal's share of livestock feed was possibly at its highest level due to the availabilities and the relatively low prevailing prices compared with other protein substitutes such as fish meal. Pork production and consumption are expected to expand at a slower rate than the previous decade as modernization of the hog sector progresses slowly. For commercial poultry and aquaculture products, where feed conversion rates are more attractive, growth has great potential. Soybean Oil Supply and Use Edible oil crushed from rapeseeds, peanuts, sunflower seeds, cottonseed, and soybeans totaled about 7 million tons in 1997. Oil imports for 1997 were 2.75 million tons and exports were about 750,000 tons so that net imports were about 2 million tons. Annual consumption was about 9 million tons excluding soyoil and cottonseed oil. The table provided by MOA analysts highlighted several interesting aspects: (1) imports for 1996/97 and 1997/98 are higher than customs statistics suggest, implying that there is an acknowledgment that soyoil is entering through unofficial trade channels 5/; (2) surplus (or stocks) data are included; and (3) 1997/98 supply and use are forecast. This suggests MOA has made significant progress in developing and circulating up-to-date supply and use tables similar to those used by USDA's World Agricultural Outlook Board. Although the extent to which this information is distributed domestically remains unclear, it is precisely the type of information that the oilseed industry in China needs. 5/ Because of a preferential tax treatment for soymeal imports, China's domestic crushers were discouraged from importing beans for crushing in recent years. As much as 1 to 2 million tons of vegetable oils have been smuggled into China in 1997/98. Domestic soybean oil production has grown in recent years following the increase in the domestic soybean crush. Soybean oil imports have also increased dramatically, despite significant soyoil smuggling during 1997 and 1998. Estimates of the extent of smuggling range between 1 and 2 million tons (including palm oil). While it is generally assumed that the majority of the smuggling occurs in the south, there are indications that much of the oil reached northern ports, as the smuggling is likely a paper transaction (non-declaration at customs to avoid the tariff and VAT). As with the production and use of soybeans and soybean meal, there are distinctions to be made across China's rural and urban sectors. The growth in soyoil consumption is taking place predominantly in the urban areas where availability and restaurant use are the highest. Per capita edible oil consumption is low in rural areas and expansion there will be more rapid than in urban areas. There may be some temporary slowing of demand for animal proteins and vegetable oils as residents in China adjust to new economic situations. These situations include economic uncertainties and constrained food budgets as urban consumers have to pay an increasing share of their income for housing, education, and health, which the government used to pay for. But in the long run, increasing demand for animal protein and edible oil should remain strong. Consumption of soyoil by the industrial food processing sector has also experienced significant growth in urban centers. Part of this increase was caused by reducing the use of palm oil in manufacturing instant noodles, which requires a great deal of vegetable oil. Private companies indicated that small amounts of soybean oil are used in paints and printing in Shanghai. (1) In the rural areas, farmers consume oil from their own oilseed production. Consumption, with regards to quantity and type, is largely a function of availability as well as income levels (table A-4). Total rural vegetable oil consumption is estimated at only 4.49 kg per person according to SSB data for 1996. While the type of vegetable oil consumed depends on local oilseed production, there are also some interesting relationships between per capita vegetable oil consumption and per capita meat consumption across regions. Families often purchase fatty meat at markets and rend the fat in a wok and then proceed to stir fry vegetables, sauces and meats. Hence in some areas there is a connection between meat consumption and edible oil consumption. In the urban areas, vegetable oil consumption is influenced by taste and preferences as well as imports and availability. Consumers in the north and northeast prefer soyoil, while western consumers in Sichuan like rapeseed oil and southerners in Guangdong enjoy peanut oil more than any other oils. In general per capita consumption is higher in urban areas, with the national average reported as 7.14 kg by SSB. Animal fat consumption in urban areas is noticeably lower than in rural areas. Data on urban consumption underestimate total per capita vegetable oil consumption due to the following factors: (1) out- of-home consumption is not included; and (2) consumption of oil in processed products, which use significant amounts of soy and palm oil, are not included. Urban areas are also experiencing significant growth in the production and consumption of refined oils. While no statistics are available on consumption of refined oils, traders suggested that up to 25 percent of the vegetable oil consumed in China's urban areas was refined. The majority of oil consumed is second grade, which is only degummed. References: 1. Crook, Frederick W., Robert Hanson, Hsin-Hui Hsu, Brad Karmen, and Philip Laney, "Soybean Consumption and Trade in China: A Trip Report," unpublished trip report, July 1998. 2. Diao, Xinshen, "China Becoming a Net Importer of Oilseeds, Oil, and Meal," International Agriculture and Trade Reports: China, Situation and Outlook Series, USDA, Economic Research Service, WRS-97-3, June 1997. 3. ERS, International Agricultural Baseline Projections to 2007, AER-767, August 1998. 4. He, Niancun and Weilu Yang (ed.), Soycomplex Market Analysis and Forecast in 1998, in Chinese, State Administration of Grain Reserve, National Grain and Information Center, Beijing, 112 pages, April 1998. 5. State Statistical Bureau, A Statistical Survey of China, 1998, Beijing, China, May 1998. Special Article Despite Rise of Market Forces, Continued Government Intervention in China's Soybean Economy Adds Uncertainty in World Oilseed Markets by Frederick W. Crook and Hsin-Hui Hsu 1/ Abstract: China's soybean economy is an important element in world oilseed markets because China is both a major producer, consumer and recently a major importer of soybeans. China's government intervenes in its soybean economy in many different ways and policy changes can have substantial effects on production, consumption, and trade. This report briefly outlines the major policies affecting China's soybean economy. Information for this paper came from a USDA Soybean Team that visited China in July 1998 and from previously published materials on China's agricultural policies (3,4, and 5). Key words: China, soybeans, marketing reform 1/ Agricultural economists, Economic Research Service, USDA. BEGIN BOX The Importance of China's Soybeans Soybeans were first domesticated as a crop in China about 3,000 years ago. Then, some 230 years ago a former seaman named Samuel Bowen brought soybeans from China to a plantation in Savannah, Georgia. (6) Today, North and South America produce more than 80 percent of the world's soybeans. But China remains the world's fourth largest producer behind the United States, Brazil, and Argentina. China ranks fourth in both soybean meal and soybean oil production in the world (figure B-1). Within China soybeans are considered a grain, not an oilseed crop. This has been a long tradition and rests partly on the fact soybeans are used to make tofu (bean curd) and many other food products. In terms of planted area and production in China, soybeans are fourth behind rice, wheat, and corn (figure B-2). END BOX Where Do Soybeans Fit in China's Policy Context? China's leaders and statisticians regard soybeans as a grain crop, but all grain crops do not have equal weight. Government leaders place highest priority in terms of production and food security issues on food grains such as wheat, rice, and corn. A few years ago soybeans were among this high priority group, but in 1998 they appear to have slipped. Currently the central government has fixed procurement quotas for only wheat, rice, and corn. In July 1998, a Deputy Director of the State Administration of Grain Reserves (SAGR) reported that the central government no longer sets fixed quota or support prices for soybeans. Rather, the Director said that seven provinces, including Heilongjiang and Inner Mongolia Autonomous Regions (IMAR), set the fixed quota and support prices for their own jurisdictions (5, p. 41). But in October colleagues in China reported only two provinces continue to fix procurement quotas for soybeans: Heilongjiang and IMAR (9). It appears that the central government and perhaps provincial governments are paying less attention to soybeans. Oilseed crops such as peanuts, rapeseed sesame, and sunflowerseed have generally been freed from most government controls and currently the government relies on market forces to manage these crops. In addition, government controls for sorghum, millet, barley, oats, peas and beans, and potatoes have been lifted and these commodities are freely traded in open markets. Soybeans and the Government-Owned Grain Bureau System: 1955-1997 Beginning in 1955 the China's government established the "planned purchase and planned supply system" in which the government-owned Grain Bureaus controlled the grain and oilseed economies: production, purchase, transportation, storage, milling and retailing of grains and edible oils. The Grain Bureau organization includes a bureau in the central government and bureaus at provincial, prefecture, and county levels with grain stations in the townships (communes). This very large bureaucracy assessed the supply and demand situation at each level and transferred grains from surplus units to deficit ones. In this system production units were issued procurement quotas that detailed the types, quantities, time, and place grains were to be delivered to the local grain stations. The central government fixed the purchase price for these quotas. To encourage production units to sell even more grain after completing their fixed quotas, the government set an above-quota price. When open markets were allowed in the early 1980s, production units immediately began to be aware of the price gaps between the fixed quota, above-quota, and the open market price. In time the government began to raise the fixed quota and above- quota prices (figure B-3). When local free market prices rose above the fixed quota price and support prices, as shown in figure B-3, farmers were required to sell quantity OA to local grain stations. After fulfilling the quota farmers then could sell quantity AB to the grain stations (oilseed mills) at a negotiated or open market price. Government-negotiated prices varied on a daily basis and usually settled between the fixed quota and market price. In cases where market prices fell below the fixed quota prices, the government provided for support prices (baohu jige). For example when China's domestic corn prices fell below the fixed quota price in 1997, Grain Bureaus were supposed to purchase corn at the support price. Figure B-4 illustrates the situation where market prices fall below the support price and government "support" prices become effective. In this case, farmers would sell quantity OA to the grain stations at the fixed quota price. The Grain Bureau grain stations were supposed to purchase soybean AC at support price. Quantity BC is greater than the market requirements, and presumably this quantity would have been placed in government storage. From 1955 through the early 1980s the grain Bureaus dealt with all grains. But with the opening of rural markets in the early 1980s Grain Bureaus began to pay less attention to minor grains such as potatoes, sorghum, millet, barley, oats, peas, and beans. Most of their attention was focused on purchasing wheat, rice, corn, and soybeans. Soybeans in the 1998 Reform of the Grain Marketing System The General Situation In March 1998 China's new Premier, Mr. Zhu Rong-ji, formulated a program to reform China's grain purchase system which he summarized as the "Four Separations; One Perfection." The primary focus of this policy was wheat, rice, corn, and soybeans (3). The first of the four separations removes policy functions from commercial functions. Current Grain Bureaus now handle both commercial and policy operations. For example, they purchase grain on their own account to pursue profits, and they also purchase grain from farmers at fixed quota prices, store government-owned grain, mill grain, and retail some grain at fixed prices. Second, central government-owned grain and oil stocks are to be kept separate from commercially held stocks. In 1997 the State Administration for Grain Reserves (SAGR) was connected to the Ministry of Internal Trade. In the current government reorganization the Ministry of Internal Trade was downgraded to the status of a bureau (now the Bureau of Internal Trade) and the SAGR was placed under the State Planning and Development Commission. The grain and oil stock system needed to be reformed because even though it held large grain and oil stocks, its administrative structure was ill suited to manipulating stocks to meet quantity, quality, product mixes, regional distribution, and market stabilization requirements. Under the third separation, duties of the central government in stabilizing grain and edible oil markets are to be separated from market stabilization duties of local governments. The central government is scheduled to keep overall control of the grain situation (perhaps control grain and edible oil imports and exports, state-owned stocks, and the setting of support prices). Extant provincial, prefecture, and county grain bureaus will be separated into commercial and policy entities. It is possible that local grain stations below the county level will become commercial grain companies. Local governments will merge the policy portions of the old Grain Bureaus into "trade or commercial bureaus." Local governments are scheduled to have responsibility for grain production and circulation within their respective administrative boundaries. The fourth separation is to divide old overdue bank debts attributable to the purchase of grains from new debts. The central government is still obligated to pay the old debts but is no longer responsible for subsidizing local operation losses under the new reform. Recent news articles from China suggest that over the past 6 years US$ 25.8 billion in loans have been lost. For example, $65.6 billion in loans were advanced to Grain Bureaus to purchase grains but Grain Bureaus can only account for the purchase of US$39.8 worth of grain, leaving an unaccounted for balance of $28.5 billion (10). Under the reform, Grain Bureaus are expected to make profits in all transactions if they follow the new policy guidelines. Finally, one perfection refers to the rule that Grain Bureaus cannot sell their grains and take a loss. Under the newly announced reform, farmers have three options for disposing of their wheat, rice, corn, and soybeans. First, the government wants them to deliver their fixed quotas to local state-owned grain stations. After farmers have fulfilled their quota, the government would like them to sell more grain to the grain stations either at market prices or at the support price if market prices fall below the support price. Second, farmers are permitted to use their own grain for their household needs. Third, after filling their quota requirements farmers apparently can sell wheat, rice, corn, and soybeans in local open markets. The Premier wants farmers to sell wheat, rice, corn and soybeans only to state-controlled Grain Bureaus. He has forbidden all other institutions from buying grain and soybeans from farmers or from markets below the county level. He wants all grain to be marketed through the Grain Bureau (figure B-6). Local Grain Bureaus are trying to implement the program. Local officials disagree strongly as to how the policy will be implemented and what effect it will have on the use of markets. Current Situation with Soybeans The 1998 USDA Soybean Team met with many officials in Beijing and the provinces and was told that the central government no longer establishes fixed procurement quotas for soybeans for the provinces. In July the Team was told that seven provinces fixed their own soybean quotas, and fixed quota prices and support prices. Officials mentioned two provinces as examples: Heilongjiang and IMAR, but the Team inferred that the others were Jilin, Liaoning, Hebei, Henan, and Shandong (see table B-1). In subsequent discussions with colleagues in China the Team found that only Heilongjiang and IMAR have set support prices for soybeans (9). Other provinces set purchase prices for soybeans. Under the governor's grain bag responsibility system (see below) governors set purchase prices for soybeans to meet the supply and demand conditions within their own provinces. If the policy is implemented as outlined, it may dampen the growth of markets. There are many elements of this new policy yet to be hammered out by local Grain Bureau administrators. At the moment no one is really certain how the policy will be implemented, which adds even more uncertainty to the soybean economy. Soybeans in the Governor's Grain Bag Responsibility System In the early 1990s central government leaders acknowledged a number of troublesome trends: decreasing area sown to grains in some provinces, large grain imports, and rising domestic grain retail prices. Moreover, China was criticized in the international press for mishandling grain production and food security issues. There were projections that in future decades China's demand for grains would greatly surpass supplies and China would require very large grain imports, which would stress international grain markets, placing great burdens on grain- deficit countries such as those in Africa (1 and 2). In 1995 the central leadership initiated the "governor's grain bag responsibility system" to promote adequate supplies of domestic grain at provincial levels wherever possible. Provincial governors were given the responsibility to manage overall supply and demand conditions for grains with priority given to wheat, rice, and corn. Under the new system, provincial governors were responsible for: (1) stabilizing area sown to grain crops; (2) guaranteeing investment in inputs like chemical fertilizers to stimulate production; (3) guaranteeing that certain quantities of grain are put into stocks; (4) insuring that transfers of grain in and out of a province are completed; (5) meeting urban residents' needs by supplying grains and edible oils; (6) stabilizing grain and edible oil prices; (7) controlling 70 to 80 percent of commercial grain sales; (8) developing means to control grain markets; (9) raising commercial sales as a share of total grain sales; (10) controlling grain imports and exports; and (11) raising the level of grain self- sufficiency. For wheat, rice, and corn the policy has meant that the government has used price incentives and administrative means to expand area sown and to increase production. It is less clear how the policy has affected the soybean economy. Whereas the government appears to have been successful in boosting area and production of wheat, rice, and corn, national area and output of soybeans have fallen since 1994. If soybean demand is greater than supply in a province, the province's governor has a number of options. First, he can use administrative and price support measures to encourage farmers in his province to grow more soybeans. Second, he can order his grain companies to buy soybeans from other provinces. Third, he can implement administrative measures to limit the outflow of soybeans from in his province. Fourth, the governor can petition the State Council to grant import licenses (and quotas as required) to import soybeans or soybean products from foreign suppliers. At the moment both economic and administrative forces affect farmers' decisions to plant soybeans. Changes in various elements of the governor's grain bag policy would affect not only soybean production but production of other grains and oilseeds as well as producers' responses to new prices, new cost of production environments, and new market conditions. Soybeans in the State Administration of Grain Reserves (SAGR) Now SAGR only controls those soybeans placed in central government grain stocks. SAGR uses its soybean stocks to maintain balance in soybean markets (5). Provincial and municipal governments' Grain Bureaus handle local procurement and stocks. Provincial and municipal Grain Bureaus are still required by SAGR to report the procurement prices they are using to purchase soybeans and the quantities purchased. SAGR is also responsible for setting standards for soybeans and for all soybean products except meal, for which the Ministry of Agriculture sets the standards. For various standards of oilseeds and their byproducts, SAGR is also responsible for testing procedures. SAGR officials also work with the China Commodity Inspection Bureau to check quality of soybean and soybean product imports and exports to ensure that products in foreign trade meet contract specifications. Government intervention in soybean markets by purchasing soybeans when prices are low and selling when prices are high adds uncertainty to the soybean economy. The rules and conventions for intervention are not regularized and are not transparent to outside observers. (7,8, 11, and 12). Soybeans in China's Foreign Trade System China's crushing capacity has increased greatly since the 1980s. Currently China can crush 40 to 50 million tons of oilseeds a year, more than double the capacity needed, as the annual crush is about 20 million tons. The State Council now limits foreign investment in oilseed crushing but does encourage the expansion of oil refining (de-waxing and de-gumming to make salad oil). For example, before 1997 the Ministry of Foreign Trade and Economics (MOFTEC) had to approve oilseed crushing proposals larger than $50 million. Now MOFTEC has to approve any proposals larger than $13 million. During meetings held in Beijing and in the major port areas of Dalian, Shanghai, and Guangzhou, in July, the Soybean Team attempted to understand the policies and market environment that determined the relative mix and quantities of imported soy products. China's imports of soybeans, meal, and oil have been large enough and volatile enough in recent years to capture the attention of the world's entire oilseed industry. Soybeans are importable subject to a 3-percent tariff and a 13- percent value added tax (VAT). The VAT is calculated using the CIF value of the soybeans, tariff included. Although soybeans appear in the 1998 customs report as a 'tariff rate quota' (TRQ) commodity, there is currently no active quota system for imported soybeans. In addition to the China Cereal Oil and Foodstuff Company (COFCO), there are a limited number of trading agents and processing companies that have import rights. Some foreign-owned and joint-venture processing facilities have a license to import soybeans directly, provided that they are all processed at the plant. The majority of soybean crushers do not have a license to import directly, and must procure imported soybeans through trading agents. Officially, a VAT exemption is granted to processors only if both the meal and oil are exported. Other sources indicated that the VAT was refundable for state-owned companies that imported soybeans, or that partial reimbursements of the VAT were possible. (Note: It was indicated that processors, in principle, pay the VAT on domestically procured soybeans, as part of the procurement price). Soybean meal is freely importable at a 5-percent tariff. There is no active quota system or VAT applied to soybean meal imports. Again, importing companies must obtain a license to import the meal. While the Soybean Team was told that these licenses are relatively easy to obtain, they must be obtained each time a buyer intends to import, and the quantity is specified in each case. It was suggested by officials in Beijing and elsewhere that the VAT exemption for soybean meal imports is intended to provide 'support' for feed and livestock producers. Soybean oil is subject to a quota system, a 13-percent tariff, and a 13-percent VAT. In addition to COFCO, there are only five other trading companies that have the authorization to import. It was determined in discussions with officials and state trading companies in Beijing that there is no formal system (procedures or deadline) for announcing quota levels. In other words, the actual quota levels do not become public knowledge. The State Planning Commission, through centralized decision making, determines the appropriate level of imports, and provides end- users (oil mills, trading companies) with the quota certificates. There appears to be a mechanism to request, or petition for these quotas, although the procedure and timing are not clear. Once the end-users receive the quotas, they approach one of the authorized importers, who typically aggregate the quotas before purchasing the oil on the international market (5). Current import policy and practice favor the imports of soymeal over soybeans. One high government official explained that the tariffs and tax rates were fixed to encourage the imports of soymeal and soyoil to keep the price of edible oils and protein meals (and meat prices) low. The Team asked if this policy could change and the official answered, "Maybe." The current tariff and tax rates could change as priorities shift in China. These changes could dramatically alter not only the mix of commodities (beans, meal, oil) but also the quantity of products imported. References: 1. Brown, Lester. "How China Could Starve the World: Its Boom Is Consuming Global Food Supplies," Outlook Section, Washington Post, August 28, 1994. 2. Brown, Lester. Who Will Feed China? Wake Up Call for a Small Planet. Worldwatch Institute, September 1995. 3. Crook, Frederick W., "Agricultural Policies in 1998: Stability and Change," USDA, ERS, International Agriculture and Trade Reports: China, Situation and Outlook Series, WRS-98-3, July 1998. 4. Crook, Frederick W., "China's 'Governor's Grain Bag Policy': Concerns About Food Security," China Information, Vol. XII, No. 3, Winter 1997-1998, pp. 87-103. 5. Crook, Frederick W., Robert Hanson, Hsin-Hui Hsu, Brad Karmen, and Philip Laney, "Soybean Consumption and Trade in China: A Trip Report," unpublished trip reports, July 1998. 6. Hapgood, Fred, "The Prodigious Soybean," National Geographic, July, 1987. 7. Ke Bing-sheng, "On-farm Grain Stocks in China and Its Impact on Market Balance," paper delivered at Ministry of Agriculture sponsored International Symposium on Food and Agriculture in China: Perspectives and Policies, October 7-9, 1996. 8. Ma Xiao-he, "Grain Price Variation in China and Its International Comparison," paper delivered at Ministry of Agriculture sponsored International Symposium on Food and Agriculture in China: Perspectives and Policies, October 7-9, 1996. 9. Private letters from Beijing, China dated, October 16th, 1998. 10. Smith, Craig S., "China Says $25.8 Billion For Grain Is Missing," Wall Street Journal, October 14, 1998, p. A15. 11. Tang Ren-jian, "The Status Quo, Objectives and Philosophy of the Reform on Grain Circulation system in China," paper delivered at Ministry of Agriculture sponsored International Symposium on Food and Agriculture in China: Perspectives and Policies, October 7-9, 1996. 12. Wang Lin-gui, "Grain Trade, Price, Transportation and Grain Reserves in China," paper delivered at Ministry of Agriculture sponsored International Symposium on Food and Agriculture in China: Perspectives and Policies, October 7-9, 1996. END_OF_FILE