(Yicai Global) May 22 -- An increase in soybean crops in Northeast China, one of the country's biggest grain-growing regions, could spell hope for local processors who have been hit hard by competition from genetically modified soybean producers, an Yicai Global survey shows.
Soybean Crops on the Rise This Year
Corn prices plunged after the government abolished the minimum purchase price policy last year, leaving corn farmers with smaller profits or even losses. In contrast, the price of soybeans stayed strong last year amid encouragement from the government to grow such crops, causing farmers to up their land allocation for the legume this year.
"The government offered a subsidy of CNY150 per mu (USD3.26 a hectare) to farmers who switched from planting sweetcorn to soybeans," Song Shengbin, chairman of Heilongjiang Longjiang Grain and Oil Industrial Group told Yicai Global. "There should be a substantial increase in soybean acreage this year, with a rise of at least 30 percent in Heilongjiang alone."
"Last year, about 60 percent of our 3.33-million-acre farm was used to grow corn, with just 20 to 30 percent used for soybeans," said Wang Hongzhong, manager of Zhaoguang Farm in Heilongjiang. "This year, however, the total acreage for corn fell to 30 percent while soybean crops used 50 percent of the land. The remaining 20 percent was used for non-staple and cash crops."
Information from the deputy head of Hailun city's grain bureau agreed with Wang. "Soybean crops in our city totaled 14.67 million acres last year, with corn taking up 10.4 million acres," the deputy said. "They are expected to be 17.3 million and 5.3 million acres this year, respectively."
Processing Mills Took the Hit Last Year
Most of Northeast China's soybean processing firms only accept locally produced, non-genetically-modified soybeans. After a continued reduction in local soybean production over recent years, oil mills that process the soybeans have taken a big hit. This year's rebound, however, looks like it could be a good sign for them.
China Grain Reserves Corporation upped the purchasing price of soybeans in line with state policies, said Song Shengbin, adding that it led to a serious shortage of the legume for downstream processors.
Locally sourced non-GM soybeans are also more expensive than their genetically modified counterparts, which dominate the soybean oil market. This has seen profit margins at non-GM plants narrow.
"China consumed around 95 million tons of soybeans last year," said Zhang Quanguo, general manager at Hi-Tech Soybean Food Co. "More than 80 million tons were genetically modified, but only around 10 million were not. This hit Harbin's non-GM oil mills hard, they're unlikely to resume production any time soon."
Many of Heilongjiang provinces soybean oil plants are currently closed due to shortages in raw materials or negative profit margins.
Some firms turned to deep processing to try and survive the market downturn. Zhang led a transformation at his company that saw them lean toward soybean protein powder and other processed products. The firm succeeded in lowering operating losses a year later, and is on track to further improve this year, he said.