The Economic Evolution of the Soybean Industry

Abstract

Since the crop’s humble beginnings in China, the global soybean industry has grown to be a multi-billion dollar enterprise. Since World War II, the USA has been the dominant market for both production and consumption. For the 2015 growing season, US farmers planted over 80 million acres and produced nearly 4 billion bushels of soybeans. With market prices averaging $10 per bushel, that translates to $40 billion in raw production value each harvest. However, the soybean plant was not always one of the dominant crops in the US agricultural landscape. Large-scale soybean production in the USA is a relatively recent phenomenon. Roughly 55% of the world’s soybean crop is directed to feed use currently. Over the course of the past 20 years, another use for soybeans has emerged in the energy sector, biofuel, specifically biodiesel production. Soybean production costs have changed dramatically over the past 20 years. In general, crop production costs can be broken down into four major categories: machinery, land, labor, and crop inputs (seed, chemicals, and fertilizer). Land costs make up nearly half of the total cost of soybean production. Soybean, like many row crops, is a bulk commodity. This means that soybeans produced by one farmer/practice/variety are not differentially marketed or priced from soybeans produced by others (with some rare exceptions for food-grade non-genetically modified varieties or organic practices). Or to put it another way, a soybean is a soybean no matter who produces it or how it is produced. So soybean producers are transacting in a competitive market, where producers can enter and exit the market fairly easily and there is very little room for differentiation. But there is a similar situation for the entities that purchase soybeans as well. So the soybean market is made up of many sellers (producers) and buyers (country elevators, crushing facilities, river terminals, and exporters). In competitive markets like this, prices are generally equal to production costs. If prices exceed costs, the resulting profits will inspire additional production from existing and new producers, leading to larger supplies and lower prices. If costs exceed prices, the resulting losses will drive some producers out of the business, leading to supply reduction and price improvement.