While U.S. animal agriculture is the U.S. soybean industry’s largest domestic customer, China is certainly the biggest foreign customer, and could become the biggest customer period. Projections for purchases to increase through year's end. 

In the near term, China is scrambling to produce more pork, which also has boosted predictions for increased soybean meal usage. While China produces soybeans, the shear volume needed means it will have to shop for soybeans, including in the United States. That could be the case through the second half of 2011 and certainly into 2012.

Chinese soybean buyers had backed off purchases earlier this year as the size of the country’s swine herd was on the decline. However, the market is more optimistic about the second half of 2011, notes Monica Tu, an analyst at Shanghai JC Intelligence Co., responding to a Bloomberg News survey.  “Animal feed demand in the third quarter has shown evident improvement,” she adds.

The Chinese government is adding new incentives for the nation’s hog farmers to increase production. The hog inventory had dropped to 445 million in January, the lowest level since 2009. As of June, the numbers had recovered to 456 million, according to China’s Ministry of Agriculture. For the first half of 2011, the country’s hog slaughter had dropped by 4.8 percent, which is dramatic for such a large population whose No. 1 meat preference is pork.

“China could add 2.5 to 3 million more sows into production by next year,” notes Brett Stuart, analyst with Global AgriTrends, Denver, Colo. “The question then is, what happens to feed costs?”

The United States is facing tight carryover supplies of both corn and soybeans, and this year’s crop productivity remain an unknown.

As for soybean imports, for the first six months of this year China cut purchases by 8 percent to 23.7 million tons, according to customs data. The country is using more domestic beans, with this year’s crush estimated to reach as much as 5.3 million tons, compared with 2.2 million tons in 2010, according to Grain.gov.cn.

In the end, China’s soybean imports for 2011 could tally 51 million tons, down from 54.8 million tons last year, Grain.gov.cn reported in mid-July. Looking ahead to next year, shipments could return to around 54 million tons.

Often forgotten is China’s vast use of soybean oil for cooking, which also is expected to rise in the near and long term. Fast approaching on the Chinese calendar is the Mid-Autumn Festival, which begins in September, as well as a week-long national holiday beginning Oct. 1. Both involve food and entertaining. The Chinese government has loosened price controls placed on soybean oil last September to help curb inflation. Consequently, crushers will likely begin stepping up production.

Longer term, Stuart points out China’s soybean appetite will literally continue to grow. “The Chinese prepare a lot of fried foods, and they pretty much import any vegetable oils they can get their hands on.” Soybean oil deep frying is part of that menu.

Add it all up, and the short- and long-term impact could be higher soybean prices.

 “Soy is the great unknown for China for years to come,” Stuart says.