Agricultural giant since 1983

Although Li Lei, COFCO, and China Grain Reserves took advantage of the good news of a bumper harvest of salt-resistant soybeans and temporarily lowered soybean futures prices, the current situation of China's soybean shortage has only been alleviated to a certain extent, rather than completely resolved. In order to meet people's demand for vegetable oil and various meats, China still needs to import a large amount of soybeans from abroad.

In the original history, the four domestic grain merchants did not expect that the four major grain merchants would take this opportunity to dig a hole, so they formed a large-scale purchasing group to the United States, and made a high-profile announcement when visiting the Chicago futures market that they were going to purchase 250 million tons of American soybeans, and if the price was right, they would purchase another 250 million tons.

They think that there are 250 million tons of procurement contracts hanging in front of American soybean suppliers, and they will definitely scramble to sell at lower prices, just like domestic companies trying to win export contracts. However, they ignore the differences in the specific environments of China and the United States.

Domestic enterprises have a short start-up period and have not yet formed a monopoly. The competition among the same industry is very fierce, coupled with the influence of export tax rebates, foreign exchange quotas and other reasons, and there is still a lack of organizations that can coordinate the industry. Therefore, they are flocking to the procurement contracts of foreign businessmen.

The U.S. soybean industry has long been firmly controlled by the four major grain merchants. They can easily reach a price alliance and advance together. Therefore, the pricing power of U.S. soybeans is in their hands. They sell as much as they want, and provide as much as they say.

Moreover, they valued the long-term benefits that can be brought about by completely controlling China’s soybean industry chain compared to a mere 500 million tons of soybean export contract. Therefore, they did not rush to lower prices to win the contract as the Chinese purchasing group expected.

Soon the soybean futures price on the Chicago futures market rose from US$320 per ton to US$391 per ton. It first reached the highest point in the past 15 years, and then directly broke through the highest price in the past 30 years. Seeing this situation, the inexperienced purchasing group panicked. They believed that soybean prices would continue to rise in the future, so they hurriedly signed a purchase contract for 300 million tons of soybeans.

The national team took action, and the rest of the domestic oil extraction companies quickly followed suit, signing soybean purchase contracts with American suppliers, and finally grabbed 800 million tons of American soybeans, and the CIF price was as high as 480 US dollars per ton.

Only one month after the purchasing group left the United States, the United States announced that this year's soybean production was not affected by the weather at all. Not only did it not reduce production, but it set a production record.

Many companies can’t bear it anymore. The production cost is too high to absorb so many high-priced soybeans. In order to reduce losses, they choose to pay 15% to 20% liquidated damages, hoping to terminate the high-priced purchase contract;

However, how could the fish who had already entered the net be released again?For domestic companies that chose to breach the contract, the four major grain merchants directly stopped their soybean imports and raw material imports, and told them to either implement the contract, or never even think about buying soybeans from me in the future.

This is tantamount to a death sentence for domestic oil-extracting companies. Under the coercion of the four major grain merchants, domestic oil-extracting companies had no choice but to bite the bullet and bought high-priced soybeans, which led to serious losses.

Now, Li Lei has convinced COFCO and China Grain Reserves that this is a conspiracy by the four major grain merchants to try to control the domestic soybean industry, so it is definitely impossible to go to the United States to purchase foolishly. In the original history, COFCO took the lead in forming the procurement group. Now that the leading brother has changed the plan, even if some scattered oil extraction companies continue to go to the United States, the influence will be much smaller.

Now COFCO and other state-owned large-scale oil extraction companies still have to form purchasing groups, but the goals of the purchasing groups are not limited to the United States. They followed Li Lei’s suggestion and adopted diversified channels for soybean imports.

The purchasing group is divided into three groups. The first group goes to North America to negotiate with the United States and Canada. The second group goes to Europe to negotiate with Ukraine and Russia. The last group goes to South America. They will successively visit Brazil, Argentina, Bolivia and other soybean exporting countries.

The three groups have only a small guaranteed purchase share. If the negotiation is not good, they will give a purchase contract meaning of more than 20 tons. If the negotiation is good, it may rise to the level of one million tons. No matter how powerful the four major grain companies are, they only control [-]% of the global soybean transaction. The remaining [-]% is enough to fill the gap in China's soybean demand.

At the same time, the soybeans hoarded by the four major grain merchants must be sold to make a profit. Hoarding in warehouses will not only produce economic benefits, but will also increase a lot of storage costs. Now looking at the world, they cannot find a bigger soybean buyer than China.

After seeing the signing of contracts between China and Ukraine, Russia, Brazil, Argentina, Bolivia and other countries, they will definitely abandon their previous plans and get the contracts in hand first, otherwise they can only continue to store the soybeans they have hoarded. After all, they do not have truly profitable soybean ethanol production technology.

"Be careful when going out this time. The four major grain merchants will not just watch us buy enough soybeans, and judging from their past methods of operation, they will not only use normal commercial competition methods, but also use other methods, so we can't relax before the soybeans arrive in Hong Kong! Even if they arrive in Hong Kong, we have to carefully check whether there is any problem with the soybeans." Before the procurement group set off, Li Lei reminded at the meeting.

"The story you told us about Huinong's bidding for a soybean farm in Brazil is still fresh in our memory! It feels more exciting to buy a farm than a 007 movie!" Mr. Gao of COFCO said with emotion, "I have already told them this time. After going out, we should listen to the opinions of Huinong's team. After all, you have gone to sea earlier and have more experience in this area."

In addition to COFCO and some large state-owned oil extraction companies in the procurement group, Huinong also sent people to participate, mainly employees from Luhua and the feed factory. Li Lei selected senior employees with rich overseas work experience, and arranged for Li Xinwang to lead the team himself. With him, the leaders of those state-owned enterprises did not dare to take it lightly.

"Our goal this time is to purchase 600 million tons of soybeans, but we can't say that to the outside world. No matter which country people ask, and no matter whether the person who asks the question is an official or a businessman, we all say that we will only purchase 300 million tons." Li Lei added that due to his influence, the domestic soybean shortage is now much smaller than in the original history.

Last year, the total global soybean output was close to 6000 million tons, and the total export volume exceeded 600 million tons. If 300 million tons were purchased at one time, that would be one-tenth of the global total export volume, which would have a great impact on the market. If it were reduced to 5.00 million tons, it would only be [-]%. This difference is reflected in the price, and the difference is definitely not the slightest.

The procurement group first arrived in Russia, which is the nearest country. Due to the rise in oil prices this year, Russia’s economic growth is relatively good. However, due to historical reasons, Russia’s soybean production is not as high as that of later generations. It has not exceeded 100 million tons, and there are not many soybeans for export.

However, Russia’s oil crops are not just soybeans. The sunflowers they planted have a good harvest. Last year, the total output was close to 500 million tons, setting a record in the past 30 years. Both COFCO and Luhua have their own sunflower oil factories, so they generously offered a large import order of 100 million tons of sunflower seeds.

Sunflower seeds can also be used for oil extraction, and the sunflower meal left over from oil extraction can also be used as feed raw materials for pigs, cattle and poultry. Since a large amount of sunflower seeds are imported, the demand for soybeans will definitely decrease further, so soybean prices in Chicago and Dalian futures trading markets have dropped again upon hearing the news.

The situation in Ukraine and Russia is similar. The potential for producing soybeans is huge, but it has not yet been fulfilled. However, the output of sunflower seeds is second only to Argentina and ranks second in the world. Therefore, the procurement team came up with the same solution as Russia, purchasing sunflower seeds on a large scale and adding a small amount of soybeans.

The purchasing missions to the United States and Canada were not so smooth. The four major grain merchants still felt that China needed a large amount of soybeans, because although sunflower seeds can be used to extract oil and produce sunflower meal, sunflower oil is not heat-resistant, and it is easy to oxidize and polymerize after frying or repeated heating, resulting in harmful substances. Therefore, sunflower oil is not as popular as soybean oil, and its share in the global edible oil market is relatively low.

At the same time, the lysine content in sunflower seed meal is lower than that of soybean meal, and it needs to supplement lysine and balance protein when used as feed, which is troublesome to operate; therefore, sunflower seed can only be used as a supplement to soybean in a small amount, and cannot completely replace the role of soybean.

They felt that they were confident and refused to lower the price. The Chinese purchasing group did not give in, so the two sides formed a stalemate. The two sides were talking, but the differences were very large.

If China had sent only one procurement team, it would probably have to give in now, because there is indeed a large shortage of soybeans in the country. But now, the procurement teams to Russia and Ukraine have signed large orders. Although most of them are sunflower seeds, this can also temporarily alleviate the crisis of soybean shortage.

In addition, there is still a purchasing group going to South America, so they are still calm for the time being. When negotiating with the representatives of the four major grain merchants every day, they still have calm smiles on their faces. The words mean the same thing. We really need soybeans, but you are not the only choice. If you continue to insist on high prices, then we can only buy soybeans from other sources.

The purchasing group received a warm welcome when they arrived in Brazil. They were lucky. The current president of Brazil is Lula, who we will be more familiar with in the future. After he took office, he has been committed to getting rid of the control of the United States on South American agriculture, and he has always wanted to maintain a better relationship with China. He visited China when he was not running for president.

In the future, under his leadership, Brazil achieved rapid economic development and joined the ranks of the BRIC countries. Unfortunately, some countries did not want to see Brazil achieve independence, so a few years after stepping down, he was arrested and imprisoned on charges of corruption. However, he was acquitted a few years later and was re-elected as the president of Brazil.

The arrival of the Chinese purchasing group just catered to the needs of Brazil. Brazil not only held a grand welcome ceremony for them, but also behaved very friendly in the soybean export negotiations. Previously, most of their soybeans were exported to European and American countries, and they would be restricted in many aspects such as price.

One of the two parties wanted to buy and the other wanted to sell, so a preliminary agreement was reached without much effort. Brazil will provide China with high-quality soybeans for a long time. The first contract reached 100 million tons.

As the news spread, soybean exporting countries such as Argentina and Bolivia in South America also began to say that Chinese purchasing groups are welcome to go to them to purchase as soon as possible.

However, Li Lei remained sober. He knew that the preliminary agreement was not the same as the final agreement, let alone the soybeans that could reach China safely. The four major grain merchants still had many methods, and their control over South American agriculture could not be easily broken.