Over the last two months, we’ve been honing in on one key trend in the soybean space: Brazil’s growing dominance in exports to China over the United States.
Though planting delays have created opportunities for farmers this marketing year… it’s time to think ahead, starting now.
An article landed on my desk this morning from Seeking Alpha. The author goes unnamed, but they explicitly detail a lot of the things that I’ve shared with you over the last two months.
- China is threatening to restrict access to U.S. soybean producers.
- Brazil has much better protein yields due to U.S. farmers want for yield over content.
- China has hindered U.S. exporters with new quality restrictions on shipments
The author’s conclusion is that U.S. farmers choice of sacrificing quality to pursue that extra three to five cents per bushel will leave them worse off in the long run.
The author concludes with a question:
“What choice would you have made in 2016 if you were playing the soybean export game?”
This backward-looking question asks you to think about what you would have done differently knowing that China’s looking for higher quality over quantity in their soybeans.
It’s a fair question… but it’s also completely meaningless.
The reality is this: We are where we are, and there is no going back.
Instead, you need to think about the present and the future if you’re growing soybeans.
It starts with one question that many people don’t ask themselves when the planting season begins: What does the customer want?
As planting season picks up, U.S. producers should think about how their operations relate to the global food supply.
Understanding where demand is rising – globally – and the associated trends (which currently include non-GMO soybeans) allows you to position yourself for premiums well ahead of time. You might have a plan to sell traditional crops to buyers with whom you have an existing relationship.
But it’s vital to challenge your conventional thinking and really understand where changes in consumer tastes are occurring.
What markets are underserved?
What will get you the most bang for your bottom line?
How can you be contrarian when certain people are panicking or expressing too much optimism?
We are going to dive deeper into this philosophy and the related opportunities that we’re seeing in the FarmLead Insights channel in the future, but we’ll be providing our readers of GrainCents more detailed assessments of opportunities as they emerge.
The Dark Side Of Success For U.S. Soybean Exports
In 2017, U.S. soybean producers sent an estimated 1.32 billion bushels of their crop to China, the second-most on record. The record for U.S-to-China soybean exports came a year earlier when U.S. soybean producers exported an estimated 1.53 billion bushels of their crop that year to China, which was a dramatic increase over the 1.15 billion bushels they sent to China in the year before.
2016 would appear to be have been the most successful year to date for U.S. soybean exporters, but there’s a lot more to that story.
Although the year saw optimal growing conditions for soybeans in the U.S., which resulted in a bumper crop, one of the main contributors to the success of U.S. soybean producers that year came about as a result of a severe drought in Brazil, the world’s top soybean exporting nation.
Brazil’s drought created a unique opportunity for U.S. soybean producers seeking to claim a larger share of the world market in 2016. Since Brazil’s annual harvest peaks in the second quarter of each year, thanks to its Southern hemisphere geography that puts its growing seasons six months ahead of the U.S., the news that Brazil’s 2016 soybean crop and exports would be reduced because of drought conditions provided U.S. growers with the advance warning they would need to respond to what, for them, would be an opportunity.
So they took it. U.S. soybean producers planted seed varieties that would optimize the yield for their crops, which helped contribute to 2016’s bumper crop in the United States. They then aggressively harvested the crop to satisfy China’s domestic demand for soybeans, where China was buying up as many bushels of soybeans from the U.S. as they could that year.
But there was a dark side to that success, which is now becoming increasingly apparent. In choosing seeds that would maximize crop yields, U.S. soybean producers sacrificed the protein content of their crop, effectively reducing the quality of their product. In 2017, that meant having to compete with higher quality soybeans grown in Brazil as that nation’s crops have rebounded from 2016’s drought conditions.