OohRah! Within the World Soybean Complex, Canadian Soybeans Find Their Niche
It is that time of year when we think about Christmas but for whatever reason this year I’m thinking more about the price of grains with soybeans being top of my mind. There is something about $10 cash soybeans that have a cachet about them. In the coffee shop talk in southwestern Ontario farmers are very happy with $10 soybeans but $3.50 corn doesn’t do anything for them. So with the market down $.37 in soybeans last Thursday, looking ahead everybody is getting a little bit nervous with their coffee shop predictions for the soybean complex.
Worse, I don’t know what’s going to happen but futures months sure looked bearish from here. With South American soybeans in the ground with some going to be harvested in January, it’s pretty obvious that the market is looking at this new supply as a bearish weight to price. Storing $10 beans is risky at the best of times. So when I drive through southwestern Ontario farm country I often wonder how many beans are in those beautiful bins that many people have put up.
For the uninitiated in soybean country you must remember that South America is such a big component of the world soybean complex. Look at it this way, in the 2009/10-production year the United States will produce about 86.95 million metric tonnes of soybeans. In the same production year Brazil and Argentina will produce about 60 million metric tonnes of soybeans apiece. Its pretty clear South America is the low cost producer of soybeans in this world and I don’t see that changing anytime soon. Sure they have their problems with infrastructure but that cheap land trumps everything. If they ever get things figured out completely they will be the soybean superpower of the world.
The hard part will be getting everything figured out because even though I have never visited South America, things don’t run in soybean country there as smoothly as they run here. For instance you have read about the export tax on soybeans in both Brazil and Argentina on your DTN monitors. This is where an export tax is put on the soybeans essentially making them cheaper domestically and more expensive to ship out. This is a drag on production in South America and is a drag on their competitiveness. Needless to say there are still a lot of South American soybeans reaching China and Europe every year.
So that brings us back to Ontario, Manitoba and Quebec where most of Canada’s soybeans are grown. With the wide expanses of South America and the American Corn Belt how is a Canadian soybean farmer supposed to compete? For instance your loyal scribe grows about 500 to 600 acres of soybeans a year. Am I supposed to assume that on that small acreage in a high cost area of southwestern Ontario that I can beat the guy growing soybeans in Mato Grosso Brazil? I don’t think so.
Needless to say, that is the short answer. Its easy to look at the expanses of South America as well as many parts of the American corn belt and throw up your hands and say there is no way Canadian soybean producers can compete with that. The honest answer however is that Canadian producers have been competing effectively for many years within the world soybean complex and as we look ahead I really don’t see that changing that much. The question is how do we do it and as we look to the future how do we maintain our soybean industry and how do we thrive into the future?
If soybeans stayed at $10 a bushel that might help. Clearly at least in Canadian soybean country we have the land, climate, expertise and infrastructure to grow soybeans efficiently within the world soybean economy. The question is how can we garner even more money out of this world soybeans market to compete with our much bigger competitors? There is always the food grade soybean market, which Canadians have carved a solid niche in over the years. There is also the specter of growing high oleic oil soybeans in the future as well as growing soybeans that are high in long chain omega-3 fatty acids. There is even research being done which would change the soybean taste and consistency to one which is smooth and creamy. Could you imagine soybean ice cream from Ontario? As we look beyond 2010, clearly there are going to be some attractive options for Canadian producers.
The key for the Canadian soybean complex will be a to capture market opportunities. This might mean remaining nimble enough with food grade soybeans to produce for specific high-value market niches in Asia and other places. New high tech micro crushers in Ontario and Québec would certainly help in this process. It also should not be forgotten that if we had increase competition for Ontario soybeans at the crusher level, it would only be good news for Ontario soybean country.
As I am writing this, it’s pretty obvious our soybean market is either taking a bearish turn or will find new technical support into bullish territory. Some people might call it a tipping point. We’ll see. The challenge for Canadian soybean producers is to capture those market opportunities where they can make a profit. In this market that means picking a futures level and a basis level to give you the best cash price you can get. Also too, with the South American harvest coming on and with Canadian friendly Asian markets looking for soybeans, we’ve got to continually tell our story.
That is that we can grow soybeans too. At the end of the day, the Rocky Mountains, the moose and trees and clean fresh air and the Mounties have sold a lot of soybeans for Canadian producers. That Canadian image across the Pacific in Asian soybean buying houses goes a long way. With markets heating up and our big soybean competition gearing up as well it will be important for Canadian producers to seize these marketing opportunities. We might not be as big as the other guys, but beating them to the punch will be job one.