FARGO, N.D. -- The good news is that soybean market demand is growing faster than world soybean production, and that condition should remain for several more years.
The better news is that farmers in North Dakota and the Upper Midwest can take advantage of this, but only if they capitalize on new technology, says Bill Wilson, a North Dakota State University agricultural economist, who spoke at the North Dakota Soybean Growers annual meeting in Fargo, N.D., on Feb. 21.
"In my analysis, soybean production in this part of the country -- this part of the world -- is the lowest cost source of soybeans, in both logistics and production costs, relative to the most competitive regions," Wilson said. "That's a positive thing."
He urged producers to "keep the pressure on" for access to new technology and to invest in region-specific technology.
Wilson's research shows that soybeans sourced in the Upper Great Plains are often discounted at the Pacific Northwest ports because of relatively lower oil content, compared with beans coming from rest of the country. He acknowledged the soybean market doesn't yet know how to provide market incentives relative to quality, but over time, as soybean growth escalates in northern Brazil, which will have higher oil and protein content, the discounts for low oil and protein will get bigger.
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Soybean growers in this part of the country in particular are "probably losing around $30 million to $50 million in a normal year" and "upwards of over $100 million a year in a bad year," because of discounts, relative to competing soybean markets. "I pose that to you as a challenge, as an organization," Wilson told the bean growers. He cited challenges in improving quality. He says there are opportunities in both research that increases quality, and then outreach to teach foreign buyers about improvements that could be achieved.
Biotechnology is a "game changer," particularly for soybeans and other crops that already have it, allowing crops to shift geography. It also shifts small grains from North America into the former Soviet Union, in particular, because research and planting of genetically modified crops is banned in those countries.
Risk has increased in all marketing countries, with tremendous agricultural production investment worldwide -- logistics, infrastructure, technology, seed technology and farming technology across the board. Wilson said the challenges for farm management will escalate and become "much more intensive and professional over time," because the stakes are so much higher than they used to be.
Shifting shipments
Exports from the Gulf of Mexico of U.S. corn and soybeans have declined from 70 million tons to 60 million tons in recent years, while exports out of the Pacific Northwest are growing -- soybeans from 2 million metric tons to 11 million metric tons. Similarly, corn has gone from 5 million metric tons to 11 million to 12 million metric tons.
"It's a huge impact; especially important for this part of the country," Wilson said. "That is why those companies are spending so much money in North Dakota and Minnesota, building infrastructure."
A company headed up by Bunge North America Inc., with Japan and South Korea, announced a port elevator in Longview, Wash. The facility offers direct rail access to the BNSF Railway and Union Pacific main lines. It is capable of handling 110-car unit trains as well as shuttle train systems and can unload barges from the Columbia River. Under full operation, it will be able to handle more than 8 million metric tons of grain production in a year, and will have robots that can unload cars faster. The facility came on board last October amid a labor strike and is now operating.
"These people are spending about $200 million, building the most state-of-the art elevator in America, probably in the world," he said. It's the first port elevator built in the U.S. since 1982. It is a new Pacific Northwest entry into the market for Bunge, which forces their competitors to upgrade and expand capacities. Since 2009, all major competitors have announced Pacific Northwest expansions resulting in nearly $1 billion in investments, a near-doubling of unloading capacity, going from 10 shuttles a day in 2008 to 17 shuttles today.
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"This is directly in our favor, in this part of the country," he said.
Panama Canal expands
Wilson said another major development is the expansion of the Panama Canal, which will be completed by 2015, analogous to going from a one-lane country road with a one-lane bridge, to a four-lane highway.
"In the process of expanding, they raised their toll fees," he said. When the U.S. controlled the canal, the toll fees were about $1 a ton for raw commodities. Now they're going from $5 to $7 a ton to finance the project.
Now, most 70,000-metric-ton vessels going through the canal are too heavy and must be loaded only to 52,000 to 59,000 metric tons. In the expanded canal, ships will increase in size. Archer Daniels Midland Co., which never invested in ocean shipping, has announced it has purchased four, 180,000-ton grain vessels. "That's about three times as big as current ships that go through there, and they're going to create a pipeline" that will force other competitors to do the same.
Wilson described major investments in South American infrastructure, especially Brazil, where 38 percent of the value of soybeans goes for shipping and handling, compared with only 12 percent in the United States. "That's a big advantage for us," he said. "I know many of you hate railroads, but railroads and handlers have become pretty efficient in this country, which ultimately gives us an advantage," of about 10 years ahead of other countries.
U.S. producers are in competition with Brazil over how to serve the expanding markets in China and in southeast Asian countries.
To stay competitive, North Dakota soybean producers should manage for higher oil content soybeans, but acknowledged that premium payments for higher oil may not arrive for another five to 10 years.
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Wilson said the U.S. has been studying the upper Mississippi River system for about 40 years, trying to decide how to modernize it so that barges can be moved through the locks and dams without breaking up the barge tow. "We haven't found a way to spend that money yet, can you believe that? And elevators are responding pretty simply by building shuttle plants to ship to the West Coast."
Wilson doesn't think the U.S. is going to grow its biofuels market from the current level. "I think the challenges are going to be too great," Wilson said, adding, "I think we'll probably stabilize at 15 billion to 16 billion gallons, producing fairly large exports of distiller's dried grains, which he says is a pretty important piece in the fabric of the international marketplace."
Agricultural use of container shipments for exports is now about 3 to 5 percent of the total, which has increased. Nongenetically modified and organic soybeans are one of the important areas. "It's significant that BNSF has built this container shipment facility in Minot (N.D.)," Wilson said. "I understand they are already exploring ways to expand that," although it will always be small compared to dry bulk shipments.
