Soybean growers chart new course for the future

Declining acreage, growth of biodiesel creates new challenges

By Sara Wyant

It's an age-old question for anyone charged with trying to chart future strategy for their business or organization: Which investments will provide the biggest bang for the buck?

The soybean industry, under the leadership of the United Soybean Board, decided to look not only at short term investments but those that will position the industry to be competitive over the next two decades. In December, their 64-member board participated in a SOY 2020 visioning process to help guide their decisions relative to investing about $43 million in soybean research and promotion dollars, collected from growers via the soybean checkoff.

Planning one to three years ahead is a fairly straightforward exercise, explains USB Chairman Eric Niemann, a soybean farmer from Nortonville, Kan. But there are a lot of different things that could happen in the next 10 to 20 years that "we wanted to understand and have on our radar screen to keepSoybeanscompetitive for food, feed and fuel uses."

For example, soybean acreage is expected to decline as farmers plant more corn to meet the rapidly growing ethanol demand. At the same time, biodiesel demand is showing steady growth. "We discussed whether or not we need to change the composition of the soybean to yield more oil for biofuels. At the same time, we want to consider the needs of our number one customer, the livestock industry, and the changes occurring there, explains Niemann.

Although the livestock industry, which now consumes almost 95 percent of domestic soybean meal production, is expected to remain the primary market for soybean growers over the next decade, the mix and the demand is changing. "If trend lines continue, 20 percent of our production 20 percent of soymeal produced from the total U.S. production will be feeding fish in the next 10 years," adds Niemann.

In addition to fulfilling these markets, demand for biodiesel may require the industry to change the composition ofSoybeansto yield more oil for biofuel production. And with the skyrocketing interest in eliminating trans fats, the food industry is looking for the production of more low-linoleic soybeans, says Niemann.

Working with ABG, a strategic planning and consulting firm based in Indianapolis, Ind., the USB directors looked at different drivers that are currently affecting the soybean industry, as well as the key uncertainties going forward. This is the first time the entire industry has been involved in a soybean visioning process from start to finish. They involved growers, academics and industry leaders to help develop potential scenarios and chart the long-term road map. Consider these recent trends:

--Corn has out producedSoybeansin recent years

--Improved soybean yields in the Northern Plains have recently increased the attractiveness of producers to growSoybeansover other crops in this area

--U.S. soybean production market share fell from 90 percent in 1980 to 50 percent in 2005

--All South American production surpassed the U.S. during 2002 and 2003

--Brazilian soybean yields have grown 153 percent from 2001 to 2003 positioning the U.S. in second place with a 124 percent growth trend

With the increasing production of ethanol and the resulting price increases,Soybeanswill experience significant acreage competition from corn. One potential scenario, taken from USDA's soybean market outlook and baseline projections through 2014, shows soybean acreage dropping significantly from the high of 74 million acres in 2000. (Note: this assumes the sum of soybean, corn and wheat acreage remains within 5 percent of 212 million acres throughout projection.) See acreage projections in chart.

Looking at these and other trends, the soybean board then analyzed four different scenarios or "worlds" that could be probable in 2020. Each scenario included the potential for both sustainable input and output innovations in the soybean industry, relative to other sources of feed, fuel and food. The challenge for the board was to identify common factors in each of these four "worlds" so that they can develop strategies for those trends that are most likely to happen, says USB's CEO John Becherer. "It's clear from this exercise that we cannot afford to do business as usual."

Key findings:

--The U.S. is no longer a global soybean market leader in terms of production and exports. Brazil has taken the lead in terms of global trade.

--The farm bill is not expected to change much in terms of government payments and subsidies (or at least the change will be very slow).

--The South American region is currently making great efforts in terms of infrastructure and transportation improvements however they are still struggling with corruption, inflation or political instability. A threeyear, $415M project paving a main highway (1,570 km) through the Amazon and Mato Grosso, Brazil is currently under way. It's expected to reduce transportation costs up to $1 per bushel ofSoybeansand reduce transportation time from Santarem to Cargill's export terminal from nine hours to three hours.

--Investments in U.S. transportation infrastructure, both roads and waterways, are long overdue if U.S. agriculture is to remain competitive.

--Increase in soybean crush (due to a constant bio-fuel market development) has created an excess meal supply dragging prices down. However the U.S. may benefit from the Asia-Pacific region increasing meat production trend (beef, pork) for which meal (a by product of soybean crushing) is needed.

--China and India are experiencing an increase in wealth and economic development. This is re-shaping their consumption patterns and demanding new and different products. More than 40 percent of current world trade inSoybeansgoes directly to China. Pork production in China is expected to grow an additional 19 percent by 2015.

--The U.S. can also leverage its current global position by increasing its efforts in terms of research and technological innovations finding new soybean uses and applications. Latin America or even Europe is still not in the position of spending huge amounts of money for that matter.

--Increasing soybean yields is vital to the soybean industry to compete with corn and other crops for acreage and to increase the incentive for farmers to grow soybeans.

Look for soybean leaders to talk more about Soy 2020 during the Commodity Classic in March. In addition, Soy 2020 will be a continuing message within the checkoff funded communications that will continue to be revisited every two years until 2020.

Editor's note: Columnist Sara Wyant is president of Agri-Pulse Communications, Inc. and publishes a bi-weekly newsletter, Agri-Pulse, on food and farm policy. For more information, you can e-mail her at Agripulse@aol.com.

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Date: 2/1/07

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