Early soybean sales show promise for strong year

November 3, 2020 | Bethany Baratta

Indisputably, the tit-for-tat trade war between the United States and China impacted soybean sales. Shipments of U.S. soybeans to its largest soybean customer were down more than 50% between 2018 and Jan. 2020. 

However, China has been making increased purchases of soybeans and other ag products this fall to fulfill its commitments under the Phase 1 agreement. 

In the first five weeks of the soybean marketing year (Sept. 1-Aug. 31), the United States has exported 6.7 million metric tons (246.18 million bushels) of soybeans; 4.5 million metric tons have been sold to China. 

That amount, says Mac Marshall, vice president of market intelligence for the U.S. Soybean Export Council (USSEC) and the United Soybean Board (USB), is five times what the United States shipped to China through the first five weeks last year. 

“Perhaps, more importantly, it is also a record level for this point in the season, outpacing pre-trade war levels,” Marshall says. 

There are total commitments (exports shipped plus sales not yet shipped) of more than 40 million metric tons to global customers, according to Marshall. Of that, China has committed to more than 22 million metric tons. Commitments from buyers outside China are up over 60% relative to prior-year levels to date. 

“There’s been a lot of aggressive buying by China, but that’s not the only market we’re excited about,” Marshall says. 

Countries like Egypt, Bangladesh and the Philippines have shown growth in imports of U.S. soybeans. Nigeria, a frontier market for U.S. soybeans, is also showing promise. The African country is expected to add 200 million people by 2050, surpassing the United States and doubling its current population. 

The United States is ready to meet the country’s expected demand for protein as it’s economy prospers. 

“U.S. soy is positioned as the primary supplier of high-quality soybeans and soybean meal for the country’s animal sectors,” Marshall says. 

Exports critical 

Opening export opportunities is critical to the success of Iowa’s soybean industry, says Chuck White, ISA District 1 director from Spencer. 

“With 60% of our soybeans going overseas, trade is essential,” White says. “We must have trade with countries around the world; not only China but all countries.” 

The U.S. soy industry can’t forget about the relationships built with customers in China, says Kirk Leeds, ISA CEO. Leeds says a visit to China is a high priority when it’s deemed safe to resume regular relationship-building travel activities. 

“Regardless of the political disarray, tariffs and counter-tariffs, at the end of the day, Iowa soybean farmers just want to be able to provide a high-quality soybean to our customers in China and everywhere else,” Leeds says. 

Out-of-the-box solutions 

ISA commissioned a study (see right) evaluating solutions to offset the losses felt by Iowa soybean and corn growers due to the trade impasse between the United States and China. Currency devaluations in Brazil and Argentina – by as much as 75% the past two years – also affected the United States’ ability to be competitive in the world market, impacting prices and exports the past three years. 

ISA Director of Market Development Grant Kimberley says unfair currency valuations mean global customers go elsewhere, like Brazil and Argentina, to source their soy needs more cost effectively. 

“We can sign all the trade deals we want, but if we’re not cost competitive due to unfair currency issues with our competition, then it’s still going to be a challenge to sell our products,” Kimberley says. 

Iowa State University economists Dermot Hayes and Chad Hart offered suggestions on improving farmer profitability and market share in the face of headwinds. 

China agreed to make purchases under a Phase 1 trade agreement earlier this year, largely ending the trade war between the countries. In addition to this, Hayes and Hart also suggested: 

1. An emergency short-term revival of the Export Enhancement Program, in which exporters are awarded cash payments that enable an exporter to sell certain commodities to specified countries at competitive prices. 

2. Improvements to the export guarantee program, which provides credit guarantees to encourage financing of commercial exports of U.S. ag commodities. By reducing financial risk to lenders, credit guarantees encourage exports to importers in countries – mainly developing countries – that have sufficient financial strength to have foreign exchange available for scheduled payments. 

Kimberley says the solutions presented in the report, while not necessary to implement now due to dollar, peso and real valuation improvements, are short-term, emergency-type policies that are starting the conversation at the national level. 

“The Phase 1 trade agreement appears to be implemented, and conditions are improving, but these are concepts to have in our back pocket should the U.S. dollar strengthen and the Brazilian real and Argentine peso weaken, making us less competitive,” Kimberley says. 

This story was originally published in the November 2020 issue of the Iowa Soybean Review. 

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