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The case for more competitive soybeans
While 2012’s drought stunted season gives you many agronomic reasons to consider more soybeans in 2013 -- yields, pest control, soil health, input risks -- that pesky profit issue may trump them. As has been true for several years, most estimated farm budgets for 2013 favor corn over soybeans by $100 to $250 an acre, even with corn's much higher input costs.
The rule-of-thumb is that soybean prices need to be 2.4 times corn to narrow the profit gap and attract acres. With corn at $7.00 a bushel, soybeans would have to be near $17. They’re about $3 a bushel short of that competitive benchmark.
Is it ever going to change?
Market analyst John Baize knows all the dynamics, and is one of the few who makes the case for a soybean comeback in the U.S., especially as he takes the long view. Here’s why.
World demand for protein crops is growing faster than for corn. Trend lines say the world will need an additional 70 million metric tons (MMT) of soybeans in a decade to meet demand for the high protein soymeal, the major output of soybean processing, or crushing, that extracts the soy oil. ”That growth in demand represents more soybeans than were grown in Brazil in 2012,” says Baize. “It [the demand] largely will come about in Asia, particularly in China and India, but also in Latin America, the Middle East and elsewhere.” Most of it will go for expanding livestock and poultry numbers, but some will also go for human consumption.
Baize thinks as much as half of the additional soybean production will come from higher yields and the rest from expanded plantings, mostly in South America. To get the additional acres of soybeans, prices will need to remain high to stay in competition for land, he says.
Meanwhile corn is also growing demand, but that has been from the domestic industrial sector ¬- mainly for ethanol production – since about 2001. “Direct feed use of corn in the U.S. has actually fell by 42.4 MMT (28.7%) since 2001, while use for food, seed and industrial (includes ethanol) has increased by 98.8 MMT (196.8%),” Baize says. (The corn use for feed does not include the corn byproducts from milling that is fed to livestock.)
“I don’t see much increase in future domestic corn usage for industrial products and demand for feed will be stable or decline,” says Baize. His bottom line is that world demand for soybean protein for feed and food is exploding; world corn demand is more limited.
Soybean yields are advancing in the U.S. Many U.S. farmers have felt soybean yield advances have lagged corn, but Baize thinks that’s changing. Historically, seed companies didn’t invest as aggressively in high-yielding soybeans as they did in corn. That changed in 1996. “That’s when Roundup Ready came along, with soybean varieties that had intellectual property protection,” says Baize. “Farmers couldn’t hold back their own soybean seed, and it greatly increased the profit incentive for seed companies to invest in soybean varietal research,” he says.
“If you compare national average corn yields and soybean yields since 2000, soybean yields have grown faster than corn,” he continues (see bar chart). “It’s not what most farmers think, but it’s a reality, and I expect it to continue for the next decade. This, too, will make soybeans more competitive for land.”
Growth in corn production is coming outside of the U.S. “Corn production could grow faster outside of the U.S. than inside,” says Baize. One reason is that he expects corn yields to make significant gains in foreign fields, relative to soybeans. “Yields for soybeans are about the same in South America as they are in the U.S.” That’s not true for corn because China, South America, and India haven’t used the newest biotech hybrids extensively yet. “When they do, their yields could go up significantly, reducing export demand for U.S. corn. I see China focusing more on boosting corn yields than on soybeans,” he says.
More crop rotations are needed in South America. Both Argentina and Brazil grow far more soybeans than corn – for now. But just like U.S. farmers have agronomic reasons for rotating crops, they have good reasons to grow more corn (or other crops) in rotation with all those soybeans, says Baize. “Soon, this overplanting of soybeans is going to cause problems with pests like nematodes and insects. Both Brazil and Argentina need to plant more alternative crops, and this will lead to a slowdown or decline in soybeans, particularly in Argentina.”
Few other areas can grow good soybeans. “I don’t see much soybean growth in other areas of the world, areas like Ukraine or southern Russia, because of inadequate rainfall, latitude, and other factors,” says Baize. “There might be some parts of Africa that can grow more soybeans, but mostly it’s Brazil where acreage expansion can occur.”
U.S. farmers are learning to grow high-yield soybeans. Those budgets that favor corn by $250 an acre usually involve 180- to 200-bushel corn and 50-bushel beans. But increase the beans to 60 bushels, and it changes everything. “Midwest farmers have always preferred to grow corn, and Southern farmers like cotton,” says Baize. “It’s a cultural thing, but regardless, I think it is changing with higher soybean prices, and greater risks. Farmers are learning they can earn as much or more net income from soybeans as from corn or cotton if they invest in better seed, more fertilizer, and more crop protectants. I expect that trend will continue.”
Soybeans are better positioned to withstand livestock contraction. If poultry and hog farms cut back due to high feed costs, as it appears, it will hurt demand for corn and soybean meal, the chief feed ingredients. But soybeans have a better fallback position, with about 50% of U.S. production now going for export, versus only about 15% of corn. “In the longer term, corn will need to grow its export business to offset less domestic feed demand,” says Baize. “That may be difficult to do if China expands its own corn production and South America shifts more acres to corn.”