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.