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The West’s big challenge for soybeans

Soybean Guide: Despite their province’s soaring soy acreage, Manitoba’s hog industry is still locked into expensive imported soymeal. Worse, change may still be years away

It was another banner year for Manitoba soybeans in 2014 with production hitting a record 1.1 million tonnes, up 3.7 per cent from 2013.

Figures from Statistics Canada show that, although average yields dropped 14 per cent to 32.3 bushels per acre, a 21 per cent increase in harvested area more than made up for lower yields.

Since soybean meal is a basic ingredient in hog and poultry rations, you’d think Manitoba livestock producers would be rubbing their hands at the prospect of feeding their animals locally grown soybeans instead of having to import them.

Unfortunately, most soybeans consumed by livestock in Manitoba aren’t grown in the province. Instead, almost all the soybeans grown in Manitoba end up being shipped out of the province for other markets because of a lack of processing capacity.

Manitoba has only three small soybean processors, one of them a roaster. Although they do serve the local market, they provide only a small fraction of the soymeal fed to livestock in the province. Nearly all soymeal used in Manitoba is imported from feed mills in the U.S. or Eastern Canada.

So, while soybean production in Manitoba grows by leaps and bounds, livestock producers watch unit trains haul locally grown soybeans to the West Coast and elsewhere, while soybeans from other regions come in across the border to fill the void.

The industry is acutely aware of the irony of shipping soybeans out of the province while at the same time importing them to make up for the loss.

Officials agree it would make economic sense to process soybeans here, given the extra cost of transportation and a higher import price resulting from a slumping loonie.

The industry sees real benefits for livestock producers. “Hopefully we will be able to stop importing soymeal, start paying in Canadian dollars, avoid currency fluctuations and pay less in transportation,” says Andrew Dickson, general manager of the Manitoba Pork Council. In return, Dickson says, soybean producers would gain from a large, stable market so close at hand.

Soybeans make up a significant part of hog producers’ feed requirements. According to livestock analyst Janet Honey, the Manitoba swine industry uses almost two million tonnes of feed a year. Rough estimates show soymeal represents over 10 per cent of that amount. The volume of feed consumed annually, which includes soymeal, would increase by 40 per cent if all the pigs produced in Manitoba were fed to slaughter weight instead of being exported as weanlings and feeders, Honey says.

Soybeans are becoming a feed of choice for Manitoba swine producers because of their high meal and protein content. According to the Canadian Grain Commission, soybeans yield 80 per cent meal and 20 per cent oil when crushed, compared to 60 per cent meal and 40 per cent oil for canola. Soybeans also average 40 per cent protein content, compared to just 20 per cent for canola.

“I would say 100 per cent of rations for pigs in Manitoba have soybean meal in them. Producers feed wheat and barley for energy and soybeans or canola for protein,” says Robyn Harte, a Manitoba Agriculture, Food and Rural Development swine specialist.

As soybean production increases, and as more producers turn to soymeal as a feedstuff, the need for more processing capacity in Western Canada becomes more acute. But what would it take for a major company to locate a soybean crushing plant here?

Unfortunately, despite more than doubling its soybean acreage since 2011, Manitoba still lacks the critical mass needed for a major crusher, industry analysts say.

“These plants need economies of scale to be competitive,” says Jonathon Driedger, a market analyst with FarmLink Marketing Solutions in Winnipeg. “We don’t have the kind of production that would come close to justifying the investment you would need for a competitive plant.”

Chris Ferris, a market analyst with Informa Economics in Winnipeg, agrees.

“At this point, I would say we’re probably not there yet,” says Ferris. “But if we keep expanding acres the way we are, I would see that it would probably make sense to throw in a crush plant here at some point in the future.”

It’s a chicken-and-egg argument, according to Harte. Right now, the soybean acres in Manitoba aren’t enough to lure a large processor. “But unless you have a processing plant, what’s going to entice people to plant more soybeans? It’s like the snake eating its own tail,” Harte says.

That raises a critical question: How many acres of soybeans would be needed to make building a crush plant in Western Canada worthwhile? This is where analysts hedge their bets.

A recent presentation by Grain Farmers of Ontario noted “huge momentum shifts in seeded soybean acreage” in Manitoba and Saskatchewan. It cited reports suggesting that Western Canada’s growers could seed as much as five million acres of soybeans in the next five to 10 years, most of it genetically engineered.

“With continuous improvements in genetics and production technology, Canada will continue to see increases in yields across the country in both non-GMO food grade soybeans and genetically engineered,” the report says.

Ferris says he has heard Monsanto officials privately suggest seeded soybean acreage in Western Canada could hit six to eight million acres in the next 10 years.

Assuming that’s possible (and it’s a big “if” because soybeans are still a high-risk crop in Western Canada), would that be enough to entice a multinational giant such as ADM to locate a soybean crushing plant in the West? Or would small, locally owned plants be better suited to the task?

Ferris says a lot depends on technology. Small plants are cheaper to run and can break even on relatively low volumes, while large plants in the U.S. and Ontario require major volumes to be profitable. Also, crushers need to be competitive and willing to pay the necessary price to attract product. A low Canadian dollar, which favours exports, could encourage soybean growers to sell to a more financially attractive U.S. market instead of marketing their beans locally.

“We’re not going to pay more for Manitoba stuff if we can get it cheaper from the U.S.,” says Dickson.

Ferris suggests one solution could be to convert an existing canola crushing plant into a swing plant which could also process soybeans. In that way, crushers can accept soybeans when market conditions are favourable for them. The rest of the time they could concentrate on canola. But, again, it depends on the technology. Ferris says swing plants work best when designed to operate that way from the start. Retrofitting a canola plant to also accommodate soybeans is more difficult.

In the meantime, it appears Canada will continue to be more of a soybean exporter than a user. According to Grain Farmers of Ontario, soybeans are the third-largest agri-food export in Canada, totalling nearly 3.5 million tonnes in 2013 for a value of $2.1 billion. Canada exports soybeans to over 50 countries. The U.S. is the biggest customer, followed closely by China. The Netherlands and Japan follow.

It’s difficult to say where soybeans from Manitoba end up. Driedger says growers used to sell to elevators in northern U.S. states. They still do. But major grain companies now report that higher soybean volumes resulting from expanding acreages enable them to assemble 100-car train units to ship to Vancouver. That makes Asia a likely market.

However, there’s still a chance the livestock industry might become a catalyst for processing more soybeans at home. Hog producers are slowly beginning to rebuild their herds after several years of depressed prices and a recent outbreak of porcine epidemic diarrhea virus (PEDV). More pigs requiring more soybeans could encourage producers to grow their own beans and have them crushed locally.

“If you saw a meaningful ramp up in those herds over the course of a couple of years,” Driedger says, “that could increase the demand for soymeal.”

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