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Will the friction between China and Donald Trump create real opportunities for Canadian soybean growers?

In today’s world, the news headlines that we read in the morning can be turned on their head that afternoon, which is why being able to differentiate what is really newsworthy from what’s just background noise is becoming a critical success factor for farmers.

On the trade front, ongoing tensions between the U.S. and China have grabbed their share of headlines, largely concerning trade imbalances but also with an eye on human rights and other influences.

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Much has been made of this dispute, including its impact on the American soybean sector, with U.S. farmers receiving relief funds from Washington while China looks to switch its imports to trading partners around the world.

Setting the stage

For some soybean players, China represents an incredible opportunity. Either way, access to its growing population of more than 1.5 billion people and its economy means it can’t ignored.

And China obviously means business. Massive infrastructure projects, from river dams to housing developments to major freeways, are carried out with surprising speed, courtesy of a massive workforce capable of mobilizing in any part of the country.

Early last October, Neil Hemingway, regional market advisor for BroadGrain Commodities in Stratford, Ont., wrote of the power of China’s appetite for soybeans.

Around the turn of the century, the government decided to grow soybeans as best they could but to secure domestic demand by importing from abroad —namely the U.S. and Brazil. China would continue importing needed volumes of corn to bolster its industrialization of livestock and poultry sectors, with a long-term goal of self-sufficiency. In 2016, amid domestic concerns, the government announced it would accept GMO hybrids by 2020.

However, as Hemingway’s October 5 newsletter pointed out, China is in a unique position on the world soybean stage. First, it consumes about 60 per cent of the world’s soybean production — and that demand is increasing five per cent per year. But it’s on a longer-term basis that China’s growing global reliance may become a concern. According to one source, “China’s hunger for soybeans is a window into an encroaching environmental crisis.” Northern China, the traditional soybean-growing area, has seen its water tables drop while rivers and streams are heavily polluted. Add to that scenario the loss of farmland to desertification at a rate of 1,400 square miles per year (roughly the size of Rhode Island).

The report states that Chinese demand may soon “outstrip global soybean production,” a claim that may be a little premature for several reasons, says Hemingway. First, there’s been the December cessation of added tariffs between China and the U.S. along with a December 12 news item about 12 cargo ships full of soybeans, heading across the Pacific from the U.S. to China. One week later, AgWeb reported export sales of 1,199,000 tonnes of soybeans for delivery to China during the 2018-19 marketing year.

Is everything back to normal?

Not necessarily, says Hemingway.

“There is a paradigm shift happening in the way First World countries do business with each other,” he says. “Sovereignty of food and resources will become more politically intertwined with business. There are different forms of protein and different origins around the world. The current U.S.-China tensions could have China rethinking their long-term procurement plan, but I hope that U.S. agriculture and business are also rethinking their dependence on one large buyer.”

Compared to 25 years ago, agricultural trade has changed and its pace is quickening. Ukraine is in the midst of clearing some 80 million acres, including what is reported by many to be some of the most productive, “beautiful-looking” soils in the world. At the same time, there is the anticipated development of agricultural land in the Republic of Congo and the Guinea Savannah in Africa, a total of more than a billion acres of potential farmland.

“When this whole tariff thing started rolling last fall, there was someone who made the profound statement out of the U.S. market system, saying, ‘China cannot do without our beans!’” recalls Hemingway. “If somebody from China hears that, they’ll just prove them wrong to make a point.”

Some of that debate has been settled with the December boatloads of soybeans moving between the two countries, but it also serves to underscore a point that many, including Hemingway, are making: the U.S. lock on soybean exports isn’t what it was. Early December forecasts called for the combines to start rolling in parts of South America, where many expected a record harvest. It’s no coincidence that the delivery of the purchase of those U.S. soybeans to China can take place during the first three months of 2019 — about the same time as the boats will start loading from South America.

A new identity

That’s actually another point that Hemingway makes: that the USDA —among others — must stop considering Brazil and Argentina as the only players in that region. Paraguay and Uruguay are member countries of the Southern Common Market, better known as Mercosur. That trade bloc also includes Bolivia, Chile, Colombia, Ecuador, Guyana, Peru and Suriname as associates, with New Zealand and Mexico designated as “observer” countries.

“Let’s start looking at all of the soybeans coming out of South America, not just Brazil and Argentina,” says Hemingway. “I’ve said all along that it’s not the States versus Brazil and Argentina for production, it’s North America versus South America.”

As an example of that same changing dynamic, a USDA report acknowledged that Mexico will import nearly 3.5 million tonnes of U.S. soybeans during the 2018-19 marketing year.

There’s an inherent danger in having a large-scale dedicated customer, and the U.S. economy is starting to learn that lesson with China. On one hand, a dedicated supplier or a buyer provides security and consistency. On the other hand, it also supports complacency. Using BroadGrain as an example, Hemingway states that the company is now positioned to ship commodities from several continents.

“There’s never a time that we cannot source the product that we need for our buyers,” says Hemingway. “We can source it from different areas of the world, so if there’s a disaster this year in one growing area, we feel comfortable that the product can be sourced from another region — so sourcing is diversified.”

Diversity a new constant

As dramatic as the trade war between China and the U.S. has been, there are many who are looking to other regions of the world to broaden their bases and see new opportunities. For years, Martin Vanderloo has made a career out of finding new directions through new ventures, namely shipping premium food-grade and non-GMO soybeans around the world. He’s always understood the nature of satisfying a customer’s needs and preferences, and has created a solid market for his company, Huron Commodities.

Unlike some in the U.S., Vanderloo respects the power and size of China’s economy, plus its ability to modernize, without fearing it. He has seen the effects of its large workforce, and the drive to modernize and industrialize its infrastructure and business sector. He was in China in April 2018, 12 years after his last visit, and was shocked to see the level of upgrades and improvements in so many regions. Although there’s still a considerable amount of hand-planting and harvesting that goes on, the growing economy means workers are better paid than 12 years ago.

It was during that same trip to China that Vanderloo gained fresh insight into the impact of U.S.-China relations. One buyer who professed confidence that the trade dispute would be resolved then told Vanderloo about a pending trip to Brazil the following week. When asked why he was going, the buyer replied that although they believed a resolution would be reached, they had to prepare themselves, “just in case.”

The really good news for Vanderloo is that there are more buyers than just the Chinese who are interested in high quality, food-grade soybeans from Canada. To that end, he launched a new seed company two years ago with near-term designs on filling demands from Ukrainian farmers wanting to grow food-grade and IP soybeans from Canada’s public sector breeders. CanGro-Gen­etics is now doing business with customers in 10 different countries, including Ukraine, some of whom are commanding very large tracts of land. He’s also aligned his companies with the University of Guelph and recently purchased the natto breeding program from Dr. Elroy Cober at Agriculture and Agri-Food Canada (AAFC). The plan is to use sales from the seed purchases to re-invest funds back into ongoing research.

Asked if it’s a concern that the U.S. might one day awaken to the IP/food-grade soybean market potential, Vanderloo believes it’s a good idea to be aware of the possibility, but he believes that Canada has had a head start over the years.

“The U.S. Soybean Export Council (SEC) is now pushing its version of ‘sustainability’ into the marketplace,” he says. “The council sees the tariff issue with China as a game changer and they’re looking at as many market alternatives as possible. But one point on our side is that our industry has been hard at work developing improved non-GMO soybean varieties when all the while the U.S. has not pursued this market. Therefore their sector has not concentrated on research and development of non-GMO soybean varieties.”

Another example of this stability came from a year-end trip Vanderloo made to Ukraine, where one of the producers he works with had been speaking to a soybean buyer in Japan who was interested in buying non-GMO soybeans. After being pressed for a price, the producer told the buyer that Ukraine cannot compete with Canada — that the freight variance and logistical issues make Ukraine unreliable and uncompetitive.

“I was told on that visit that the biggest demand for soybeans from Ukraine comes from western Europe,” relates Vanderloo.

Forging new directions

It’s unlikely that Canada can compete with the U.S., Brazil or Argentina on the crush market, says Vanderloo. Yet the current issues between China and the U.S., regardless of how they ultimately shake out, will provide opportunities for growers, including IP premiums of $3 per bushel or more. Compared to ongoing issues with commodity price volatility as well as complications related to the use of dicamba formulations, that might actually lure some growers back into the IP market.

As for diversification, Vanderloo believes the future for Canadian soybean production lies not with filling ships with GMO soybeans and competing with world leaders, but with increasing plant-based protein consumption in other regions. Much of the focus in the IP marketplace centres on doing business in Asia, including South Korea, Indonesia and Taiwan. But what if North Americans were to increase consumption of soy-based foods?

“Absolutely!” says Vanderloo, adding that as little as a five or 10 per cent bump in soy-food intake would open new markets and opportunities for IP and food-grade soybean growers. “A lot of young people are driving that potential. The food market in general is looking for quality and high protein, particularly in the specialty food market.”

This article was originally published in the February 2019 issue of the Soybean Guide.

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