New world frontiers

Demand for U.S. soy around the world is climbing – and so is your profit potential

Every U.S. farmer’s investment to maintain and increase the profit potential of growing soybeans occurs well beyond the local elevator or soybean processor. U.S. soy exports have grown steadily for the past 10 years.

This growth, forecast by exporters and importers of U.S. soy to continue, can be attributed to efforts to build international sales of U.S. soy funded by the soybean checkoff. As part of these U.S. farmer-funded activities, the checkoff works to cultivate new markets or growth in existing ones.

Can this seemingly insatiable need for soy outside of the United States continue? The U.S. Soybean Export Council (USSEC), which executes checkoff-funded activities to increase sales of U.S. soy abroad, believes the need for U.S. soy by users in eight countries could significantly increase over the next five to 10 years: China, Egypt, Indonesia, Mexico, Philippines, Russia, Syria and Vietnam.

Here’s why: The people and users of soy in these countries have several characteristics in common, but the primary reason for this growth can be traced to one factor: growing incomes among their citizens. An increase in an individual’s disposable income often means that person can afford to consume more vegetable oils and protein, such as poultry, meat and fish.

This shift in food demand means animal producers in these countries will need more animal feed and food processors more vegetable oil, both of which can be provided by U.S. soy. For example, in Southeast Asia (which includes Indonesia, the Philippines and Vietnam), the U.N. Food and Agriculture Organization (FAO) projects annual per capita meat consumption to increase to 11 pounds by 2030. That’s double the amount of meat the average citizen in those countries consumed a decade ago.

LaFilipina Uygongco Corporation serves as one of the largest traders of animal feed ingredients in the Philippines and uses 100 percent U.S. soybean meal. This company has been importing U.S. soy since 1985. According to Gerald Uygongco, trading manager at LaFilipina, the company crushes the majority of its U.S. soybeans for feed. U.S. soy, Uygongco explains, helps his company differentiate its products as premium products.

“As long as our competitors do not disturb market equilibrium by drastically lowering the perceived value of U.S. soy, the volume we import should increase,” says Uygongco, who credits USSEC with helping their company to import more U.S. soy. Soybean oil continues to be the preferred vegetable oil for human consumption in the Middle East, including countries such as Egypt and Syria. The planned addition of more crushing plants in this region will make soybean oil more readily available to consumers.

Syria’s growing demand for U.S. soy has already led to construction of several new processing facilities, the largest built by a company known as Fadel. When Fadel’s new crushing plant goes online (tentatively in June 2011), exports of U.S. soybeans to Syria could increase by an estimated 25 percent.

In Vietnam, USSEC worked with the U.S. Grains Council to organize the seventh annual Southeast Asia/U.S. Agricultural Cooperators Conference last fall. “More than 170 buyers and sellers attended this invitation-only event,” explains Jim Call, USB International Marketing chair and soybean farmer from Madison, Minn. “Over 300 million dollars of soybean, corn and wheat business was done during this event. This is the kind of event that really adds value to the U.S. soybean farmer.”

The purpose of this conference is to educate buyers about the quality of U.S. soy. “Vietnam’s demand is certainly growing,” adds Call. “It’s vital that we work with Vietnam and build close industry relations to promote the value and quality of U.S. soybeans.”

In addition to this new demand by buyers of U.S. soy, the growing need for protein will likely increase U.S. soy demand even more by soy users in China and Mexico, the U.S. soybean industry’s top two markets. Soy users in Mexico imported 120 million bushels of U.S. soybeans in 2010, mostly for animal feed. USSEC estimates that this demand can grow by 3 to 5 percent in coming years.

The United States exported 825 million bushels of U.S. soy to China in 2010. With continued expansion of China’s soybean crushing capacity, demand by end users in this country will remain vital to the U.S. soy industry in the future.

It’s because of this potential that customers of U.S. soy in these two countries keep them on the list of major emerging markets. “The majority of growth will continue to be in the Asia-Pacific region,” explains Brian Schouvieller, vice president of international business at CHS Grain Marketing a St. Paul-based cooperative that exports U.S. soy.

“We do strong business in China, and that’s where the majority of growth is.” Some U.S. exporters note the increase in U.S. soy exports over the past five years, although not necessarily to more countries, according to Pam Schubbe, soy flour sales and product manager, CHS Oilseed Processing. Schubbe explains that use of U.S. soybeans improved through biotechnology causes market-access issues in some regions, such as the European Union.

Other issues also affect getting U.S. soy to customers in some regions. “Price is an issue for some destinations,” adds Schubbe. “Ocean freight costs are also a huge piece of exporting. Some destinations are very hard to get to with cheap freight.” Schouvieller agrees, adding that the ocean freight rates to ship soy to Asia from U.S. ports on the Pacific Ocean currently prove to be less costly than the rates from those on the Gulf of Mexico.

Despite these challenges, the outlook for U.S. soy sales abroad remains positive. “We continue to produce more, and access to these markets has been very good,” says Schouvieller about the continued growth of U.S. soy exports.

The soybean checkoff – and the rest of the U.S. soy industry – is always looking for more opportunities to build demand for U.S. soy and continues to seek new markets. Other potential markets for U.S. soy, according to Schubbe and Schouvieller, include Lebanon, Thailand and India, the world’s second-most-populous country.

“In five-plus years, India could be big,” adds Schouvieller. “There are very modest growth projections now.”

Soy users in these countries are similar to those users in countries currently considered emerging markets – rising population, increasing incomes and a growing need for protein. What happens beyond the elevator plays a large role in determining U.S. soybean farmer profitability. The FAO’s prediction that the global population will reach 8.3 billion by 2030 means no shortage of opportunities for U.S. soy. U.S. soybean farmers will continue to be challenged by customers who demand high-quality soybeans, soybean meal and soybean oil to help feed this growing population.