Soybean Future Packed in Protein

July 23, 2016 02:55 AM
 
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How will U.S. farmers fare as the market for soybeans changes?

Patience isn’t necessarily a virtue of farming. Today’s market champion can be tomorrow’s goat. Yet, agriculture isn’t a beast of whim. The warning beacons of change might flash faint, yet remain visible to wary growers. In the case of U.S. soybeans, two producers are ringing alarm bells and warning the industry not to kick the protein can down the road.

Dan Corcoran and Jared Hagert say diminishing protein levels are a major cause of concern across the U.S. soybean spectrum. Soybean meal is the Cadillac protein source for an insatiable global livestock market. As U.S. soybean protein levels slide (see chart below), competing products become more viable: dried distillers grains (DDGS), canola meal and synthetic amino acids. If U.S. soybeans vacate the top protein perch, the empty spot will be filled by competitors. Market rules: No hole remains hollow.

Regardless, U.S. producers would remain strong contenders and still expect to sell their entire supply of soybean meal down to the last shake of the bin—but at a lower price. The big fear, Corcoran and Hagert say, is the dulling of the U.S. soybean blade and the loss of premium status.

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    The amount of protein in U.S. soybeans has been on the decline for at     least 25 years, giving competitors such as DDGS and canola meal an   opening.

Since 2004, protein per acre has gone up with yield, but the quality of protein per pound has dropped, says Corcoran, who grows corn and soybeans in Piketon, Ohio, and serves on the United Soybean Board (USB). During the past decade, strong selection pressure has pushed yield, but protein hasn’t been promoted. In tandem, soybean acreage has spread to the upper Midwest, but the climate is not ideal for producing high protein soybeans. 

“The trend of lower protein isn’t confined to the upper Midwest with its colder growing temperatures. We need to address the problem now; we can’t afford to wait 10 years,” Corcoran says.

Seed companies place variety priority on yield, disease resistance, herbicide tolerance and other factors before protein. Producers live and die by yield. They send signals to seed companies and call for more bushels. It’s a logical, effective and incessant march toward ever greater yield. 

But downstream, the current is changing, Hagert says. “Soybean processors get their soybean benefits not only from raw volume but also from quality of protein in meal and oil. Over time, we’ve focused on bushels at the expense of protein and oil. The result? We’re slipping by solely concentrating on yield,” he adds.

Chris Schroeder, consultant for the soybean checkoff, says concerns over constituent pricing shouldn’t worry producers. “We can’t give up yield. However, if a farmer is in a lower-protein soybean area, processors already know that. They’re bidding up soybeans in areas with higher quality. A farmer may be getting discounted and never realize it. Why? It doesn’t show up on the ticket.”

Paid in bushels and discounted in basis? Schroeder pushes for greater transparency as a means toward a slow turnaround as well as higher quality soybeans. “Constituent pricing puts farmers in the driver’s seat. Right now, farmers are getting docked anyway,” he says. “If we can adopt a system that aligns the market signals to what downstream users prefer, farmers will be motivated to demand greater protein, and seed companies will respond.”

Corcoran and Hagert are calling for increased transparency and awareness beyond the bushel. Processors gobble up volume but also want the crude protein and oil. “If a farmer recognizes his quality is inferior to what a buyer wants, he’ll begin asking questions to avoid a discount in basis,” says Hagert, current USB chair who grows corn, dry edible beans, soybeans and wheat in northern North Dakota. 

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Will producers call for greater protein genetics from seed companies? Not at the expense of sacred yield. Schroeder believes a better U.S. soybean future requires a sidecar of protein and payment by components. If protein pulled strongly enough at dollar values, could it eventually reach a fever pitch?

New varieties typically take seven to 10 years to develop. A concerted effort to build a better bean and turn the production ship in a new direction must catch wind at the farmer level, Corcoran explains. “Now is the time to worry. We need to select for increased protein and oil, and not sacrifice yield. Tall order, but we can improve the whole soybean. We can produce more dollars per acre and not just bushels per acre.”

A key hurdle is effective measurement in the value chain. If protein levels were boosted, would technology keep pace? When a producer dumps a soybean load on the scales, he walks away with a check based on volume. Technology at most delivery points is lacking to quickly measure protein, oil, amino acids and fatty acids. The technology motivates producers to do exactly as they’re supposed to based on those market signals: produce bushels. “The measuring equipment isn’t where we’d like concerning accuracy and speed,” Schroeder admits. “But it’s coming along.”

Another roadblock is the drag of incremental increases in value. A dime boost isn’t a cause for celebration, but Schroeder says the small bonuses can mount: “There’s no huge value carrot to change behavior, but over time, the financial scale will build and increase.”

Hagert is keeping an ear to the ground, concerned about future market positioning for 570,000 U.S. soybean producers. With almost 98% of soybean production funneled toward meal, he insists farmers stay on the offensive. “Yield is our table stakes, but that doesn’t mean we should ignore protein. I want U.S. producers to remain as the top providers of high quality meal and not let other countries slip in.”

How will the U.S. soybean industry fare in a global market against other volume sellers? Corcoran and Hagert say the questions are partially answered by protein and quality. They don’t predict hardship, but rather missed opportunity, if protein issues aren’t addressed. 

“We need the total soybean industry on one page: farmers, processors, seed companies, dealers, feed managers and nutritionists,” Corcoran says. “How do we help the end user to boost ourselves in the marketplace?”

“I liken the situation to knowing a heart attack is coming and doing nothing in prevention,” Hagert adds. “It’s time for all of us to act. The farmer in the field needs to ask questions and send words of concern up the chain. This is a long fix and if it was easy, it’d already be done.” 

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