Low prices, a desire to improve diets worldwide and an abundant supply of soybeans and corn have changed U.S. marketing efforts from building demand to meeting specific customer needs.
“Demand is not the issue,” says Jerry Slocum, International Marketing Chair, United Soybean Board, “We've seen a dramatic jump in global soy consumption, a 60 percent increase in the last decade.”
Corn utilization may not have experienced such a dramatic growth rate but is beginning an upturn. “Carryout stocks worldwide are beginning to come down,” says Kenneth Hobbie, president and CEO, U.S. Grains Council.
Hobbie and Slocum discussed utilization and export outlook for soybeans and corn during the Commodity Classic, the convention and trade show in San Antonio sponsored by the American Soybean Association and the National Corn Growers Association.
As worldwide demand for soy products and grains builds or recovers, U.S. producers continue to face low prices and market uncertainties as competitors vie for markets that once relied almost solely on U.S. exports.
Slocum, a Coldwater, Miss., farmer, says most observers thought short-term low prices that followed the last farm bill would force many competitors to cut back on production and opt out of the export market.
“That has not happened,” he said. “In fact, South America is beating us at a game we invented.”
Instead of bowing to the United States as the low-cost producer, Brazil and Argentina have capitalized on some natural and manipulated advantages.
“It's no secret that South America pays less for seed, labor and other crop inputs,” Slocum says. “But their main advantage is low land values. That gives them a significant edge.”
He also explained that Brazil devalued its currency, the real, making it considerably cheaper than the U.S. dollar. Devaluation resulted in a significant advantage to Brazilian soybean producers. Instead of a 6.50 real per bushel price for soybeans, the devalued currency brings them better than 9 reals. U.S. soybeans, meanwhile, bring only $4.50 per bushel.
Slocum says during a 20-year period when U.S. producers were cutting acreage, Brazil and Argentina were expanding.
“We still produce a lot of soybeans in this country,” he says, “but the gap (between U.S. production and South America) is narrowing significantly.”
He says that since 1980, South America has added some 30 million acres of soybeans while the United States increased about 4 million or 5 million. More recently, South America added 190 million bushels of production and kept carryout at the same level.
“They will consume or export all their added production,” Slocum says.
Also, Brazil's capacity to expand acreage, “with the right price incentive, is enormous. And Argentina has a very small domestic demand for soybeans. They export 95 percent of the soybeans they produce.”
Competing with countries that provide the lowest-priced soybeans in recent history in a market that is “extremely price sensitive,” demands new strategies, Slocum says.
“That's whey we're not trying to build demand. Instead, we're focusing efforts on providing a high-value product to our most sophisticated customers. We want to use the superiority of U.S.-produced soybeans and a sophisticated infrastructure that allows us to isolate quality factors (such as better nutrition and non-GM products) and target specific customer needs.”
Slocum says marketing efforts identify the most sophisticated users and provide them products that offer advantages to buyer and seller
“U.S. soybeans have an advantage with protein,” he says. “U.S. soybean meal is more digestible, so livestock perform better. With amino acids, we also have a clear advantage.”
Corn growers are pursuing a similar strategy. “We have to be aware of what the competition is doing, even as we continue to dominate the export market with a 71 percent share,” Hobbie says.
Sales strategy will include matching customer wants and needs with high-quality grain, says Lisle Cook, chairman, U.S. Grains Council. “We have to identify what drives our customers and what's important to them.”
Hobbie says Value Enhanced Grain (better nutrition or high oil) offers potential “to increase value to producers and to differentiate U.S. corn in the marketplace. We're hearing a lot of interest in Value Enhanced Grain products from international customers,” he says.
He also says a corn-based product, polylactic acid fiber, a biodegradable fabric, may find a ready market in Japan and other waste disposal-conscious countries.
Hobbie says market strategists in the next few years should watch China. “Part of China's WTO commitment calls for them to import 4.5 million metric tons of corn and build to 7.2 million metric tons within five years.
“Also, India soon will pass China in population and with a thriving middle class will demand improved diets.”
He says the Middle East and North Africa also offer potential for increased corn imports. “That area has doubled corn imports over the last decade and 72 percent has been from the United States.”
Another trade issue that could affect U.S. corn and soybean markets will be trade sanctions. “We have to remove these barriers and push the U.S. advantages,” Lisle says.
Slocum says a new administration may be amenable to removing some sanctions.