Agricultural trade agreements were first established in the General Agreement on Tariffs and Trade (GATT), legal treaty signed initially by 23 nations in 1947. The purpose was to promote international trade by reducing barriers such as tariffs. It remained in effect until 1994 where 123 nations signed the Uruguay Round Agreement, which led to the establishment of the World Trade Organization (WTO) in 1995. The WTO, successfully reduced tariffs from an average of 22% in 1947 to 5%. The purpose was to reduce tariffs and other trade barriers and establish them on a reciprocal and mutually advantageous basis.
The introduction above is necessary to understand the dynamics and what is at stake for the soybean market. Record soybean prices verified for 2013/14 were the result of low worldwide production at 282,749 thousand MT. During the last five years, soybean production increased in the U.S., from 91 thousand MT in 2013/14 to 119.5 thousand MT in 2017 or almost 24% (USDA: Soybeans World Supply and Distribution). This increase was of almost 20% worldwide between 2013/14 and 2016/17. During the last two seasons soybean production has pretty much stabilized at around 347-351 thousand MT and so have prices, aside from short-time minor oscillations. The regulation of the soybean market has been pretty much that of “supply and demand”, determined mainly by acreage planted to soybeans, weather in the leading producing regions of the world, and demand from importing countries, mainly China.
Thousand Metric Tons (USDA 2018)
The Global Market
Before 2016, soybeans exported from Argentina had a 30% tariff while corn and wheat were exempt. As a result, the acreage planted to the last two crops increased progressively in detriment of the oilseed. Since soybeans are the main Argentinian cash crop, the first order of business of the new government that started in December 2015, was to reduce soybean tariffs by 5 percentage points. Starting January 2018 until December 2019, it will further deduct 0.5 percentage points per month. By December 2019 tariffs on soybeans and their products will have dropped to 18% and 15%, respectively.
This commercial strategy has the goal to increase soybean competitiveness in the world market, protect soybean farmer’s profitability, and stop the soybean acreage retraction.
Argentina is the world leader in soybean oil and soybean meal exports. The top four soybean-producing countries in the world are the U.S., Brazil, Argentina, and China, in that order. The number one importer of soybeans is by far China (95 Million Metric Tons), followed by the European Union (14.5 MMT), Mexico 4.3 MMT), and Japan (3.3 MMT). Favorable tariff changes, that will make Argentina more competitive will result in soybean acreages expansion, which will likely affect world price markets. Furthermore, production of soybeans in the US is not slowing down, not only in acreage but also in yields. According to the NASS stocks for soybeans have been increasing since 2014, a trend that continued in 2017. In a US market largely driven by supply and demand, prices remained moderately low (graph above). This situation has impacted farm profitability which was down for the fourth consecutive year.
South Dakota Production
Between 2014 and 2016 South Dakota was 8th in the U.S. in soybean production losing this spot to North Dakota in 2017 after a 14% reduction in total bushels produced. In spite of this, South Dakota soybean farmers continue to set records in production above the U.S. average of 44 bushels per acre. Results of the 2017 South Dakota Soybean Yield Contest reflect these changes. Kory Standy a soybean grower from South Central SD had the top yield with nearly 92 bushels per acre with underground drip irrigation. According to Mr. Standy he did not reach 100 bushels because he had 8 to 10 percent hail damage. Soybean farmers from other parts of the state like Doug Hanson (Elk Point, S.D.) had yields in the high 50s to low 60’s and Kevin Scott (Valley Springs) had 60-65 and up to 72 bushels in a couple of his farms. In summary, the state’s soybean farmers apply best management practices second to none, what is needed are better, stable soybean market prices.