As sales of U.S. soybeans to China plunge amid trade dispute, exporters need a new strategy to access international markets
Trade tensions between the United States and China are being felt across America’s heartland.
Prices for soybeans have tumbled and stockpiles are growing with the harvest nearly complete because exports to China, the largest foreign destination for U.S. soybeans, have plummeted. The latest federal data, through Oct. 25, shows American soybean sales to China have declined by 97 percent from last year’s harvest.
In response to U.S. tariffs placed on billions of dollars of Chinese goods, China imposed a 25 percent tariff on U.S. soybeans and shifted to buying soybeans from Brazil and other countries. Since tariffs were announced in June, the going rate of U.S. soybeans has fallen from roughly $10.50 a bushel to $8.34, as of Oct. 30, according to Markets Insider.
The timing of the trade dispute couldn’t be worse for American farmers. The USDA has forecasted that U.S. soybean production in 2018 harvest would rise to an all-time high of 4.6 billion bushels, up from 4.4 billion bushels a year earlier. The federal estimate for Illinois, the top-producing state, shows an increase of 12.4 percent to 688 million bushels.
While farmers hope for a new trade deal, there is urgency to find alternative markets for the oilseed. One of the keys to diversifying the U.S. export market lies in a 20-foot-long steel box.
Shipping containers dominate international trade. Yet, they are not widely used in U.S. agricultural exports. The movement of soybeans in 20-foot or 40-foot-long containers has represented 5 to 7 percent of total U.S. soybean exports in recent years. Bulk ocean vessels and rail to markets in Canada and Mexico are the current primary transportation methods.
But to enter new markets, smaller shipments will be needed, and container shipping is the solution. It offers several advantages over bulk vessels, including:
-Soybeans shipped in containers are generally higher in quality because they are handled less, reducing the amount of split and broken soybeans and foreign materials.
-Smaller importers can buy the measured quantities they demand, ordering soybeans only when they need them, as opposed to taking positions for large deliveries on bulk shipping vessels. “Just-in-time” inventory management, popularized by the Japanese and now prevalent throughout manufacturing, cuts costs and reduces waste.
-In the event there are logistical problems, the demurrage for containers is much lower than that of entire vessels, thereby minimizing the overall financial risk.
-Buyers seeking high-value or specialty soybean products can buy direct from smaller exporters. Importers in Japan use containers, for instance, to preserve food-grade soybeans.
-Customers can have their orders fulfilled much quicker. Three to four weeks is the typical turnaround time for the container shipping to Asia, compared with three to four months via the bulk vessel channel.
U.S. soybean exporters have been able to nurture markets in Taiwan and Indonesia by shipping in containers. Indonesia is now one of the largest importers of soybeans. In addition to producing animal feed, Indonesia uses soybeans to make foods such as tofu and tempeh.
Thailand, Vietnam and other countries in Southeast Asia are also using more soybeans as household incomes grow. Income growth leads more meat consumption, which in turn fuels demand for soybean-based animal feed.
Smaller international markets in Asia, Europe and Africa are perfect for container shipping because they haven’t achieved the economies of scale required to use the bulk transportation system.
Shipping by container also will help solve a major problem in the logistics industry. More than 11 million maritime containers arrive at U.S. ports each year. Most of those are coming from Asia, containing televisions, furniture, sneakers and other manufactured goods. But the imbalance of trade between Asia and the U.S. means about half of those are returning empty.
All this empty space on ships is a multi-billion-dollar loss for shipping companies, exporters and importers. Soybeans and other grains can take advantage of backhauling opportunities for ocean carriers repositioning empty containers.
Momentum to ship soybeans by container is growing. Soybeans loaded into containers in Illinois reached a new high of 66 million bushels in the 2017-18 marketing year ended Aug. 30, according to Informa Economics IEG.
But that represents about 10 percent of soybean production in Illinois, so there is a lot of room for growth. Illinois is the nation’s top producer of soybeans, is close to a sizeable supply of available containers and has several major railroads converging in the Chicago area.
The American economy depends on the exporting of soybeans and other crops. Even if China lifts the tariffs on soybeans, the trade standoff has sharply illustrated the need to cultivate new markets. Shipping by container can help lead the way.
Eric Woodie is a trade analyst with the Illinois Soybean Association’s Checkoff Program, and has over a decade of experience in export trade, foreign markets, and inland logistics.