Diversified soybean markets could raise containerization

U.S. soybean exports have fallen in the past year in part because of the drop in exports to China due to tariffs and swine fever. The drop has resulted in a more diversified export marketplace.

U.S. soybean exports have fallen dramatically in the past year largely due to a decline in exports to China, but containerization of soybean exports could rise as the export market broadens.

Total U.S. 2018/2019 accumulated exports ending the week of March 29 were 30 million tons, which was more than one-quarter below the same period last year, according to the April "Oilseed: World Markets and Trade" published by the United States Department of Agriculture's agency Foreign Agricultural Service (FAS). Soybean export commitments - outstanding sales plus accumulated exports - fell by nearly 8 million tons to 43.6 million tons compared to the same period.

Accumulated exports to China, the largest destination for U.S. soybean exports, decreased by more than 21 million tons to 4.9 million tons and export commitments to the country dropped by about 15.8 million tons to 12.9 million tons.

The decline is due in part to the 25 percent retaliatory tariffs China placed on U.S. food and agricultural products in early July 2018, which effectively halted America's exports to China. After suspending payments earlier in the year, China resumed purchases of U.S. soybeans in December, which included a 1.1 million metric ton purchase reported by the USDA on Dec. 13.

The dispute caused China to purchase soybeans from Brazil and Argentina, which are the world's second- and third-leading producers behind the U.S., said Mike Steenhoek, executive director of the Soy Transportation Coalition.

"That's put upward pressure on prices from those countries and it's decreased the price for the U.S.," he said.

The price of U.S. Gulf soybean exports declined from an average of about $400 per ton in the week ending March 29, 2018, to $351 per ton in the week ending March 29, 2019, which is still up from the $300 per ton low in September, according to the FAS. Soybean meal export prices averaged $342 per ton, which was down from the more than $420 per ton from the same period in 2018.

Brazil Paranagua's average soybean export prices eclipsed $420 per ton in October, but have since retreated to $344 per ton. Argentina's Up River export averaged $335 per ton in the week ending March 29 after breaking $400 per ton in October. Brazil's soybean meal price averaged $319 per ton, down from the roughly $400 per ton from the same time last year, and Argentina's averaged $320 per ton, which is down from the nearly $420 per ton during the same period last year.

"The narrowing price spread between the United States and South America is a direct response to the resumption in sales of U.S. soybeans to China," the FAS report states. "Other factors influencing the price spreads include postharvest lows in South America and disruptions to inland shipping due to river flooding in the United States that have added to costs."

Steenhoek said, "Obviously, this trade standoff with China has had a real impact. What's kind of adding insult to injury ... it's getting to almost pandemic kind of proportions this African swine fever that's really infected the swine herd in China, and they've had to cull a lot of their pigs. There's been a decrease in demand because of the tariff, but also because they've had to cull a pretty sizable number of their herd and we still haven't heard precise numbers about how extensive it is."

Millions of hogs in China have had to be culled from the herd since the outbreak of the African swine fever in August. The country's pig count on March 31 was down nearly 40 million pigs from the previous year to 375.3 million, which was its lowest number in more than two decades, according to The Wall Street Journal.

"There's a depressed need, somewhat lower demand, for animal feed and consequently for soy," said Scott Sigman, transport and infrastructure export lead of the Illinois Soybean Association. "While the U.S. is still interested to supply as much as we can, the demand side - the number of pigs that need to be fed right now - is down."

"That will require substantial feed for the growth of the herd. Short term we're seeing a decrease in demand, but medium term, the two to three years the herd would take to come back, we see significant uptick," he said.

Trade talks between the U.S. and China are entering "the final laps," Treasury Secretary Steven Mnuchin said, according to The New York Times, as the American delegation travels to Beijing this week. What is included in the agreement will determine how long - and if - the U.S. soybean industry will recover from the recent loss in exports, Steenhoek said.

Exports to China would recover more quickly if an arrangement is made in the agreement for China to obligate itself to purchasing a certain volume irrespective to price and demand, he said, but recouping the lost sales could take "a while" if the agreement allows the market to readjust itself.

"That's always been one of the big concerns that this standoff is really encouraging the Chinese to make some systemic changes to how they source their protein meats for their livestock industry. Once you provide that encouragement, you shouldn't be surprised if it takes a long, long time to get it back if you ever get it back," Steenhoek said. "A lot of China experts that I visit with the real worry is that it will never fully recover because of so many of these reasons."

The decline in exports to China has cultivated other export markets for U.S. soybeans, however.

In January, exports to the European Union rose 65.25 percent (931,362 metric tons) and was second behind China's 1.4 million metric tons, which was a 57.42 percent year-over-year drop, according to data from the USDA's Economic Research Service. Exports to Mexico climbed 20.16 percent (280,156 metric tons), Indonesia grew 32.45 percent (309,073), Egypt increased 61.3 percent (280,322), Taiwan increased 76.25 percent (255,084), Japan .02 percent (194,058) and Pakistan by 92.67 percent (133,729).

Overall, though, exports fell by 16.22 percent to 4.83 million metric tons in January. Exports to Thailand, America's ninth-largest destination, also declined 50.12 percent to 144,007 metric tons.

The diversified marketplace could lead to more opportunities for containerized soybean exports, Sigman and Steenhoek said. Ports in other countries may not have the need or capacity for the bulk shipments exported to China, and containerized cargo could be easier for them to handle, they said.

"Part of that diversification of markets will rely on containerization and the need for more unitized shipments. Not too many places around the world can accept, evacuate the 40,000 tons or 60,000 tons in a bulk ship," Sigman said. "Containers allow a customer to manage their business a little more effectively not only with inventory flow, metering out the shipments in 24 or 26 or 27 ton lots depending on whether it's a 20 or a 40 and how heavy the soybean loading is done."

Containerized soybean exports could have other benefits as well. The soybeans would be containerized closer to the farm, which would cut down on the amount of unloading, elevations and loadings and, in turn, decrease the risk of contamination, foreign materials and damage, Steenhoek said.

"What you're essentially doing is you're removing some steps in the supply chain between the farmer growing the soybeans and the ultimate customer, and every time you do that and you have the fewer middlemen, which containerized shipping provides that opportunity, farmers will receive a higher value of the product that they grow," Steenhoek said. "Hopefully that helps you increase volumes of exports, but it also provides more of a profit opportunity for farmers."

Soybean farmers could have more options and flexibility to access global markets in the next few years. American Patriot Container Terminals (APCT) has plans to transport containerized cargo on America's inland waterways much quicker than barges.

APCT, a fully owned subsidiary of American Patriot Holdings (APH), plans to build two vessel types - a liner vessel with a 2,375-TEU capacity for the Mississippi River and a hybrid vessel (pictured) with a 1,700-TEU capacity for the Mississippi River's tributary rivers - to transport the cargo.

Sal Litrico, APCT CEO, said the company hopes to have memorandums of understanding signed with various BCOs by the middle of the second quarter. He said the first vessel will take 24 months to build following the contract signing, with subsequent vessels taking three to four months. The company will start with four to six of each ship type, he said.

APCT entered into an "exclusivity agreement" in March with Louisiana's Plaquemines Port Harbor & Terminal District (PPHTD) for a logistics system in which the vessels will dock at a future container port at PPHTD. The new container port, which will be located between miles 50 and 55 on the Mississippi River, will transport imported containers to the ACPT ships, while export containers will be delivered from upriver ports for ocean carriers.

The first phase, which will have one dock for APH and one for ocean-going vessels, is expected to take three years once construction begins. Further expansion would increase the dockage to three for ocean-going vessels and to two for APH, said PPHTD Executive Director Sandy Sanders.

"Our concept of operation is to fully vertically integrate the entire Mississippi River basin utilizing a spoke-and-wheel concept with the inland ports concept," said Sanders. "There's a number of ports in the network, but utilizing the Mississippi River and the American Patriot Holdings vessel as the DNA that runs through all of us."

ACPT also has memorandums of understanding with either other ports, including St. Louis, Memphis, Tenn., Kansas City and Jefferson City, Mo., Joliet, Ill., and Little Rock, Ark.

ACPT's ships will be able to travel at 13 miles per hour, well above the regular barge speed of 4 to 5 miles per hour. Its 2,400-TEU design will allow for six-day round trips between Plaquemines and Memphis and 10-day round trips between Plaquemines and St. Louis.

A report produced last year by Informa's Agribusiness Consulting for the Soy Transportation Coalition and Illinois Soybean Association found the APH plan would allow for much faster transit time between Memphis and China compared to bulk barge and an intermodal system via rail to containerships through the Port of Los Angeles. Bulk barges remained the cheapest route, however, but APH's plan still was significantly cheaper than the intermodal alternative, according to the study.

"I never see containers rivaling the bulk channel because bulk is just too efficient, too economical," Steenhoek said. "I do think that the slice of the pie chart for containers can and will continue to grow."

The amount of farmers utilizing the APH ships and the Port of Plaquemine will be determined by which ocean carriers call the port, Sigman said. Sanders said last week the port was entering "final negotiations" with a "major global carrier" on Sunday.

Sigman estimated the top 12 or 13 U.S. states could produce about 4 million TEUs of soybeans and corn. Soy would serve as a "meaningful base cargo" on the outbound APH vessels, he said, which could help evacuate empty containers out of the Midwest.

Overall, containerizing soybeans could be a strong backhaul export as demand grows, Sigman said.

"We really have seen an increase in containers over the years and we see that as an ongoing trend," Sigman said. "With the empty equipment and strong import market that the U.S. has operated in for decades, we believe that as a backhaul soybeans will continue to have a role meeting the need to not only evacuate soy from where we are but to find the markets where ... the carriers have target markets that they want to supply boxes."

Source: American Shipper