The Competition for Dry Bean Acres
March 28, 2008
The demand for bio fuels has greatly influenced corn production in todays commodity market. U.S. corn growers responded with an additional 14.77 million acres harvested last year. In fact, says John Thompson, dry bean sales manager with Thompsons Ltd. in Blenheim, Ontario, corn production is the highest since 1944 when much was harvested as silage. So as a bean industry, we wonder how we can compete for acres in this environment.
Dry bean acres are being squeezed by the big three corn, soybeans, and wheat. We are just fighting to protect our acreage base, says Thompson. Everybody in the food business is affected, and as consumers, our food prices are going to increase as well. Commodity prices are at all-time highs, and adding to the equation is that U.S. exports are benefiting with the weaker U.S. dollar.
During his presentation at Bean Day in January, Thompson projected that 2008 dry bean acres would continue to drop an average of 14 percent over last year for all bean types (table 1). But, he stressed that these numbers are strictly estimates based on what we are seeing at this particular point in time.
Factors Affecting Dry Bean Values
Competition with other crops is a given, says Thompson. But will the forecasted reduced dry bean plantings happen? Will plantings remain the same? Or will acres increase resulting from spec planting? These are all questions that currently remain unanswered.
Currency value has the U.S. in an export-ready position, says Thompson. From three years ago, the U.S. has a 60 percent greater export opportunity than Canada because of the weaker U.S. dollar. He says the P.L. 480 (food aid) program is another factor to consider. With world disasters, the U.S. has a history of helping countries in need that will all be demand that is unanticipated and will possibly compete with traditional commercial markets. But weather could be the greatest bullish factor to influence dry bean markets; decreased acres and decreased yields could provide opportunity.
Another bullish factor would include the current U.S. policy on bio fuels.
Bearish factors include the current hedge fund situation. Currently 75 percent of CBOT trading is by hedge funds. Funds are jumping out of equities and getting into commodity markets, this additional buying could be considered artificial demand, creating greater volatility to already high markets, says Thompson.
The U.S. bio fuels policy can also be considered bearish. Is the current policy sustainable? asks Thompson. You read a lot of pros and cons, but at the rate that commodity values are being pushed, can the world afford to pay more for the prices of food that the market is demanding, and will it push other countries into recession? Also, sugar cane is six times more efficient to make ethanol than corn. Is it possible that ethanol processors will switch to an alternate method?
If we lose winter wheat acres due to winterkill, those acres could potentially go into dry beans this spring, says Thompson. Also, if bean spec acre plantings greatly increase acres it could result in softening values. Lastly, on the bearish side, if higher values and lack of supply force traditional end-users to go to other countries for their supply, it could be difficult to get this loss in market share back into North America.
Opportunity, Opportunity, Opportunity
In summary, Thompson believes there is a lot of opportunity for dry bean growers. If my neighbor is not planting dry beans, I would be planting them, says Thompson. If these acres dont go in, and we have any regional weather situations, we could be setting ourselves up for a perfect storm and there could be a lot of opportunity.
He says traditional dry bean demand is consistent. Dry beans have always been competitive with other commodities in the past, and I see no reason why they wont be competitive in the future.
To summarize, diversify your programs. Dont spec it all. Given these are historic high values, take some hedge by forward contracting do something to take advantage of the opportunity says Thompson. Lock in a profit and dont look back. Remember, that generally, the greedy sell in the bottom of the market. Higher prices bring lower prices thats guaranteed. We just dont know when its going to happen.