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Market Outlook for Navy, Black Turtle and Pinto Beans
March 15, 2002

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By John Bartsch
Agricore

Editor’s note: A “review and preview” of navy, black and pinto bean markets was the subject of John Bartsch’s presentation at the 27th annual Northarvest Bean Growers Association’s Bean Day. Bartsch is a trader with Agricore. He is based in Maple Grove, MN. Here is the text of his speech, along with key slides that accompanied his speech.

Thank you for inviting me to speak here about the bean outlook.  It’s nice to talk about beans when there is better supply and demand balance. And it is much more interesting when stocks of navy, black and pinto will all be near zero by harvest 2002. 

I was initially asked to speak about navy and black – that was relatively easy. They share common supply factors, such as where they are produced, and all being dry land production.  However, earlier this week I was asked to speak about pinto too, due to Paul Montgomery being called away.

Now I struggled with how to organize this: Navy and black share similar production characteristics. Pintos, however, have 60% of production irrigated, and virtually no Michigan or Ontario component. Black and pinto share a similar demand structure — Mexico and Latin America. 

So, first I will talk about navy – the “state of the bean” address, covering supply, demand and outlook. Then, I will move on to the black bean situation – consumption and supplies, followed by the same factors for pinto beans.  Finally, I will talk about the demand side of the equation for black and pintos together, as they share many markets.

Navy beans

Navy beans have what is called a “Mature Market.”  This is defined by a few characteristics: Slow or no consumptive growth. Specifically, the UK/Europe consume 100-110,000 MT or about 90% of North America’s exports.  U.S. and Canadian domestic use consumes 140,000 MT or about 50% of North America’s disappearance. The remainder of our disappearance is scattered through exports to Algeria, North Africa (sometimes) and South Africa.  South Africa is a “price” buyer, buying only when local production shortfalls create import needs. Other years, they have been an exporter.

Consolidation: market share gains come by taking a piece of someone else’s pie. Canners buy canners, dealers buy dealers, and growers buy growers. These characteristics manifest themselves in various ways. The first one is low volatility and liquidity. Wait a second, lower volatility?  We had grower prices at $25 back in summer of ’99, then down to $10, and now back up to $25, all in less than 3 years.  However, the only real difference between the price excitement now and another “ho-hum” year was a Michigan drought.

Multi-year supply agreements are now the norm, which reduce year-to-year and seasonal volatility. In recent years, as much as 70% of the ND/MN/Manitoba crops have been tied up on multi-year contracts.  Would you as a grower lock in a fair price that over time and with normal yields provides adequate returns?  So would dealers and end-users. Reduce risk and focus on being more efficient.  The downside is when disaster strikes, and it will again, where will the navy beans come from if there are no “free acres?”

There are fewer dealers, traders, and end users. There has been an exodus of navy dealers. Who can a buyer call if they need more navies than they’ve contracted?  The result is when short crops squeeze supplies, there are few players to react to this, and the resulting spike in values are not as high as they would have been a few years ago.

However, as more power comes to end-users and dealers, the buyer requirements get handed down. It all runs down hill, and the next “requirement” becomes mandatory, all expected at the contract price if you want to be in the program.

The only real growth in a mature market comes from introduction of new factors that change the dynamic of the industry.  For navy beans, that has been the rise of production in Manitoba.  UK buyers have embraced Manitoba supplies due to its relative value. Cheaper land, weaker currency and a willingness of Manitoba growers to meet the buyer’s requirements at contract price. For many years since Ontario acreage has been on a down trend, the Ontario dealers have looked to Manitoba for supply. Take a look (chart 1) at bean acreage growth in MB: A steady march upwards.  Now looking at Canadian supply (chart 2), you can see the shift from Ontario production to Manitoba. Looking at the U.S. supply (chart 3), you can see that Minn-Dak production has been pretty steady, related to multi-year contracts. Without that, 2001 would have seen a much bigger decrease. Michigan has been pretty much trending down, and dropped nearly off the chart due to the drought this year.  North America combined (chart 4); you can see how growers reacted to the over-production cycle of 1999/2000.

The next graph is supply and demand (chart 5). I’ll give a quick tour of this graph, as you’ll see this again for black and pinto beans. The back row in blue is total supply, which is the carryout of the previous year’s crop added to the current year’s production. Green is the production; yellow is the demand-disappearance during the crop year; and the red in front is the carryout, or stocks-use ratio. Notice the nearly zero carryout from 1998 crop and again now projected for the 2001 crop.

The anticipated acres planted in 2002 (chart 6) is a compilation of interviews of dealers in Michigan, Manitoba, and North Dakota/Minnesota and various trade estimates presented at bean conventions so far this winter.  The ranges you can see here on this table. Michigan and Ontario growers will respond favorably to the higher prices and strong efforts by dealers to contract acres. This represents about a 50% increase.  Manitoba will be back on track after a breather in 2001; acres are expected to be up 45%. Minnesota/Dakota appears to be up 35% from last year.

So with these acreage increases, should come major production increases if the weather cooperates. Here you can see graphically what production in Canada (chart 7) and U.S. (chart 8) will look like basis normal yields (chart 9). Supply and demand changes, but what impact with this really have on price? 

We should begin the 2002 crop year with nearly zero carried out (chart 10); production will increase nearly 50%, but with normal disappearance, the carryout by next August 2003 is not really in the burdensome category. I spoke here in 1999 and talked about stocks-use ratios and what they really mean to prices. A stock-use ratio of 10% or less is too close for buyer’s comfort, and prices are typically at the high end of their historic range; 10-20% is considered equilibrium, and prices should be near their mid-point of the historic price range. Finally, over 20% and especially 30% and higher is considered burdensome, and prices will usually be near their long-term lows of $10-12/cwt.

The projected carryout basis these assumptions for 2002 point to about 12-15% stocks-use ratio.  In other words, equilibrium. This is not to say we wouldn’t expect price pressure; but seasonal, harvest-time selling would easily pressure prices to lower values like $12-14, but there should be price recovery potential as supplies are used and demand resurfaces later in the crop year. Price outlook for competing crops in the spring of 2003, demand outlook and other factors will start to influence values at that point.

In summary for navy beans, the factors to watch for price direction will be, in chronological order:

  • USDA’s March 30 planting intentions for U.S.
  • Stats Canada late April planting intentions for Canada.
  • Spring weather – specifically any signs of drought in Michigan?
  • USDA and Stats Canada actual planted acreage (this won’t be specific for variety information).
  • Summer weather in Red River Valley and Michigan/Ontario.

Black Beans

Black beans have been a bright spot for most of the last decade. Per capita consumption in the U.S., combined with strong demand from Latin America (Mexico especially), have allowed black beans to recover quickly after any price pressure. The U.S. consumption increases are due to rising Hispanic population and the popularity of Mexican, Cuban and other Latin cuisines.

Consumption has grown from a few hundred thousand (100#) bags ten years ago to well over one million today.  Exports go to a steady customer base, which has been as high as one million cwt or 50,000 MT per year. This export growth has been due to a successful effort to differentiate U.S. black beans from Mexican-grown black beans.

At the onset of NAFTA, a couple of Michigan dealers started putting their black beans in a “Green Bag.” As this gained acceptance, more Michigan dealers used green bags. Soon all Michigan shipments were in green bag, and North Dakota shippers started doing this.  Now virtually all North American shipments go in a green bag.

Further differentiation has been the perception that Michigan beans are quicker cooking. As Michigan typically ships higher moisture beans, 15-16%, these generally cook more quickly than Mexican-grown beans stored at 9% moisture.  The result is that certain Michigan brands capture 25% premiums in the Mexican markets over other North Dakota or Manitoba beans, and are the bean of choice when importers must choose between origins or classes of beans.

Taking a look at production of blacks, you can see that for Canada (chart 11), this production has moved from Ontario to Manitoba. For the U.S. (chart 12), you can see that Michigan is still king, due to their reputation and success.  However, 2001 drought changed that for a year anyway. (chart 13)

From the supply and demand graph (chart 14) you can see the all-time high production in 1999, and corresponding all-time high supply. It has taken since then to recover, helped greatly by the drought-reduced Michigan crop.

Projected acres for 2002 are up (chart 15). Michigan is up 20%. Dakota/Minnesota and Manitoba are up as much as 50%, really dependent upon seed availability. Most of the preferred varieties have been sold out since harvest. The low prices the past two crop years have had an impact on seed production also.

With normal yields again, the production from these projected acres will rival 1999’s crop size (chart 16, chart 17 and chart 18). With no carryout, the supply will equal production, and the potential carryout on August 2003 is in the same 10-15% stocks-use ratio as navy(chart 19). Better than average yields, or finding more seed to plant, could swing this to potentially burdensome carryovers, but black beans have been surprising in their price-resilience throughout the 90’s.

Pinto Beans

Pinto beans have enjoyed steady demand, related to some of the same factors as black beans — Hispanic population growth and popularity of Mexican foods.  This has contributed to a nearly steady 8.5 million cwt. of domestic demand. Demand is growing with population and a little per capita growth.

Further, under NAFTA, Mexico demand has been steady. When combined with the Dominican Republic and Haiti, this constitutes the majority of commercial exports. In addition, there is a consistently large usage in USDA’s PL-480 program. This has ranged from a quarter to half-million cwt. each year, and one year (1995) was nearly 1.5 million cwt. The combination of these markets produce export demand of 2.5 to 3.0 million cwt. each year.

The other side of this otherwise good information is that production in North American has been steadily increasing.  Three of the largest ever crops were produced in the 1990’s. 1998 saw the largest ever crop at about 15 million cwt, and total supply over 16 million cwt. We’ve been dealing with that supply also until this year when reduced acres allowed supplies to drop to low levels.

This production growth has been fueled by growth in lower cost production zones, specifically central and western North Dakota and Manitoba.  The potential for more and more acres in these areas is great, and high price years like this can spur the next round of acreage growth. One thing is clear, we need MORE EXPORTS if we want to grow this many acres of pinto.

A look at the production characteristics of pinto, you can see that in Canada (chart 20), with Manitoba’s recent growth, that nearly equal parts of the Canadian supplies are grown in Manitoba (dry land) and Alberta (all irrigated).  For the U.S. (chart 21), the distribution is more diverse. Minnesota/Dakota is mostly dry land, although that is changing, and the rest of the U.S. crop is grown under irrigation. The combination of Mexican demand and Southwest U.S, demand (from Tex-Mex to California) supports the role that Colorado/Nebraska and other Rocky Mountain and Western states play in the U.S. supply.

Combined (chart 22), North America production shows that while Canada is a drop in the bucket of overall supply, it is the “drop” that causes the bucket to over-flow! A look at recent supply and demand (chart 23) shows what I’ve said: The largest crop ever in 1998, with resultant large carryover, has steadily and finally changed to a balanced market and now to one where supplies will likely need to be rationed before harvest of 2002.

Projected acres for 2002 (chart 24) show just about every main area increasing production.  Estimates vary but consistently include 35% increase for this region and the Rocky Mountain States. Given normal yields again, the production will increase significantly although not quite as high as the record crop in 1998 (chart 25, chart 26 and chart 27). However, it rivals that crop size. Putting this anticipated large crop in perspective of supply and demand shows that carryout will rise (chart 28), but again to the 15% stocks-use range – not necessarily a price wreck expected, although seasonal pressure should be expected and could last well into 2003.

Competition

The final two areas I want to discuss today are competitors’ supplies of beans, and anticipated demand for black and pinto.

For black beans, the major competitor today is Argentina.  Argentina enjoys favorable trade status with most of the South American black bean importers such as Venezuela and Brazil. U.S./Canada have 10-15% duties when exporting to these countries. However, fortunately, Mexico restricts access to their market under the same framework as NAFTA. This is not because they want to favor U.S. vs. Argentina, but because they want to protect their farmers.

Argentina’s production is modern and highly productive.  They grow their crop counter-seasonal with ours, meaning they are planting right now, and have the benefit of seeing the market reaction to the North American crop before they make their final planting decisions. They produce both white beans like a great northern (Alubia) and black beans. So depending on values for each, they make their decisions on which to plant. Typically Argentina produces 200-250,000 MT each year, with about 80-150,000 MT of that being blacks. It was expected that 2002 acreage of blacks could exceed 200,000, but that has since been tempered back.

The economic crisis in Argentina has changed the outlook somewhat. Argentina, for 14 years, has had its currency, the peso, tied 1:1 to the U.S. dollar. After severe pressure to change that, rioting in the streets, changing presidents, etc., they decoupled this.  Their peso fell precipitously but with some controls and many bank holidays, this has since stabilized at 1.7:1. Normally, a weak currency spurs exports, which would make Argentina a bigger threat in 2002. However, the opposite side of that is this will likely tighten up producer’s availability of working capital, which could limit the acres planted.

The other main competitor to North America is China, for both black and pinto beans. There is virtually no bean consumption in China, and it is grown for export and the hard currency raised by exporting. China has long been a threat, taking at first the generic markets of the world with light speckled kidney, a pinto bean substitute.  However in recent years, using U.S. genetics, they are now a factor on dark red kidneys, black beans, and likely will be a factor for navy beans. In fact there is talk this year of the U.S. importing Chinese black beans for the California markets.

Switching now to demand, let’s first talk about Africa.  Angola imports about 15-20,000 MT annually. This was nearly all commercial trade a few years ago, but has increasingly become food-aid. USDA has donated over 10,000 MT in the last 12 months, offsetting what would otherwise be commercial trade.

Central Africa, which has seen a great deal of civil wars and displaced people, has been a consistent destination for USA Aid of pinto bean and lentil donations.

Brazil, normally a black bean importer, has an interesting role this year. Their economy is a bright spot for all of Latin America.  Growth in their GDP has allowed more meat consumption and less bean consumption. Brazil is the largest bean consumer in the Western Hemisphere, larger than Mexico and USA combined. They consume some 4.0 million MT, but produce around 3.5 to 3.75 million MT, leaving them to import 250,000 to 500,000 cwt. of beans, mostly blacks, to cover the gap.  However this year they are looking to export some 20,000 MT of black beans to Mexico and the U.S.

Venezuela imports some 80,000 MT of black beans yearly, mostly from Argentina under favorable import duty waivers. However North American black beans flow here later in the Argentine crop year, when their supplies run low.  The biggest issue here is credit, with the Venezuelan government controlling U.S. dollar availability by requiring import permits. Even with large oil revenue, there never seems to be enough U.S. dollars available to play anything other than a residual supplier role here.

Dominican Republic is a steady commercial market for North American pinto, importing about 20,000 MT per year. This was once a governmental buying agency that bought #2 or better grades, and North Dakota was the dominant supplier. However, the government has turned this over to private trade and consumers want what everyone else wants: bright beans.  Consequently, Rocky Mountain states, Alberta, and – residually – Dakota/Manitoba now supply this market. 

Cuba imports about 100,000 MT of beans each year, mostly pinto-type and black beans, and some navy beans. China is the largest supplier, followed by Argentina. Canada supplies a small amount of beans here, as they do not have restrictions like U.S. suppliers do.  Typically, Canada has supplied only a couple thousand metric tons each year, although in 1998, they supplied some 4,000 MT.

The first grain trades in over 40 years have just occurred, and so it is reasonable to think that U.S. beans may start moving to Cuba also. However the biggest obstacle will be credit.  There are not a lot of options for Cuban importers other than stretching payments out 90-180 days, and U.S. government credit guarantees are not available for Cuba yet.

Mexico was talked about earlier today, but I’ll give my perspective also.  NAFTA started in 1994, and provided for a 15-year phase out of import duties until we would enjoy “free trade.” The initial 50,000 MT of U.S. duty-free access to Mexico increases by 3% each year, and the import duty without an import permit, decreases yearly until it is phased out.

Presently, we are at about 65,000 MT of duty-free access for U.S., and 1,900 MT for Canada. The duty, if tonnage is exc


 

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Northarvest Bean Growers Association | 50072 East Lake Seven Road | Frazee, MN 56544
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