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Market Outlook: Navies, black turtles
April 15, 2004

The following is the outlook portion of the presentation that Larry Sprague, Kelley Bean Co., made at Bean Day.

Black beans
Our biggest export market for black beans has been and in all likelihood will continue to be Mexico.
Fortunately, the U.S black bean industry was very active during the North American Free Trade Agreement (NAFTA) discussions while there was an almost insignificant amount of black beans produced in Canada.

Most of the NAFTA quota for beans went to the U.S. and only a small percentage was reserved for Canadian production.  In the last three years both Manitoba and Ontario had increased black bean plantings to significant levels.  The estimates are 33,000 acres in 2001, 65,000 acres in 2002, and 25,000 acres in 2003.

The high tariff levels being imposed by Mexico on imported beans prohibits much movement of beans outside of the NAFTA agreement.  This forces the Canadian black beans to seek other markets. The closest market is the U.S market, which is estimated to be approximately 1,700,000 CWT.

The other major purchasers of U.S. grown black beans would be Brazil and Costa Rica.  Both of these countries impose duties on U.S. beans.  Costa Rica currently has a 46% duty for U.S. black beans.  The Brazilian and Costa Rican markets are very sporadic.  Unless there are crop shortages in those countries and U.S. black beans are on the low end of the market (usually in the mid to high teens for processed beans) very few black beans find their way into those markets.

Navy beans
The navy bean market has also suffered major setbacks.  At one time the U.S. could count on sending as much as two million cwt into the U.K. and another 300,000 cwt into Europe. Recent U.S. Census export numbers suggest that U.S. navy bean exports have slipped to about one and one quarter million cwt.  A good share of those markets has been lost to other origins such as Canada, China and Ethiopia.

The U.S. also, enjoyed substantial sales to other countries especially Algeria.  These sales were made directly to the Algerian Government.  U.S. navy beans did find favor in that country as the beans were financed through a U.S. lending program entitled GSM-102.  The Algerian Government turned over the buying to independent Algerian companies.  The political climate in Algeria makes doing business there very risky for U.S. companies.

This is a market that is very important to the U.S.  Most price moves in the black bean market are directly related to Mexican NAFTA sales.  This situation almost dictates that growers and dealers have to wait for the Mexican market to open before any significant price increases are likely to occur.  The U.S. black bean industry was severely hurt twice since 2000.  Once was due to the Mexican Government not issuing NAFTA permits until July and again this last January when the Mexican Government imposed an embargo against the import of black beans.  The Mexican Government has been under much pressure from its grower union to re-negotiate the current NAFTA agreement.  There is still a possibility this may occur.

There is a new term in international trade.  That is CAFTA or the Central American Free Trade Agreement.  Currently there are four countries that have signed on to this agreement with the U.S.  Those countries are Guatemala, Nicaragua, El Salvador, and Honduras.  Costa Rica had withdrawn from participation but it is studying the agreement and may make a decision to sign on in the next few months.  What does this new agreement mean to U.S. bean growers?  It is too early to tell.  The last that I had read is that each signatory country would negotiate a separate agreement with the U.S. on dry bean exports.  There is a good chance that quotas and tariffs will be reduced gradually much like the NAFTA agreement.

Food aid
Now for some good news. The USDA PL-480 food aid program has replaced much of what the US dry bean industry has lost in normal exports.  This program has been very important to the dry bean industry for many years.  In fact, this program may account for more purchases of dry beans than any private dry bean user.  The U.S. has pledged 15 billion dollars for aid to Africa to be used in the next five years much of which will be used for the purchase of food.  This is a lot of money!  Dry beans are very cost effective in the program.  The recent purchase of the more than one-half million cwt. of navy beans cost just about $10 million dollars or about .07% of the total aid package.  There is another $60 million dollars of food aid scheduled for Iraq.  Hopefully some of this aid will come in the form of white beans.  Fortunately, both black and navy beans are finally being purchased in greater numbers in the past year or so.  Most of the dry beans that are purchased are a U.S. No. 2 or better grade.  So far, the USDA does not demand the dry beans be of current crop year.  This is different than the domestic canned and package USDA business, as those beans must be of the most recent crop year and meet a grade A in the can.  It is hard to imagine what would happen to the dry bean industry if a poorer quality crop or a large carryover crop would not be eligible for this food aid program.  The USDA has purchased 103,397 CWT of No. 2 or better black beans in the two previous calendar years most of which went to Guatemala.

The navy bean has not had the great fortune of being one of the top dry bean classes for food aid for many years.  That has changed since this last summer as the USDA has purchased 569,233 CWT out of the 573,422 cwt. purchased in the last two calendar years. The navy purchases this year would rank the USDA in the top five buyers of navy beans worldwide.  Most of the navy beans are for Ethiopian aid which sounds strange when Ethiopia raises navy beans for export to Europe and are not used to feed its own poor.  Ethiopia has a few good agricultural areas.  A significant portion of that food is sold to get money for that countrys economy. 

There has been some confusion concerning the navy bean aid shipments to Ethiopia as a few processors from another competing country feel the navy beans are going to be resold by the food aid distributors to the normal export markets.  The implication is this will keep the prices of their growers beans low, as the food aid purchases really have not reduced the overall supply of navy beans.  They are telling their growers that U.S. navy bean growers have an unfair pricing advantage because of the U.S. Aid purchases.  The food aid users have assured us that all of these beans are going to be used to feed the starving masses in Ethiopia.  I would also suggest that most foreign users of navy beans have specifications that would preclude the use of the beans that have been purchased for food aid to Ethiopia.

Other crops
It is said that the low price for dry beans can be corrected with the high price of other crops.  It looks as though grain and soybean prices have finally begun to improve over the last year and one-half which should eventually reduce dry bean production in areas that have recently begin to plant lots of acres to dry beans.

An example of this would be Manitoba.  Manitoba went from 38,000 acres of navy beans in 1998 to a high of almost 150,000 acres in 2000.  Manitoba navy acres fell to about 94,000 acres in 2003.

Cost of production
I have included this cost comparison of some of the crops that would compete with dry bean acres.  These are variable costs and did not take into account land values and taxes.  These numbers were released by Michigan State Universitys Agricultural Economics Department, but the numbers should be similar to costs in the Mn/Dak area.  Notice the difference of the cost of an acre of navy beans to the costs of corn soybeans and winter wheat.  Especially look at the difference in cost for wheat and no till soybeans and navy beans.  There is a difference of $65 per acre for soybeans and $28 per acre for conventionally planted winter wheat versus an acre of navy beans.   I would think there should be numbers for no-till winter wheat as more Michigan growers are using this method of planting.

There is more to the story than just cost per acre. Please note the estimated time difference for the production of an acre of each crop.  There is 4.8 hours more labor required for navy beans versus no till soybeans.  This is an extra $48  per acre at a labor cost of $10 per hour.  Grower efficiency is also improved which allows a grower to farm more acres of soybeans than dry beans thus increasing overall net income.  I will leave the net income comparison for you to figure on your own farm.

Competition is no longer competing for export customers but is now eating away at our domestic business.  Our closest neighbor, Canada, has become our biggest competitor for our domestic business.  There are hundreds of thousands of bags of dry beans that are coming into the U.S.  Some of these beans are shipped directly to end users, but many more are shipped into U.S. dry bean processors for reshipping to end-users.

There is nothing wrong with free competition, but here is where I will get controversial.  U.S. growers must follow the edicts of the EPA on approved chemicals.  The question that I will pose, is why can we import foodstuffs into this country that have been treated with chemicals that are not approved for use in the U.S.?  My great fear is that eventually there will be a nationwide recall of a dry bean product for chemical residue.  Cant happen you say?  How about BSE or Star Link?  Are we ready to risk our fragile industry to a major product recall?  It is up to the U.S. dry bean grower to put pressure on the FDA to test beans that are coming into this country for food safety!

World economy
As the economy improves there should be more foodstuffs being purchased. Fortunately for those of us who are sellers of U.S. products, the U.S. dollar has lost some of its value.  This is really seen in the relationship of the U.S. and the Canadian dollar.  For instance a Canadian dry bean that was offered at $24 Canadian one year ago would equate to a $15 U.S. price.  Today the difference would be close to $19 U.S.  Our beans are again becoming more competitive in the world market.






















To conclude today, I would say that we are not out of the woods yet.  We are in a period of great change.  There has been entirely too much risk that this industry has been taking.  Multi-year contracts and selling a whole bean crop prior to planting.  And many times these contracts are at breakeven at best prices.  I still think that we will struggle to get a handle on our industry for at least another year or so.  We can hope that grain and soybean prices will continue to be strong, as this will eventually put more dollars in your pockets.

To  see the market review portion of Spragues Bean Day presentation, see the Northarvest Bean Growers Association Web site, Click on the Grower Information section and then the Bean Day Roundup headline.


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