Container shipping will help farmers meet international demand for U.S. soybeans

Editor’s note: Eric Woodie is a trade analyst with the Illinois Soybean Association checkoff program.

By Eric Woodie, Special to the AJOT

Despite current uncertainties associated with international trade, long-term trends in global demand for soybeans and their derivatives remain encouraging for American farmers.

The U.S. Department of Agriculture forecasts that world trade in soybeans will increase by 23.4% in the next decade. Trade in soybean meal and soybean oil will go up 19% and 23%, respectively, over the same period. Capitalizing on the opportunity isn’t as simple as planting more soybeans and deciding to export more. It is no longer enough for farmers and grain marketers to simply follow China -- the dominant player in world soybean trade for more than a decade -- to a profitable path. 

A more global perspective is required to be successful. Emerging economies seek more soybeans to feed livestock, as rising incomes spur demand for meat and eggs. But these markets require more nuanced approaches. Farmers and grain marketers have to understand customer needs and have the resources to deliver the right products in the right amounts at the right time. 

Container shipping will help growers find new markets. While not a widely used method of cargo transport in agriculture, container shipping has been fueling global trade for decades. In fact, the United States trade deficit with China and other countries means millions of empty containers sit at ports and intermodal hubs across the country. Ocean carriers often carry empty boxes back to Asia and other international ports. The cost of repositioning empty containers is estimated to be $15 billion to $20 billion a year.

Soybeans could alleviate this problem and benefit growers, exporters and international buyers. Many foreign customers don’t have sufficient economies of scale compared with large-scale buyers in China. 

Generally, in those markets, multiple smaller buyers are the norm, and they don’t have the capacity to accept bulk-vessel shipments, which can carry up to 2.1 million bushels of soybeans. Container shipments serve smaller customers well. Rather than partnering with other buyers to purchase an entire ship of soybeans, companies can buy just what they need, when they need it.  

In addition to minimizing inventory, containerization also helps promotes security and supply chain visibility, which are big trends in the food industry. The shipping container provides watertight and nearly airtight protection to its contents, which reduces heat damage and helps maintain moisture levels between origin and destination, according to a study by the Illinois Soybean Association. Containers also limit damage from insects, fungi and sprouting and help prevent beans from splitting.

Overseas customers who want to know the source of their product prefer containers because they can be loaded with specialty or bulk soybeans near or at the farm source, sealed for identity preservation, and shipped throughout the system by truck, rail, and ship to the end destination – all in the same container.  

Containers have helped propel the growth of U.S. soybean exports to Indonesia, the most populous country in Southeast Asia. The island nation’s soybean demand has doubled in the last decade to feed the growing population that has more purchasing power due to economic growth.

Indonesia has become one of the five largest importers of U.S. soybeans, which are used almost exclusively for human consumption. Most of the soybeans Indonesia consumes are for the making of tofu and tempeh, a fermented soybean cake. Soybean quality and texture is very important for tofu and tempeh manufacturers.

Indonesia received about 1.3 million metric tons of U.S. soybeans via containers in the 2017-18 marketing year, according to USSoy.org, the website for the U.S. Soybean Export Council. Container shipments represent about 60 percent of its total imports. 

Taiwan, Thailand and Vietnam are also top destinations for containerized exports of soybeans. Buyers in these markets and exporters are taking advantage of the huge supply of empty containers in the Chicago area and across the country. The U.S. is the largest importer of containerized cargo in the world, about 19.6 million TEUs according to the most recent data available. But it exports only 11.9 million TEUs, leaving behind millions of empty containers. Most of the containers return to Asia and other markets empty. 

There remains a big backhaul opportunity to increase container use. In 2017, containers were used to ship 7 percent of total U.S. waterborne grain exports, far behind dry bulk ocean vessels. 

Many of the bulk vessels go back and forth to China. The Asian powerhouse is expected to import about 3.49 billion bushels of soybeans in the 2018 marketing year that began in September, more than the rest of the world combined.

But the rest of the world is catching up. Recent research shows that the rate of growth in soybean imports by the rest of the world has been increasing since 2011. Indeed, assuming current projections hold, 2018 will be the first year since China emerged as a consistent importer, in which the 5-year average growth rate in soybean imports will be lower for China than for the rest of the world.

The trend is a good reason to diversify, and container shipping can open new doors.