The Global Ag Impact from Current Events

Our food supply is in the headlines every day – as prices soar, shortages increase and a war 6,000 miles away has the head of the U.N. Food Programme predicting that it’ll get even worse. U.S. farmers are working hard to establish a safe and secure food supply domestically while climate change is creating new challenges every day. One of our core crops comes from the hard work of our US soy farmers; so I invited Mac Marshall from the United Soybean Board to give us the lowdown.  Mac serves as the Vice President, Market Intelligence for the United Soybean Board (USB) and U.S. Soybean Export Council (USSEC). His background includes serving as a staff economist at the US Bureau of Labor Statistics with a focus on agriculture commodities. Mac serves as an industry source of market information and analysis here and globally. I can think of no one better to give us the real take about what’s going on.

Transcript

Phil: 0:14

Welcome to Lost in the Supermarket. Our food supply is in the headlines every day– as prices soar, shortages increase and a war 6,000 miles away has the head of the U.N. Food Programme predicting that it’ll get even worse. U.S. framers are working hard to establish a safe and secure food supply domestically while climate change is creating new challenges every day. One of our core crops comes from the hard work of our US soy farmers; so I invited Mac Marshall from the United Soybean Board to give us the lowdown. Mac serves as the Vice President, Market Intelligence for the United Soybean Board(USB) and U.S. Soybean Export Council(USSEC). His background includes serving as a staff economist at the US Bureau of Labor Statistics with a focus on agriculture commodities. Mac serves as an industry source of market information and analysis here and globally. I can think of no one better to give us the real take about what’s going on. Mac, welcome to Lost in the Supermarket.

Mac: 1:21

Thank you very much for having me Phil.

Phil: 1:24

So before we get to the current situation for soy share with me your view globally of what's going on at the soup market, we're seeing the highest prices in 40 years, and folks like David Beasley from the UN are saying, it's gonna get a lot worse before it gets better. Your thoughts

Mac: 1:43

First off I'm, I'm glad that we're opening this up, in, I think in a broad fashion and really looking globally, you know, certainly I represent the us soy industry, but we are just one part of the global complex of providing food security globally. You, you mentioned inflation and I'd, I'd be remiss if I didn't point out last week we had inflation numbers come out, showing annualized inflation across the board of eight and a half percent. A lot of that being driven of course, in both the food and the energy space now in the US, I'm born in the us, I've lived here my whole life. I think it's really important for us to, you know, count our blessings in that at a global level, you know, we don't spend a ton of money on food relative to our total consumption. You know, we're under 10%, but the rest of the world is not in that same place. There's a lot of food insecurity globally that exists in any time and environment, but I think it's becoming really acute right now. You know, certainly the disruption, the war, the human tragedy, the cost that is happening you in Ukraine is, is, incredibly relevant for the global food supply. Ukraine is a major producer and exporter of, you know, particularly small grains say corn wheat, barley, but also a major producer of, sunflower oil actually exports about half the world's supply of sunflower oil. And if you look internationally, you look at the markets that Ukraine sell into. A lot of them are very price sensitive and very reliant on imported grains and in veggie oils for, you know, their domestic food supplies. So, you know, where we are right now is of course very challenging, you know, in, in food insecure nations that have a lot of price sensitivity. Anytime you have a shortage, it is the, the impact of it becomes that much more paramount. And I think it's important to know too, that even just with the disruption over the last you know, eight weeks roughly with the war in Ukraine, we had been in or the world rather had been in a situation at least on, on the veggie oil side that has been, you know, bubbling up for a couple years. If we think globally about the major vegetable oils, be it soybean oil, be it Palm oil, be it sunflower oil, grape seed, flat canola oil, one way or another in the major centers of production globally. There's been disruptions across all of these. If you look in the black sea, even a couple years ago, predating where we are now, there were short crops in rape seed, or excuse me, in sunflower seed production in both Ukraine and Russia. Last year, we had a drought across, you know, Southern Canada in the prairies where canola production is centered. This year in south America facing a second consecutive year of La Nińa, we've seen, you know, over 30 million tons of projected soybean production come off of the books. And then in Southeast Asia with Palm oil, you know, we're in an older part of the tree cycle, it's a 25 year crop, basically production cycle there. And with, you know, with, with trees being older and in a less productive phase of, you know, their whole evolution overlaid with some of the labor issues that have cropped up by virtue of, you know, Palm oil plantations, not be able to bring in for labor due to COVID restrictions. All of this is kind of, you know, put the world in a position where, you know, vegetable oil supplies and production relative to total utilization. You know, it's gotten very, very tight and this is of course before we've had the disruptions in the black sea over the last, over the last two months. So you know, I'm, you know, trained in time series analysis, I'm trained to, you know, look at, you know, the history, you know, of, of food price, evolution of commodity market development over time. And I you know, in when I'm, when I'm analyzing something in here and now I tend to look back at historical analogs and I unfortunately I think the position that we're in right now, when you stack up the, you know, political disruptions that are out there, when you stack up the supply chain disruptions, when you stack up some of the production shortfalls, it's very hard not to look back to 11 years ago in 2011, when, you know, FAO food price indices were at their then highest we've of course eclipsed those. Now that came out a couple days ago, I think March had the, the highest reading of all time in terms of you know, food, food price costs on a global level. Aand, and, and, and you look back to that, that period in 2011, I feel like we're, we're very much in an environment right now. Now, of course. When we think about annual production cycles, how it's split between different corners of production globally, the us, soy farmer, I think collectively is, is coming back in at a really important time, you know, are starting to roll around the country. We're gonna see, you know, potentially a, you know, record area sewn for soybeans in the US. And it, it, it it's really important because that's the first step in helping bring back critical supplyto a, a global level here, particularly when the world really needs it.

Phil: 6:59

So you're, you're painting a picture that really says to me that for most crops, we're gonna have some issues not only because of the war, but climate change, getting truck parts. And so on specifically for US soy, where are we are gonna have, you know, shortages, are we gonna have, you know, the, the farmers out there working hard? Are we gonna have an abundant supply? Where do you think we're gonna look at when you look towards the future?

Mac: 7:31

Well, I think for the future, the, the, the future is bright. I mean, I think it, it's very, very easy, you know, again, when you're in the world of commodity markets, market analysis, to have some degree of recency bias and be focused on the here and now, but I think as we look ahead, as we look, you know, several years down the line, you know, we've got continued innovation happening on, you know, the input side, farmers in the US have been able to, you know, continue to produce more and more do so in an efficient way last year actually produced a record soybean crop, you know, not even on, on record area or anything. And this is against the backdrop of a lot of drought conditions that prevailed through much of the summer. So I think that really underscored the resilience of the US production and it's that resilience is gonna be critical in the years to come. So this year, you know, U S D A announced that we'd be planting potentially 9 1 million acres of soybeans surpassing, you k now, just over 90 million acres, which i s t he r ecord in 2017, y ou a ssume trend yields u pon that. And t hat's a c rop size o f a bout 4.6 billion bushels o r a 2 5 million metric t ons. That would be a record for us. And I think it really is important, but it doesn't make up for a lot of the production losses that have already happened this year. I think rebounding from that is gonna take a couple, a couple seasons to get through if y ou, if you really focus on a global level. But, b ut, b ut that I think is the, the beauty of continued innovation of hardworking farmers and, you know, a globally integrated food supply chain, which has certainly come under pressure over the last couple years, you know, through COVID you know, a s, as well as just a disruptions a nd logistical corridors, but it's these periods of disruption when the world, I think, is really feeling these pain points that also lead to creative solutions to help get out of it and set a better stage for the future. Now that's not to discount. You know, I think the difficulties that are unfolding right now in terms of, you know, global supply security and availability, but I'd like to think that the troubles that are unfolding right now can also be catalytic in creating efficiencies going forward that allow for, you know, greater levels of food security. But we of course have to get through where we are now, but the first stage of that is getting that crop in the ground. And that's what our farmers are starting to do.

Phil: 9:53

Explain to me bio fuel and the role between soybean oil and biofuel, and what's going on there?

Mac: 10:02

Now, it's a great question. And I, I think incredibly relevant and timely, so to give a little bit more history around, biofuels and how they interate with the soy complex. So if we go back to the nineties, and, and actually, let me, let me do a little stage setting even before that. So when you crush soybeans, if you were to crush, say a hundred pounds of soybeans, you get roughly 79 pounds of meal and about 18, you know, 19 pounds of, of oil there. So basically a, roughly a four to one volume split between what comes out on the protein side, which primarily goes into animal ag. So that's, you know, one of a, on a, on a volumetric basis, that's primarily flowing into food production. And then the oil side is you know, our primarily utilization channels of course, food. But, you know, back in the nineties, oil was kind of this you know, underappreciated, you know, commodity and it, the emphasis was always on meals. So, so, you know, we were looking for additional utilization channels and partially through checkoff funded initiatives. You know, we have the establishment of a biodiesel program here in the United States now in the years since then. And, and particularly in the last couple, there has been a concerted new push for next generation biofuels. And in particular renewal diesel, which you know, is, is different from traditional biodiesel. It is something that is chemically equivalent to diesel and, you know, leverages a lot of the feed stocks that we have here in the us that can, or lipid based feed feed stocks. So even oil is of course, on a volume basis, the most important one that flows in, but there are other feed stocks as well that allow for, you know, production of greener fuels. And this can be collection of waste greases of you know, distillers, corn oil, you know, yellow, grease, poultry, fat, et cetera. All these, you know, can be refined and effectively turned into renewable diesel, but again, on a volume basis, soybean is the most important component there, which I think, you know, and I'll just, I'll just address the elephant in the room right now. It, it raises the specter. I think of, you know, where are we allocating the speed, the, the speed stuff. Are we putting it in food? Are we putting it in fuel? And I would say that's part of the versatility and beauty of, of the soybean is that we can effectively service these two markets simultaneously. And what I mean by that is, you know, when you're crushing beans, we've always crushed for protein. We've always crushed for lips or, or, or fats here. And as, you know, we're seeing this wave of demand, a greater appreciation for the versatility and value of soybean oil in the marketplace. It's leading to additional crush expansion within the United States, which will over the next couple years, be adding to our overall production of both soybean oil and soybean meal. More soybean meal of course means, you know, greater availability to flow into animal ag production. And, you, I think, further enhance and stabilize, you know, domestic and overseas production of animal proteins, whereas on the oil side, yes, we're, we're seeing growing demand in the biofuel space, but it doesn't necessarily have to be at the expense of what is flowing into the food space. And, and, and just, just to give you a data, a point on that. So in the US last year, or in the 2021 crop, which is a record, we produced just over 120 million metric, tons of soybeans, and the volume of soybean oil ultimately produced from those soybeans that, you know, flows into, you know, food utilization channels is about six and a half of tons by comparison into the biofuels channel. It's under 5 million tons. So less than 4% of soybean production actually does eventually wind up in, in the biofuel space. So I think it's, it's a, it's a well balanced utilization of the commodity. And, you know, yes, we're talking about the impact of global food supplies and availability of, you know, critical feed stuff. And certainly, you know, vegetable oils are, you know, an important part of that, but it's not that food security is the only issue that we have to address here domestically and internationally on a truly global basis now. And in the years to come, we have major existential crises that are thing globally. It's not just food security, but it's also energy transition. You know, how do we think about mitigating climate change? How do we think about, you know, meeting some of those climate reduction targets? How do we combat global warming and energy transition is a critical piece of that. And by the way, if we think about energy supply, if we think about the need for diverse of it, a move towards more renewables, energy plays a role in every element of life, it plays a role in food delivery. It plays a role in food production. So I think by, you know, having this advancement in the biofuel space and soybean oil playing a, a role as a critical input there, it's also effectively helping on the food side too. It's just through indirect and maybe unforeseen angles too. And again, I want to come back to just on a volumetric basis. You know, we talk about ourselves as an oil seed, but we're also fundamentally a protein seed, 80% go into, into that, that meal and, a nd, and protein space, which goes into animal ag. So it's, it's complicated, there's a lot of nuances to it, but, it, i t, part of t he, part of the reason that I get excited to work for the s oybean industry is that we have a role in addressing some of these really critical, you know, human and global c hallenge. I t's both o n the food and the energy side and how that all c omes, comes together to you k now, I think stabilize an environment, domestically and globally,

Phil: 15:40

If you could look into your crystal ball and see what the future holds for soy. So you mentioned, you know, it it's single digit being in biofuel. If it increased, if it doubled in biofuel, what would that effect be? Now with, safflower oil and sunflower oil being at risk, d o, are we gonna see more s oybean oils replacing that? Give me, Look i n your crystal b all and g imme your little forecast here.

Mac: 16:13

Yeah, it's a, it's a great question. Well, let, let's get back to some of the I, I think the, the market signals and developments that that are unfolding right now will be unfolding over the next coming next few years. So I mentioned earlier, I think a greater appreciation for, you know, the value and versatility of soybean oil, which is part of the reason why you're seeing, you know, this know growing demand in the renewable diesel space for soybean oil, as a feed stock among other feed stocks. It's just gonna, it it's one, it's one element that plays a role in, in helping supply that downstream market. What that is effectively doing is enabling this new wave of private sector investment across much of the US into new crushing facilities, which will allow for greater production of soybean oil and soybean meal. So, again, just to throw out a couple numbers here, you know, we crush about a half of the US Soybean crop. So again, we produced about 120 million tons last year crushed about 60 million of it. And, you know, just based off of company, any announcements in terms of new plants that are coming online or being expanded over the next couple years, we're probably seeing, you know, over a 20% increase in crush capacity, you know, between now and the end of 2025. So what that means is, you know, the, the roughly, you know, 12 million tons of soybean oil that we, you know, currently prove do now you know, we can be adding, you know, a couple million tons on top of that. Now some of that will of course flow into, um, you know, this, this new or, or emerging sector of demand in the renewable space, certainly, you know, you know, more, more soybean, all being drawn in there as a feed stock, but it also means that that availability for the food channel, you know, is, is gonna, you know, remain there. You know, I've part of what I do in my role in market intelligence is, is look down the line, look, you know, 5, 10, 15 years down the line. And what does the future environment look like? And, you know, as, as we look out towards, you know, the utilization opportunities and where soybean oil soybean meal, whole soy complex fits in, in meeting, you know, the aggregate demand picture, as well as, you know, competing potentially sectors of demand. I think what's exciting is that, that, you know, we can provide, you know, more soybean, all assuming of course, that these plants are, are coming to fruition, which all market, you know, indicators seem to project that as we grow that supply and availability and ability to produce more soybean oil in the US, we can have it flow into, that biofuel while still, you know, maintaining and, and even growing at least to some degree, the use of soybean all in food applications. I mean, that's, that's absolutely critical. So I, I think it's, it's a little bit of a, you know, more of a balancing in terms of where we're utilizing soy and soy products going forward. And that's part of what our, per view is as a soy checkoff. How do we think about a balanced portfolio, you know, domestically and internationally between food uses between, you know, novel industrial uses, again, because there's so many challenges out there, um, that, you know, we're facing in the US and beyond, and you know, part of our vision, a vision statement, actually over here, that's outta, out of, out ofout of the camera angle, but our vision here is to, you know, promote soy for every life every day. And every life every day means addressing, you know, the, the critical needs of humanity, the hierarchy of needs, you know, everybody needs food, clothing, and shelter, and you know, certainly soy through animal protein, through, you know, direct human consumption. You know, we certainly have, you know, food grade channels as well. And, a nd of course, oil flowing i n i s a major ingredient i n many, i n, i n, i n, i n many food applications, all of that together, that's certainly addressing the food piece, but I'd say, you know, through, you know, shelter and those other, a nd, and, a nd, a nd clothing as well that, that whole hierarchy of human needs, like we're able to address that. I think by playing a role in both the food and the energy space as, as we work towards, you know, an overall green transition, I think that's, that's very exciting as a whole,

Phil: 20:31

Well, Mac, you are the right guy. Thank you for your intelligence and your insight, and thank you for joining us today on Lost in the Supermarket.

Mac: 20:41

This was an absolute pleasure, Phil. Thank you so much for having me.