In the midst of what has been a very strong market for food grade soybeans in the 2013 / 2014 crop year, recent events in Malaysia have taken the edge off an otherwise robust market. By implementing new quality restrictions on soybeans being imported from Canada, access to our third largest food grade soybean market is in jeopardy, and premium values could be under pressure due to the interruption in demand for Canadian soybeans.
The Plant Biosecurity Division of the Malaysian Department of Agriculture placed restrictions on the importation of Canadian soybeans unless they had been fumigated and had phytosanitary certification that the shipment was free of three soybean pathogens and two restricted weeds. All three of the pathogens and both of the restricted weeds are known to exist in Canada and therefore continuing to export locally produced soybeans to Malaysia becomes a risky proposition. Canadian officials have been quick to react raising questions about whether or not the restrictions are justifiable for soybeans not being used for propogational purposes (seed) in Malaysia, whether or not foundationally solid science was used in developing the new protocols, and why the phytosanitary restrictions deviate based on the country of the soybean’s origin. These are all sound questions and worthy of good answers, but as an international trade issue, it will take a significant period of time to reach a conclusion. On March 21, the Canadian Soybean Export Association summarized the situation in a trade memo stating, “CSEA would submit that the fumigation and phytosanitary requirements are not reasonable, practical, or attainable by Canadian soybean exporters”.
Ultimately it boils down to the question of “what does this mean to Canadian food grade soybean producers?” Malaysia is a significant market for Canadian food grade soybeans. For the past three years it has represented more than 60,000 tonnes of demand for our IP soybeans each year. This represents approximately 10% of the total demand, and ranks third behind Japan and the United States for the size of its market for Canadian food grade soybeans. By shutting our growers out of 10% of our market, the supply and demand balance has to make a significant shift and premium values will soften at least until we replace that demand with new markets elsewhere.
For the past several years, farmers who have grown Identity Preserved soybeans on “spec” (without a premium contract locked in), have done very well in the market place because of relatively tight production supplies compared to the depth of the export market. The recent decisions by the Malaysian government demonstrate the potential problem with that marketing strategy. A seemingly unfair action by a foreign bureaucracy knocks the whole market out of balance. International trade issues are not generally solved quickly, so getting premiums locked in for 2014 while there is still optimism might be the safest strategy on at least a portion of this year’s expected production. Current premiums are historically high, and a market only has two ways to move. This might be one of those times when it makes sense to play defense.