A note to patient and loving readers: These are soy beans. I know, I’ve regaled you with soy beans before. However, please allow me some latitude to discuss them once again. The blessed little beans are illustrative of many issues related to the mis-administration of the Angry Man Baby occupying the White House and his minions.
Let’s begin with what we do with soy beans, and please let’s get past the soy sauce and soy milk bit. A sixty pound bushel of soy beans will yield about 11 pounds of crude soy bean oil and 47 pounds of soy bean meal. The beans are about 18% oil and 38% protein. Trust me, this is good — and it’s especially good for animal feed. [NCsoy] Thus, most of the commercial use of soy beans goes for animal feed and a smaller amount goes for human consumption wherein we get back to the soy sauce, soy milk, soy flour, and our tofu. But wait! There are other commercial and industrial uses for soy by-products as well and here’s a partial list: Biodiesel fuel; biocomposites creating everything from countertops to furniture to flooring to particle board and even to recycled newspaper. A person could sit at a kitchen counter containing soy while reading a newspaper containing soy, printed with soy ink, while the toddler marks the kitchen wall with a soy based crayon. A person could escape all this because there are hydraulic fluids and lubricants which are soy based, and even automobile upholstery can be manufactured with soy containing elements. In short, DB rants about soy beans because they can be environmentally friendly little Glycine Max’s which don’t have just a market, but have several markets — agricultural, commercial, and industrial.
Who grows these things? We do. The United States of America leads the world in soy bean production with about 108 million metric tons per year. Brazil produces about 86.8 million metric tons annually. Argentina grows approximately 53.4 metric tons per year, and China adds another 12.2 million metric tons annually. India comes in around 5th place in world production with 10.5 million metric tons, then Paraguay chips in another 10 million. Canada produces approximately 6 million metric tons, Ukraine adds another 3.9 million, and Bolivia grows 3.3 million metric tons. Last but not least Uruguay comes in with annual production of 3.2 million metric tons. [WorldAtlas] Notice something about the names of the countries on this list?
One thing that pops out is that one country, China, has been singled out as a competitor, while the others are traditional American allies in diplomatic terms. Remember that thing about integrated and distributive bargaining? Recall that integrated bargaining requires negotiators (on trade and other matters) to consider their mutual interests along with the issues upon which they have issues to resolve. Hold this thought.
Now consider Farmer Jones in eastern Nebraska who grows soy beans and sells his 60 pound bushels to a grain dealer — in dollars. The financial markets kick in, as with every other commodity there is “future trading.” At the moment, China, the largest soy bean importer has reduced its purchases of US soy beans, the price of soy beans got so cheap that other countries started to increase their orders from American dealers. [Bloomberg] Sounds good so far, but caveat emptor. This puts soy bean values at “fire sale” levels for our allies in Brazil, Argentina, India, Paraguay, Canada, Ukraine, Bolivia, and Uruguay. So, let’s talk about Brazil for a second or two.
Back in 2011 the US and Brazil signed an Agreement on Trade and Economic Development. Here comes that integrated bargaining component again, because the framework isn’t just about who sells what individual products to whom, but how the two nations can expand direct trade and investment relationships, incorporating reducing trade barriers and sharing innovations. It appears to be working, at least if we note the report from the US Trade Representative: “U.S. goods and services trade with Brazil totaled an estimated $88.2 billion in 2016. Exports were $55.2 billion; imports were $33.0 billion. The U.S. goods and services trade surplus with Brazil was $22.3 billion in 2016.” And, there’s some other nice bits:
The top export categories (2-digit HS) in 2016 were: mineral fuels ($5.0 billion), aircraft ($4.8 billion), machinery ($3.6 billion), electrical machinery ($3.1 billion), and optical and medical instruments ($1.7 billion).
U.S. total exports of agricultural products to Brazil totaled $899 million in 2016. Leading domestic export categories include: wheat ($316 million), prepared food ($54 million), dairy products ($47 million), cotton ($47 million), and feeds & fodders nesoi ($42 million).
U.S. exports of services to Brazil were an estimated $24.9 billion in 2016, 11.4% ($3.2 billion) less than 2015, but 235% greater than 2006 levels. Leading services exports from the U.S. to Brazil, in 2015, were in the travel, transport, and telecommunications, computer, and information services sectors. [USTR]
Thus, the Brazilians are exchanging their Brazilian reals (current exchange rate 0.26/dollar) to buy US mineral fuels, electrical machinery, processed food, medical equipment, telecommunications systems, computer gear, and IT services from us, among other trade goods and services. Now, ask the question: Do we really want their soy beans on the market at fire sale prices earning fewer “reals” when we want them to exchange those “reals” into US dollars to buy travel, computer, and IT services? Fuel? Medical equipment? Aircraft? Our agricultural products? At what point does our “winning” come back to haunt us?
Or, consider this from our competitor’s side of the frame. China. Again, with our little soy beans:
While the Asian nation is targeting a slew of American farm goods in this round of taxes, soybeans are the top agricultural commodity the country imports from the U.S. by far. The oilseed, used to make cooking oil and animal feed, accounts for about 60 percent of the U.S.’s $20 billion of agricultural exports to China. Before the tariffs were announced, a study by the University of Tennessee forecast that a 25 percent duty would spark a drop in American shipments of at least $4.5 billion. Brazil, already the world’s biggest soybean shipper, is set to be the biggest winner, filling the gap left by the U. [Bloomberg]
Wow, there comes Brazil again! Now the Chinese are exchanging their yuan (current exchange rate 0.15/US dollar) for Brazilian reals in order to buy their Brazilian soy beans. And those grain deals? — they aren’t being made with US grain dealers in dollars, they are being made using yuan/reals. Lower demand for the US dollar? There’s a delicate balancing act playing out in international currency markets every day. In our integrated system of international trade the old distributive system of winners and losers doesn’t serve very well. The agricultural market is connected to the futures market, the futures market is connected to the commodities market, the commodities markets are connected to the financial markets, the financial markets are connected to the currency markets… “foot bone connected to ankle bone, ankle to leg, leg to hip, hip to back bone,” right up the economic body with the old song as metaphor for the global economy.
And, we haven’t even talked about whether or not we want China to pick up more of our national treasuries to keep financial markets steady? So, this is why DB gets excited about her soy beans, and other components of US trade and economic development. It’s not that I am fascinated with soy sauce on my chow mein, or even on my potstickers, but because the little beans are illustrative of wider, larger, economic issues which seem much more important than whether my soy sauce is embellished with hot peppers.