Tag Archives: soy beans

Meanwhile Back With My Soy Beans and an Orange Blossom Who Can’t Shoot Straight

So, here’s from the Farm Report:

Soybeans are lower, breaking the support line from their three-day rally overnight. Traders will continue to scour today’s export data for clue on how foreign buyers are responding to the bargains created by Chinese tariffs. Sales are expected to rise after disappointing results last week. Vegetable oil markets in Asia were lower today, losing around a fifth of a cent per pound.  September soybean oil futures in China fell to 36.844 cents and September palm oil futures in Malaysia were at 24.473 cents.

and on soy beans in particular

If production doesn’t swell too much, November futures may try to hold the $8 level into the August report. USDA put the bottom of its average cash price for the 2018 crop at $8, a level already reached in many local markets around the country. It’s still a $2 climb back to profitability. But most growers appear to have priced a good chunk of their expected production when offered a good price this winter and spring.

Hold this thought — $8.00 per for soy bean farmers or — it’s a really bad year down on the farm. “USDA’s July 12 monthly report put a number on the lost revenue farmers face: $325 million in new crop sales. That number is based on the amount the agency lowered its price range for crop, 75 cents a bushel.” [WSR]  Soy bean prices are about $8.55, nearly a ten year low. [CNN money]

All right, it’s not that I am in the soy bean business. It’s not that I expect ANY reader of this blog to have any more connection to soy beans than the occasional purchase of soy milk.  It’s that the little beans are a metaphor, an anchor, a data point, to watch the inexplicable economic idiocy of the current administration ensconced in the Oval Office.

Those slap dash, ham-fisted, wild west, off the cuff, distributive bargaining ploy, grandiose threats and counter threats being on offer from the mis-administration in lieu of any real coordinated trade strategy and policy have real world consequences for real world people — people like Iowa soy bean farmers who can’t take the hit if soy bean prices drop below $6.00.  Did we notice all those “ifs” and assumptions in the USDA pricing report?  Like automobile manufacturers in South Carolina who don’t have to take a hit if moving export production to friendlier climes will put money back into their bottom lines.  Like household appliance manufacturers who thought tariffs were such a lovely idea when they were on Samsung and LG, but on steel and aluminum not so much.

We have a *President who can’t get to “yes.”  He couldn’t get to “yes,” on a health care bill and ended up with a bill he didn’t want.  He couldn’t get to “yes” on a DACA bill, and no one’s ended up with anything at all.  He couldn’t get to “yes” on immigration policy, and ended up with a court order to reunite families in which he, in all likelihood, cannot make yet another deadline.  He can’t get to “yes” on NAFTA terms with Mexico and Canada.  He can’t get to “yes” with Asian regional trade and commerce agreements.  He just can’t get to “yes.”

My way or the highway distributive bargaining works when I want to purchase a vehicle and there are 15 dealerships in a 50 mile radius.  As noted before, the bottom line is the “walk away” point. However, there is no other China, no other Mexico, no other Canada, no other European Union, no other United Kingdom, no other Germany, no other Japan, no other France, no other Brazil.  There is no Walking Away point because there is no other place to walk to.

The price of soy beans (or cars, refrigerators, beer cans, or washing machines) cannot be determined by simply yelling at the dealer, threatening to bludgeon him with penalties,  loudly pronouncing another salvo of letters to the editor about their poor service, and later threatening to sue for ‘false’ something or another.  We have a global economy based on supply and demand principles which Orange Blossom pretends to understand, but which he provides scant evidence thereof.

And NOW he wants to weigh in (at over 239 pounds) on what the Federal Reserve should be doing with interest rates!  [CNBC]

Will someone, anyone, please take him down to that portion of the White House where the last evidence of the fire set by British troops on August 24, 1814 remains, lock him there, quietly close whatever doors are behind him — or at least make him SHUT THE H___ UP?

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Soy Beans: Wherein DB goes off again on her soy beans while readers roll their eyes.

soy beans

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.

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Yes, He IS That Stupid? Economics for Ultra Dummies

It’s March 5th, 2018 and the occupant of the White House has just announced — by a tweet as usual — “He tweeted out Friday morning that for the United States, a trade war is “good” and “easy to win.” This is July 3rd, 2018 and evidently le crétin economique still believes this.  There are three very simple reasons why this belief borders on insanity:

First: Prices will go up.  Why? Because in order for prices to remain the same or decline the product must be manufactured in the “home country” at a level which would fill the gap between imported and domestic goods.  Buh, buh, buh but — then American manufacturing will increase to fill the gap! Hooray!!  Maybe eventually, and eventually is always the dearest vision of the economic theorist while the rest of us try to buy our beer in aluminum cans rather more immediately, and there’s another little sticky spot.  For some time now DB’s railed about “financialism” and the propensity of the financial markets to “manufacture” and sell “paper.”  DB’s howling notwithstanding, the US has been primarily a “service economy” for some decades (yes, that’s decades) now and while our manufacturing output and sales may be on the wane our “export” of service related products is definitely not.  As in last year we had a $243 billion services trade surplus. [CNN money]  Please don’t try to tell me Mr. “I went to U PA” just not the famous economics school therein… hasn’t at least grasp the nonsensical nature of starting a trade dispute with countries with whom we have service surpluses… oh, wait… he did already.

 The U.S. goods and services trade surplus with Canada was $8.4 billion in 2017. […] Trade in services with Canada (exports and imports) totaled an estimated $91.5 billion in 2017. Services exports were $58.7 billion; services imports were $32.8 billion. The U.S. services trade surplus with Canada was $25.9 billion in 2017. [USTR]

We could speak of regional trading hubs and re-exportation of goods at this point, but let’s not, it would only confuse him.

Secondly, interest rates could easily go up.  There’s already some pressure for increasing interest rates given the increases expected in the federal debt.  We know, that federal debt the GOP’s been screaming about for years? That debt.

“One thing keeping rates in check so far is the demand for US debt from overseas. America’s foreign trading partners, including China, are among the largest buyers of that debt. It added $127 billion to its holdings last year and now owns more than $1 trillion in U.S. debt, making it the largest foreign holder of our debt.

The trade deficit that President Trump decries is one of the reasons for those holdings. It gives foreign countries a powerful incentive to buy that debt, since they have to do something with the dollars they get back on those sales.”  [CNN money]

Shrink the trade gap = less incentive = significant increase in interest rates.

Third reason, American businesses will lose sales.   Much effort is expended reaching deals for the sale of everything from pharmaceuticals to auto parts.  Remember all those sales and marketing divisions? The ones in every major corporation in this country? The departments and divisions pitching products in every corner of the globe?  Let American products become less competitive because of trade restrictions, and then watch foreign buyers find new suppliers.  Business Rule #1: Losing customers is never a good idea.

So, what went on this week?

“Canada over the weekend imposed tariffs on $12.6 billion in U.S. goods in retaliation for U.S. levies on steel and aluminum. On Friday, China is set to slap levies on $34 billion in American goods like soybeans in response to a symmetrical imposition of tariffs by the United States on Chinese goods. Also last week, the European Union sent a letter to the Commerce Department threatening to implement tariffs on $290 billion in American goods if Trump follows through with his desire to crack down on foreign autos.”

Remember not so long ago when DB was bellowing about soybeans?  Yes, DB is back to bellowing about soy beans.

Threatening tariffs may be a negotiating tactic, but at some point the other party will reach a point at which they tire of the gamesmanship.  Reality sets in, deadlines come, and the skirmishes begin.  World Wars can with something as dramatic as the invasion of Poland or the bombing of Pearl Harbor; however, World War I began with an assassination in Sarajevo.  The US Civil War can be said to have begun with attacks and counterattacks in Kansas.  The problem with skirmishes is that unless they are carefully controlled they can spiral beyond retrieval, the results are usually not pretty.

There is also the poker element; eventually a bluff will be called.  We’re not far from the Canadians and Chinese calling our bluff, the EU as well for that matter.   Someone in a position of responsibility ought to have the wisdom to know when to (and not to) bluff; when to fold; when to up the ante.  In short, there has to be some adult supervision.  My way or the highway is almost never a strong negotiating position.  Bullies often have accomplices, but they rarely have wing-men.

Thus the Business Roundtable, the US Chamber of Commerce, and other organizations not generally perceived as bastions of liberal thought will decry the Administration’s tariff and trade policies, academics will refer to the Smoot Hawley Tariff Act of 1930, and citizens will watch the price of can of beer increase as the cost of the aluminum can increases.  And all because  le crétin economique thinks in bumper stickers.

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