Pulse Beat Individual Articles

Protein Discounts for Manitoba-Grown Soybeans

Charles Grant, PhD, PAg – Senior Instructor, Department of Agribusiness and Agricultural Economics, Faculty of Agricultural and Food Sciences, University of Manitoba – Fall/Winter (December) Pulse Beat 2020

Soybeans grown in Manitoba generally show protein levels in the 37% to 38% range. This is below the 40% protein level required by soybean processors producing 47.5% protein soybean meal for animal feed.

Processors provide protein guarantees for their soymeal products and pay claims to buyers if those guaranteed protein contents are not met. To best meet those guarantees, it would be ideal if processors could procure a steady supply of 40% protein soybeans. The challenge is that soybeans vary in protein content by region and by year, and those soybeans with lower than 40% protein require blending with higher protein soybeans to achieve a processed 47.5% soybean meal.

Blending is not a particularly sophisticated process. It is a matter of estimating the blend that can give the percent target protein level in the soybean meal, doing the mix and checking the result.

Difficulties in blending can often be a result of logistical limitations like non-availability of rail cars for deliveries of soybeans and weight restrictions on roads in the springtime that limit deliveries of the raw product. These limitations can make it difficult to access the required range of soybeans in terms of protein level and to consequently maintain consistent quality of soybean meal across seasons.

Manitoba-grown soybeans are typically blended with higher protein soybeans procured from somewhere else, say Ontario or Quebec, where soybeans are generally at or above a 40% protein level. Blending unfortunately, can introduce inefficiency in processing and inconsistency in product quality. This inefficiency costs money, so that is why lower protein soybeans face discounted prices.

Protein level guarantees in soybean meal have been reduced over time from 48.5% to 47.5%, and now at times to 46.5%. These reduced guarantees are a result of generally declining protein levels in soybeans across North America. The push for higher yields in soybeans seems to have caused a reduction in protein levels. However, this yield-protein offset is not fully understood.

The desire of feed companies buying soybean meal from soybean crushers is that the product quality be consistent in terms of protein level (47.5%), fat (0.5%), fibre (3.5%) and moisture (12%). Consistent quality allows feed companies to assure deliverable guarantees to their customers and to use consistent milling specifications in their feeds. A reason for the decline in protein guarantee from 48.5% to 47.5% to 46.5% is that it makes it easier for the soybean crushers to maintain a consistent protein guarantee to the feed mills year in and year out.

There are several discounts commonly applied to soybeans by soybean buyers. These include test weight, moisture, foreign material, damage and splits. Protein has, to date, not been a discount item for soybeans that has been explicitly stated, but rather an unnamed part of the basis off the Chicago Mercantile Exchange futures price. Protein discounts have typically been set relative to the protein levels of soybeans that are available in the marketplace at a given time. This pricing with a market-availability protein reference is due to the variability in soybean protein levels across regions and protein variability from year-to-year.

The lower protein levels in Manitoba-grown soybeans have processors discounting them below soybeans grown in Ontario or Quebec. Manitoba soybeans generally run 10 to 20 cents per bushel lower for 1.5 to 2 percent protein levels below the Ontario or Quebec standard for the crop year. This price discount is in the range of 1 to 2 percent off the 40% protein soybean price.

With continuing soybean production on the eastern prairies, the industry has the incentive to raise protein levels. Ontario and Quebec have been growing soybeans for some time and have had the time to hone their soybean skills — both production and marketing.

While the protein levels in soybeans affect the cost of soybean meal in Manitoba, the protein level in soybeans is not necessarily the only major factor. A major factor for soybean meal buyers in Manitoba is the CAD/USD exchange rate. A one-cent change in the CAD/USD exchange rate has a $5 per tonne effect on the price of soybean meal.

Increased volatility in the soybean meal futures market has made soybean meal providers shy about providing forward contracts that are very far into the future. Many soybean meal buyers in Manitoba would like to book their soybean meal price a year ahead but those forward contracts are not offered anymore.

If seeded acres of soybeans are projected in Manitoba to be 2 million acres and the yield is projected to be 40 bushels per acre, then the province is working with 80 million bushels of soybeans. If the price differential between 38% protein soybeans and 40% protein soybeans is 20 cents per bushel, then the direct value of closing that 2% protein gap can be valued at $16 million per year to the producers. The present value of $16 million per year in perpetuity using an 8% discount rate is $200 million.

An additional value for the province of closing the soybean protein gap is that consistent 40% protein soybeans would allow a local soybean processing plant to produce consistent 47.5% protein soybean meal, making it a viable business for providing soybean meal to the provincial animal industry.