11/21/2001,(Southeast Farm Press) - One need only look at the current U.S.soybean supply and demand balance sheet to see that the 1996 Freedom toFarm legislation isn't working as intended, says Gerald A Bange, chairmanof the USDA World Agricultural Outlook Board."Soybean production for 2001-02 is forecast at 2.834 million bushels, andthis is coming off a year when the average market price was $4.55 perbushel," says Bange. "Freedom to Farm isn't working because farmersapparently are not responding to market signals. And these market signalsare being buffered somewhat by government programs." Export situationTurning to soybean exports, Bange says U.S. farmers should be able to holdsteady at one million bushels. "For some years now we've been estimatingsoybean exports at one billion bushels. We finally reached that number in2000-2001, and we're expecting to hold exports at essentially the samenumber for 2001-2002."Ending stocks for U.S. soybeans are expected to increase from 240 millionbushels to about 255 million bushels, he says, but a stronger market pricestill is expected for U.S. producers in 2001-02."The range for the average market price is $4.40 to $5.40 per bushel, sowe should see a price of about $4.90 per bushel. Even with our endingstocks actually increasing, we still should see a stronger price. And muchof this is due to the current demand for soybeans coming out of China,"says the economist.The current downward pressure being seen in the soybean market can beattributed to several factors, says Bange. "The Brazilians are talkingabout a 45 million ton crop. This is the crop that will be harvested afterthe first of next year. If they don't have weather problems, theBrazilians will have a big crop, and that will have an impact on prices.They've had several years of good weather, and if it happens again, we'llsee a lot of competition from Brazil," he says.Another factor causing concern in the markets is China's position onGMO's, adds Bange. "Right now, China is making rumblings about GMO's.China is a major soybean importer, and when they say they're thinkingabout which GMO's to allow into their country, the entire market becomesnervous and prices are affected."Since about 1980 or 1981, U.S. soybean stocks have decreased gradually, hesays, but U.S. prices have not risen accordingly."If we look at the market in 1985-86, very low prices were associated witha very high stock level. Now, we have relatively low stocks, but the priceis still low. With ending stocks for 2000-2001 at 240 million bushels, wehave an average market price of $4.55 per bushel or an 8.5 percentstocks-to-use ratio. South America"But we have to look at the impact of Brazilian and Argentine stocks toget the whole picture. If you count these stocks at about the same timethat you're counting U.S. stocks, you'll see that the worldwide stockslevel has risen sharply. We can't look only at what is happening in theUnited States."China, says Bange, has become a major importer of soybeans, and this hasoccurred since the mid-1990s. "In 1993 and 1994, China was importingvirtually nothing. Now, they're importing about 14 million metric tons.Given what is occurring in Brazil, and what has happened with U.S.production, this market really would be in the pits were it not forChina's imports. It's bad enough as it is, but it would be much worse ifChina wasn't taking these 14 million tons off the market."This 14 million tons isn't coming from the United States alone. Abouthalf of it comes from the United States and the other half comes fromelsewhere in the world. For awhile, China was importing oil. Now, theyprovide their own labor and press the beans themselves." Two primaryreasonsThere are two primary reasons China is importing so many soybeans, saysBange. One is for feed consumption -- as their incomes have risen, theChinese have put more soybeans into animal feeds."The Chinese have built a lot of processing plants along the coastalareas, and they're importing a lot of beans for those plants. They alsohave a nutrition program where they're feeding soymilk in the schools.They've expanded their processing capacity, so we think they'll be in thesoybean business for some time. If, for whatever reason, they cut off this14 million tons of imports, it would have a devastating impact on U.S. andworld markets."Brazil's soybean production is worrisome for the U.S. market, says Bange.Brazil is anticipating a production of 40 million tons for 2001-02. Thisis up from about 15 million tons in 1985-86."Brazil is moving its production -- they're trading off their morevaluable land for cheaper, more productive land. And Brazilians aren'thappy with U.S. farm programs. A formal complaint to WTO already is inprogress. Brazil has almost doubled its soybean production in the past 10years."The collapse of the real -- Brazil's form of currency -- also has had aneffect on the soybean markets. Since July of 2000, the real has fallen 49percent against the U.S. dollar. A weak real means that their ability tocompete with the United States is greater. The Brazilian price isimproving because of this weak currency, and that gives them a competitiveadvantage. They can undercut us.Argentina, says Bange, also is producing more soybeans. "When we look atthe combined increase of Brazil and Argentina versus the United States,it's been phenomenal."Farmland values, he says, are beginning to hamper U.S. producers' abilityto compete in a world market. "USDA has done a fair amount of research tohelp determine who can produce the cheapest soybeans. In terms of variablecosts of production, U.S. producers can beat competitors `hands down.' Ourproblem is that land values are being capitalized into the cost equation."Overall, our competitors can produce more cheaply because we're factoringin high land values. Land values have been rising, so this is causing somedifficulty for U.S. producers. As the cost of land rises, it goes backinto the cost of production. And though we can beat our competitors onvariable costs, we can't beat them on total costs."