America's Soybean Crisis: The Threat of Monsanto and the Promise of One Emerging Competitor

When most people think of American agriculture, the first crop that typically comes to mind is corn.

After all, there are few things more quintessentially American than eating Corn Flakes for breakfast, grilling corn on the cob in the summer, or decorating your home with dried, multicolored corn during the fall season.

But despite its iconic status in America, corn isn’t actually the country’s most valuable crop from a global standpoint. By far the largest U.S. agricultural export is soybean, with upwards of $28 billion in international shipments every year.

In 2017, U.S. soybean exports reached record levels and eclipsed production from just five years ago (2012) by nearly 20%. Thanks to incredibly strong demand from China for soybeans, exports accounted for more than 60% of U.S. domestic production last year.

Yet despite recent overall top-line growth of America’s soybean exports, evidence is mounting that U.S. soybeans are losing global favor. This trend is especially notable in the $14.7 billion Chinese market, which could spell major trouble for U.S. soybean farmers in 2018.

For starters, the U.S. is losing crucial market share in China to Brazil. Ten years ago, the U.S. was the leading soybean supplier to China, accounting for 38% of its imports, while Brazil was a close second at 34%. Today, those rankings have flipped drastically, with the U.S. now supplying just 34% of China’s soybeans and Brazil supplying a commanding 57%.

While there are a number of factors influencing this trend, there is one that’s particularly threatening to U.S. farmers, and that’s the diminished quality of U.S. soybeans.

Since 2000, U.S. soybean yields have improved substantially — from 2,557 Kg. per hectare (one hectare is ~2.47 acres) to 3,331 Kg. per hectare in 2017. Yet in the same time frame, U.S. soybean protein levels have dropped, from 36.2% to 34.1%.

For perspective, that 34.1% figure ties for the lowest protein content in U.S. soybeans since that data was first collected in 1986. It also compares to Brazilian soy at 37%, which, in the business of global agriculture, is a fairly wide quality gap.

The inverse relationship between yield and protein content isn’t a coincidence, either; it’s a direct trade-off. For years, U.S. farmers have been sacrificing quality for quantity, growing genetically modified seeds in drier and colder regions, but they may not be able to keep this strategy up for much longer.

As Sergio Mendes, general director at Brazil’s grain exporter group Anec, explains, “Brazilian soybeans are getting a quality premium… [Brazil is] having a good moment in terms of quality, which has been recognized and valued by the Chinese.”

Yet a premium on Brazilian soybeans could be the least of the U.S. soybean industry’s worries. As Reuters reported late last month, half of U.S. soybeans exported to China this year could fail to meet new standards set forth by the latter nation.

In brief, more stringent quality rules in China, which went into effect on January 1, are effectively requiring higher-quality soybeans at zero premium. Needless to say, this is a major threat to U.S. soybean farmers.

As Jared Hagert, a North Dakota farmer and director of the United Soybean Board (USB), plainly puts it: “China needs soybeans, and we’re at risk of becoming a residual supplier if we don’t work on protein improvements.”

China’s new standards extend beyond just protein content, though. The country is also demanding cleaner foreign products, free from general impurities.

Last month, for instance, China’s quarantine authorities destroyed 6.8 tons of genetically modified soybeans from the U.S., citing mildew contamination.

And as the South China Morning Post reports, China’s new rules are largely due to concerns over weed seeds in U.S. cargoes. Specifically, China is concerned about herbicide-resistant weeds, which have been popping up in harvested beans.

Alongside diminished protein content, the problem of herbicide-resistant weed contamination can be traced directly back to American agrochemical corporations, namely Monsanto.

For years, Monsanto has been dominating the U.S. seed industry with a genius business model: sell herbicide-resistant crop seeds, and supplement them with a chemical-laden herbicide known as Roundup to keep the weeds at bay.

This strategy has worked for a brief period of time, but, as Jeff Goldblum’s famous movie line goes, “Life, uh, finds a way.” And that’s exactly what’s happened after years of dousing U.S. crops with Roundup. Weeds have evolved, and they’ve become increasingly resistant to chemical herbicides.

As a result, U.S. farmers are facing the consequences, and it’s not just the soybean industry, either. Farmers across the country are encountering so-called “super weeds” that Roundup is powerless against.

Former CEO and President of Stonyfield Farm Gary Hirshberg put the crisis into perspective:

I was talking to a farmer from Arkansas and he’s got weeds that are now eight feet tall, they’re the diameter of my wrist, and they can stop a combine in its tracks… The only way they can stop them is to go in there with machetes and hack them out.

With the rise of these super weeds and the reduction of crop quality, it’s become increasingly clear that American agriculture can no longer rely on Monsanto’s “Roundup Ready” seeds.

And with crucial trade partners like China raising their quality standards, American farmers are facing a major threat.

Fortunately, a solution is on the horizon thanks to advancements in gene-editing technology being pioneered by a little-known company that recently hit the public market.

Unlike Monsanto, this company’s seeds don’t qualify as GMOs because they don’t have any foreign genes, nor are they designed to be sprayed with dangerous chemicals like Roundup.

Current products in this company’s pipeline include improved protein-composition soybeans, drought-resistant soybeans, mildew-resistant wheat, high-fiber wheat, reduced-browning potatoes, improved-quality Alfalfa, and multiple blight-resistant crops, among many other innovative seed traits.

Needless to say, this is good news for American farmers, but even better news for investors sharp enough to get in on this company early. For the full details, I urge you to review our free presentation on the company that folks around the office are calling the “Monsanto Killer” right here.

Until next time,

Jason Stutman

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