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MEMORANDUM February 16, 2012 TO: Dr. Allen F. Wysocki FROM: Donna Graden DG, Deirdre Hilliard DH, Kimberly Marie KM, and Brittany Davis BD SUBJECT: AEB 3300 Team Project Part 1, Soybean Proposal, Marketing Channels, and Structure

Analysis We are submitting this proposal of our research on the soybean industry. Our team has put together a marketing channel and structure analysis for soybeans and has included it in this document. The data presented will track soybeans vertically up the marketing channels starting with the Input Suppliers and ending with the United States (U.S.) Consumers. According to the United States Department of Agriculture (USDA) National Agricultural Statistics Services, soybeans are grown in thirty-one states throughout the Corn Belt and lower Mississippi Valley in the U.S. Additionally, according to the NASS, USDA the usual planting dates for soybeans are May 1st through July 1st with harvesting dates beginning October 1st through November 25th. This biological lag from planting to harvesting creates a farm marketing problem and makes it very difficult for producers to estimate their final output or potential risks. These risks are due to financial, weather, or crop damage issues all of which contribute to potential production level inconsistencies. With the worlds population growing by the millions every year, producers in the soybean market are encouraged to increase yield and amount of acres planted and harvested for soybeans to help feed and fuel a growing population. In the 1990s the soybean industry gained ground when vertical integration among suppliers were able to conduct research and develop new methods to increase soybean production. Our research shows statistics furnished by the USDA, that 41.5 bushels/acre of soybeans were produced on 73.6 million acres in 2011. These production levels are indicative to the diversity of farm levels, crop science and technological advancements. The information presented in this document will outline the soybean structure, conduct, and performance in the U.S. and give an introduction to the soybean industry. We believe the information contained in this document has followed soybeans through all stages of the marketing channels as indicated in the requirements of the project.

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S o y b e a n P r o d u c t i o n |2

By: Brittany Davis Donna Graden

Deirdre Hilliard Kimberly Marie

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Structure Analysis of the Soybean Industry

INTRODUCTION

In a time when the world is thinking about sustainability and world food production one has to give the soybean industry consideration. According to the United States Department of Agriculture (USDA) National Agricultural Statistics Service the numbers of acres harvested in soybeans in 2011 in the U.S. were 73,636,000. In 2010, there were 1.59 billion bushels of soybeans exported from the United States, accounting for 44 percent of the worlds soybean trade (Welcome to Soystats 2011). Soybeans work their way up the vertical marketing channels from the supplier of the seed, to the producer, assembler, import, processor, manufacturer, government, export, wholesaler, retailer, and finally the consumer. The soybean industry is a large player in the nations economy because the equivalent of every other row of soybeans produced in the United States is exported as whole soybeans, or processed and exported as soybean meal and soybean oil (Export Promotion). The U.S. grows more soybeans than any other country in the world and accounts for more than 1.59 billion bushels exported to other countries in the global marketplace. When it comes to our nations healthcare issues, soy once again is in the forefront of the discussion. In January of 2012 the United States Department of Agriculture (USDA) made a move to allow schools to serve tofu as well as other soyfoods and soymilk (New USDA Standards for Healthier School Meals Are for Everyone). This will be an important step in helping to lower the cholesterol, saturated fat, and caloric intake of children which will in turn make for a healthier society. The soybean industry not only helps feed the world but is also contributing to biofuel technology which will help protect our environment. This green initiative will help to protect our soils so that the farming industry may continue to thrive into the future. As the worlds population continues to grow by the billions, our need to farm rich, productive soils becomes an increasingly important factor. The presence of soybeans in the market structure analysis is a meaningful contribution in the goal of feeding the world as well as preserving our cultivatable acres for long run food production.

INPUT SUPPLIERS

The U.S. seed industry has changed over the years in the past few decades. Historically farmers would have saved seed from previous harvest for planting the following season. However, in the past century the seed industry has changed from being in the small farmers hands to larger, privately owned seed enterprises. The growth of private research and development (R&D) companies expanding agricultural biotechnology methods, compounded with mergers and acquisitions of smaller companies has been the demise of the small seed business. However, due to larger companies selling genetically altered seed, crop yields have increased in the past 70 years with soybean yields tripling. Much of this improvement is attributed to the genetic advancements in seed and plant breeding.

According to the Economic Research Service/USDA, The United States is the largest seed market worldwide, followed by China and Japan. Seed expenditures by U.S. farmers rose from about $500 million per year in 1960 to nearly $7 billion in 1997. Furthermore, the legal protection of intellectual property rights with patents on genetically altered seed has changed the seed industry in the second half of the 20th Century. Hence, the market concentration of the seed industry has shifted from the small, family owned businesses to larger industries. Much of the market power for the seed industry is held by the top four in the seed industry. The most recent industry information found indicating percentage of global proprietary seed market was obtained from ETC Group based on 2007 seed sales. As stated on GMWatchs website, the ETC Group lists the top four in the seed industry as: Monsanto (US), DuPont (US), Syngenta (Switzerland), and Groupe Limagrain (France). The USDA puts these companies in a different order but date clarification could not be made to substantiate the most current ranking order.

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Pioneer, a DuPont business is an input supplier providing soybean seeds to the producer. Established in 1926 in Des Moines, Iowa, Pioneer is still headquartered in this location. Pioneer has business operations in more than 90 countries, more than 70 production locations, more than 100 research locations and more than 10,000 employees worldwide (www.pioneer.com). contributing to their dedication to research and development. Pioneer has become a leading developer and supplier of plant genetics to farmers worldwide and has helped farmers boost productivity, profitability, and sustainability (Pioneer At A Glance). They are dedicated to doing their part in helping feed the worlds growing population. Some of their goals by the end of 2020 are to produce more food, enhance nutrition and food safety, increase food availability, and agriculture sustainability.

PRODUCERS

Soybeans are grown for the bean product and thru processing the beans are turned into oil and meal. Further processing produces such products as: soymilk, tofu, soy flour, soy sauce, miracle whip, plastics, fuels, and paint just to name a few. The main soybean producing area is in the Corn Belt and the lower Mississippi Valley. (USDA National Agricultural Statistics Services) The states producing the most soybeans in the U.S. are Iowa, Illinois, and Minnesota.

Figure 1: Graphic provided by www.soystats.com

Distribution of Soybean Growing States, Representing Bushels by Millions

In 2010, U.S. soybean farmers harvested 3.329 billion bushels of soybeans. The average yield was 43.5 bushels per acre (Welcome to Soystats). See (Figure 1) above showing the distribution of states in the Corn Belt and lower Mississippi Valley and bushels yielded per million. Additionally, statistics from the 2007 Census of Agriculture show that in 2007, there were 279,110 farms listed as having harvested soybeans on a total of 63,915,821 acres. The breakdown of farm size compared to acres of production is shown in (Table 1) See next page.

Bob Heers of Heers Family Farm, Steele County, Minnesota is one of these many producers of soybeans that contributed to the 3.329 billion bushels harvested in the U.S. in 2010. Mr. Heers farms 2,600 acres of corn, soybeans, and peas (University of Minnesota). Mr. Heers is a third generation farmer, farming the land that his grandfather did so many years ago. Through the years the farm has grown from the 280 acres his grandfather established to the current 2,600 acres Mr. Heers farms with his family. Working with him on Heers Family Farm are his wife Marsha and son Matt. Another son plans to return to the family farm upon graduation from college. Mr. Heers and his family were honored by the University of Minnesota as 2010 Farm Families of the Year for their contribution to the farming industry.

S o y b e a n P r o d u c t i o n |5 Table 1: Specified Crops by Acres Harvested: 2007

Crop Farms Acres Soybeans for beans (bushels)

279,110 63,915,821

1 to 14 acres 19,755 168,726

15 to 24 acres 18,703 358,638

25 to 49 acres 39,453 1,410,843

50 to 99 acres 51,482 3,627,583

100 to 249 acres 70,698 11,281,858

250 to 499 acres 44,381 15,444,692

500 to 999 acres 25,097 16,830,023

1,000 acres or more 9,541 14,793,458

1,000 to 1,999 acres 7,905 10,183,238

2,000 to 2,999 acres 1,163 2,702,212

3,000 to 4,999 acres 399 1,418,465

5,000 acres or more 74 489,543

Source: USDA 2007 Census of Agriculture

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Commodity Assembly/Initial Processing

Soybean Processing

*All information for Soybean Processing can be found at National Soybean Research Laboratory of Illinois.

Soybean ProcessingFrom Field to Consumer

Farmers dedicate much time and hard work to produce and harvest millions of tons of soybeans. That work is complemented by the considerable effort and care the soybeans receive after harvesting to ensure the high quality and continuous supply of soy products to processing industries and consumers.

Soy Processing Products: How They are Used

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Soybean processing involves a series of steps to produce commodities for food, industrial, and animal feed uses.

Threshing Threshing consists of separating the beans from the pods (portion of the plant fruit that encases the soybean seeds). Most soybeans are harvested and threshed simultaneously by modern combines. Threshing can also be done by hand using simple tools, the help of vehicles, or simple hand or motor-driven machines. Whatever the system used, it is very important that threshing be done with care to prevent breakage of the beans or hulls. Careless threshing can reduce the product's quality and foster subsequent losses from the action of insects and post-harvest disease..

Drying " Drying" is a post-harvest phase during which the beans are rapidly dried until they reach the "safe-moisture" level. After threshing, the moisture content of the beans is sometimes too high for good conservation (13 to 15 percent). The purpose of drying is to lower the moisture content in order to guarantee conditions favorable for storage or for further processing and handling of the product. Drying can be done by allowing warm, dry air to circulate around the beans.

Essentially two methods of drying are utilized, either natural or artificial drying.

Natural drying

In dry climates and soybean producing regions that may not have access to mechanized drying equipment, the threshed soybeans are spread in thin layers on a drying-floor where they are exposed to the air and sunlight for about 1 to 2 weeks. The beans must be stirred frequently to encourage uniform drying. As a rule of thumb, the relative humidity of the ambient air must not exceed 70 percent for drying to be effective. When relying on natural drying methods, soybeans must not be exposed at night. The cold and moist night air fosters re-humidification of the beans which may be detrimental to bean quality. Natural drying methods should not be used in humid regions or during rainy seasons.

Artificial drying

In humid tropical and subtropical regions or areas with unfavorable weather conditions at harvest, artificial drying is necessary. In these regions, it is often difficult to safeguard the quality of newly harvested soybeans. With the introduction of high-yielding soybean varieties and the use of agriculture mechanization, it is possible to harvest large quantities of soybeans in a relative short time and quickly dry the beans for storage. Due to the length of the growing season, weather conditions, or subsequent crops to be planted shortly after soybean harvest, farmers are forced to harvest soybeans with high moisture content. Consequently, it is necessary to dry the beans artificially. This method of drying consists of exposing the beans to forced ventilation of air that is heated to certain degree in special equipment called "dryers".

Cleaning Cleaning consists of eliminating impurities and debris from the harvested crop. Sometimes cleaning is done more than once through the post-harvest system and may be accompanied by sorting the beans according to quality.

After threshing, soybeans are contaminated by soil, plant and insect waste, small pebbles, weed seeds, or broken soybean seeds. The broken seeds and other impurities hinder drying operations, make post-

S o y b e a n P r o d u c t i o n |8harvest processing longer and more costly, lower the end-product quality, and serve as targets for post-harvest disease.

The simplest cleaning method involves tossing the beans into the air and letting the wind carry off the lightest impurities. This cleaning method does not eliminate the heavier impurities. Cleaner-separator machines are used when large quantities of beans are cleaned. They are motor-driven and consist mainly of a reception hopper, a fan and set of vibrating sieves. Cleaning is done by repeated suction of the lightest impurities, followed by siftings of the beans.

Packaging Soybeans are generally packed in bags made of jute, cotton fibers, or plastic. Bag packaging is seldom used in developed countries but it is widespread in developing countries because it is economical and well adapted to local grain-transport and marketing conditions. The type of bag determines the height of the stacks. Generally, the bags are stacked on wooden platforms called pallets, in order to prevent direct contact of bags with the floor. The free space between the top layer of the stacks and the top of the storehouse should be at least 1 meter. Sometimes, small-farmers keep small quantities of soybeans in sealed containers for self-consumption.

Storage Storage is an important phase of the post-harvest system. During this phase, the soybeans are stored in a manner to be readily available and high quality. The main objectives of soybean storage are to permit deferred soybean use, to ensure seed availability for the next crop cycle, to guarantee regular and continuous supplies of raw soybeans for processing industries and to balance the supply and demand of soybean, thereby stabilizing its market price.

Top Soybean Processing Companies 20111

Top Companies by Sales

1. Archer-Daniels-Midland Company 2. Chs Inc 3. Riceland Foods, Inc 4. Minnesota Soybean Processor 5. South Dakota Soybean Processors, Llc 6. West Central Cooperative 7. Owensboro Grain Company 8. Sunopta Food Group Llc 9. Vitasoy Usa Inc 10. Prairie Pride, Inc

1NationalSoybeanResearchLaboratory.http://www.nsrl.uiuc.edu/aboutsoy/soyprocessing.html#packstore

Soybean Processors by State & Changes in Shipment from 2002-2007

http://smpbff1.dsd.census.gov/TheDataWeb_HotReport/servlet/HotReportEngineServlet?emailname=vh@boc&filename=mfg3.hrml&20071204152004.Var.NAICS2002=311222&forward=20071204152004.Var.NAICS200

2

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11. Producers Cooperative Association Of Girard 12. Pureline Usa, Inc 13. Incobrasa Industries, Ltd 14. Zeeland Farm Services, Inc 15. A D M Soybean Meal Plant 16. Thumb Oilseed Producers Cooperative 17. Lee, Kanin 18. American Soy Products, Inc 19. Double Diamond Energy Inc 20. Blue Chip Group, Inc

Top Employers

1. Cargill Incorporated 2. Chs Inc 3. Archer-Daniels-Midland Company 4. Perdue Incorporated 5. Solae Llc 6. Ag Processing Inc A Cooperative 7. Bunge Milling, Inc 8. Riceland Foods, Inc 9. Ventura Foods, Llc 10. Ag Processing Inc A Cooperative 11. Gruma Corporation 12. Bunge North America Foundation 13. Archer-Daniels-Midland Company 14. Vitasoy Usa Inc 15. Owensboro Grain Company 16. Zeeland Farm Services, Inc

ChangesinSoybeanShipmentfrom20022007

http://smpbff1.dsd.census.gov/TheDataWeb_HotReport/servlet/HotReportEngineServlet?emailname=vh@boc&filename=mfg3.hrml&20071204152004.Var.N

AICS2002=311222&forward=20071204152004.Var.NAICS2002

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Further Manufacturing

After being turned into different forms during initial processing the soy is then turned into table ready goods by different manufacturers. According to the U.S. Census, in 2010 there were 10,567,355 total employees in the manufacturing sector in the United States. Of those 1,364,157 only manufactured food products, and of those 50,020 did grain and oilseed milling. The list of manufacturing employees can be further shortened to 7,066, the total number of soybean and other oilseed manufacturing employees in 2010. After being in the business for over thirty years SunOpta is one of the largest soy foods manufacturers in the United States. They opened their door in 1973 as a technology company before branching out into the organic food market in 1999. They are known for their involvement in every process of soy foods production from input supplies all the way up to consumers (vertical integration). In 2010 they had revenues of $898,931, up ten percent from the previous years revenues (sunopta report). SunOpta has 450 employees and contracts directly with over 2,500 farmers (SunOpta). They run soybean processing facilities in Minnesota, California, New York and Colorado. SunOpta is mostly known for their Sunrich Naturals products which they have been manufacturing for over twenty-five years. Their most popular soy products are Honey Nutz, which are honey roasted soy, soymilk, and non-GMO edamame (Sunrich).

Wholesaling According to the U.S. Census, the wholesale sector is comprised of 434,983 establishments of which 4,638 take part in the wholesaling process of some soy product. Publix is an integrated grocery wholesaler that was founded in 1930 by George W. Jenkins in Winter Haven, Florida and is now a Fortune 500 company. They now have over 1,000 stores and are recognized as one of the fastest growing employee-owned companies in the Unites States. Publix has eight distribution centers and five manufacturing facilities throughout Florida and Georgia as well as 1,048 supermarkets in Florida, Georgia, Alabama, South Carolina and Tennessee. Publix reported that they had net earnings of 1.1 billion dollars through the first three quarters of the 2011 year. Gordon Food Service is a non-integrated foodservice wholesaler that was started in 1897 as a butter and egg delivery service. GFS was ranked #40 by Forbes on the 2011 list of largest private companies in America with other 12,000 employees and revenues of 7.70 billion in the 2011 fiscal year. GFS distributes to foodservice operators in much of the Eastern United States including and most of the provinces in Canada. They provide services to restaurants, schools, hospitals, hotels and even cruise ships.

SourceSunrich.com

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Retailing

Soy food retail sales have improved drastically throughout a fourteen year period (1996-2009). Sales have increased from 1 billion to over 4 billion. (Soy Sales and Trends) As a result of this demand, retail supermarkets such as Winn-Dixie and Publix, specialty retailers such as Wards, and food service retailers such as Shands have increased their supply and variety of Soy foods. Of all mentioned above, Winn Dixie is the largest soy product retailer with operating stores in Florida, Alabama, Georgia, Louisiana and Mississippi. (Winn-Dixie Growth) Popular soy Brands that they retail are Silk, Solae, Morning Star, SunOpta, Boca West Soy and House Foods.

Table 3

Table 4

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Consumption

In 2011, thirty seven percent of Americans consumed soy products at least once a month (Soy Foods). This percentage was 5% higher compared to that of 2006 - 2008. Not only are soy products household favorites, but research shows that 31 % of soy consumers order soy based meals in restaurants. In addition, 40 % of buyers consume soy foods at dinner time, twenty-nine percent at breakfast and 22 percent during lunch time. According to Soy Connection, soy milk is the highest demanded product among consumers.

Table 5

Although, Soy consumption has declined recently, the FDA produced a study claiming that consuming at least 25 grams of soy protein per day reduces the risk of coronary heart diseases. Since the study was released eight out of ten consumers became more aware of the product (Soy Connection).

Table 6

0%20%40%60%80%

100%

Soym

ilkPl

ain

tofu

Soy

vegg

ie

Soy

bean

oil

Soyn

uts

Soy

prot

ein

Soy

infa

nt

Soy

latt

e'

Dri

ed o

r

Soy

ice

Soy

hot

dogs

Soy

flou

r

Soy

Cer

eal

TopConsumedProducts

67% 71%76%

69% 74% 74% 74%78% 82%

85% 85% 84% 84% 81%

ConsumerAwarenessofSoy

S o y b e a n P r o d u c t i o n |13Today Americans spend over 4 billion dollars yearly on Soy foods compared to two decades ago. The use of soy based products has increased in lunch menus and baby formula. Soy has also been used as a substitute for protein instead of meat (E Magazine).

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References

American Soybean Association. (2011). Market Development. Export Promotion. Retrieved from http://www.soygrowers.com/international/exports.htm. American Soybean Association. (2011). Soystats 2011. State Soy Crop Statistics. Retrieved from http://www.soystats/2011/Default-frames.htm. American Soybean Association. (2011). Soystats 2011. Welcome to Soystats 2011. Retrieved from http://www.soystats.com/2011/Default-frames.htm. Census.2012.Factfinder.Retrieved from www.census.gov Consumer Attitudes 2011retrieved from

www.soyconnection.com/health_nutrition/pdf/ConsumerAttitudes2011.pdf Custom Market Research and Capabilities 2012. Retrieved from

www.SoyaTech.com/store.htm?catId=16 Environment Magazine The. 2012 How Healthy is Soy? Retrieved from http://www.emagazine.com/earth-talk/how-healthy-is-soy Match. (2012). The Worlds Top 10 Seed Companies. Retrieved from

http://www.gmwatch.org/gm-firms/10558-the-worlds-top-ten-seed-companies-who-owns-nature. GordonFoodService.2012.History.retrieved from www.gfs.com/en/about-us/history.page? Hoovers http://www.hoovers.com/companyindex/Soybean_Processing-1.html National Soybean Research Laboratory. http://www.nsrl.uiuc.edu/aboutsoy/soyprocessing.html#packstore Pioneer. (2012). At A Glance. Retrieved from www.pioneer.com/home/site/us. Pioneer. (2012). News Releases. DuPont Announces Goals to Help Feed a Growing World Population. Retrieved from http://www.pioneer.com/home/site/about/news-media /news-releases/template. Soyfoods Association of North America. (2012). News Room, Press Releases. New USDA Standards for Healthier School Meals Are for Everyone. Retrieved from http://www.soyfoods.org/press-releases/new-usda-standards-for-healthier-school-meals-are-for-

everyone.

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References

Soyfoods Association of North America. (2012). News Room, Press Releases. New USDA Sales and Trends. Retrieved from http://www.soyfoods.org/press-releases/new-usda-standards-for-healthier-school-meals-are-for-

everyone. SunOpta.2012.about us. Retrieved from www.Sunopta.com/about_us.aspx Sunrich.2012.ourproducts.retrieved from www.sunrich.com/Products.html University of Minnesota. (2011). Steele County-Minnesota Farm Families of the Year. Steele County, Heers Family Farm. Retrieved from http://mnfarmfamilies.cfans.umn.edu /families-by-year/2010-2/Steele-county. United States Department of Agriculture (USDA). (2007). Census of Agriculture. (2007 Census of Agriculture, Table 33. Specified Crops by Acres Harvested: 2007 and 2002). Retrieved from

http://www.agcensus.usda.gov/Publications/2007/Full_Report/Volume_1,_Chapter_1_US/index.asp.

United States Department of Agriculture (USDA). (2012). Economic Research Services. (The Seed Industry in U.S. Agriculture/AIB-786). Retrieved from

http://www.ers.usda.gov/publication/aib786/aib786h.pdf. United States Department of Agriculture (USDA). (1997, December). National Agricultural Statistics

Service. (Agricultural Handbook Number 628,Usual Planting and Harvesting Dates for U.S. Field Crops) Retrieved from www.nass.usda.gov/Publications/Usual_Planting_and_Harvesting_Dates/uph97.pdf.

United States Department of Agriculture (USDA). (2012). National Agricultural Statistics Service. (Statistics by Subject, National Statistics for Soybeans). Retrieved from http://www.nass.usda.gov/Statistics-by-

Subject/result.ph...56DD&Sector=CROPS&group=FIELDCROPS&comm=SOYBEANS WinnDixie.2012. About us. Retrieved from www.winndixie.com/about_us/our_history.asp