World Grain - October 2011 - 85

FEATURE: U.S. SOY CRUSHERS FACE CHALLENGES

• soymeal and soy oil are not taxed for crossing state borders; and • exports are not taxed. The report said that, in principle, Brazil’s intention is to tax soybeans at a total rate of 12%. The complication arises because there is little integration between taxing authorities in the different states. As a result, the 12% tax is cumulative unless a transporter is sophisticated enough to use legal means to collect overpayment credits. “This can be an expensive and time consuming exercise,” Rabobank said. The report noted that biodiesel production has grown dramatically in Brazil since 2005. This takes the oil fraction off the market, which could help U.S. crushers. However, to the extent it creates excess soy meal, it could be detrimental. “Currently, Brazil’s biodiesel program is seen as a net negative for U.S. crushers, though only a moderate one,” Rabobank said. PRESSURE FROM CANADA The report also focused on Canada, where canola oil and meal compete directly with U.S. soy oil and soymeal. Canadian canola production has increased from 5 million tonnes in 2001-02 to 12.4 million in 2009-10. Crushing capacity has increased from 3.7 million tonnes in 2006 to its current level of 7.5 million tonnes, effectively adding about 6% to North American oilseed crushing capacity at a time when demand for meal from the livestock and poultry sectors is softening. “The primary driver of growth in Canadian canola production has been demand for healthier cooking oil in the U.S.,” Rabobank said. “While some of this demand growth has come from consumer pull, some of it has come from regulatory push. Wealthy retail consumers in the U.S. increasingly prefer canola oil or soy oil because it has lower saturated fat and higher unsaturated fat levels than soy oil.” The report said that on the supply side, favorable crushing economics have been a factor in the growth of Canada’s canola production. Rabobank estimates that in 2010 North American
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canola crushing margins averaged $129 per tonne versus only $28 per tonne for soybean crushing. ETHANOL’S IMPACT Policy intervention in U.S. soybean markets differs greatly from the tax structures used in Brazil and Argentina. U.S. soybeans, soymeal and soy oil are all transported between states and exported out of the country tax free. While there is no import/export distorting tax structure in the U.S., the report said the soybean industry ha paid signiﬁcant costs because of tax policy supporting the U.S. ethanol industry. “Ethanol policy has indirectly hurt U.S. soybean processors via increased production of ethanol’s byproduct, DDGS, which competes with soymeal production. In recent years, a 45-cent-per-gallon tax credit for U.S. ethanol producers and a 54-cent-per-gallon tariff on ethanol imports, combined with high gas prices,

caused an explosion in the amount of ethanol production in the U.S., thereby leading to an increase in the amount of DDGS produced. However, the ethanol tax credit is set to expire at the end of 2011 and the import tariff will more than likely cease at that time. “This is likely to make ethanol production and blending less attractive at the margin level, but will probably not cause a decrease in production as long as the mandated levels remain in place,” Rabobank said. Mandated legislation in the U.S. requiring increasing minimum production levels for corn-based ethanol means that growth will slow in the coming years and peak at 15 billion gallons in 2015. Rabobank said that despite high corn costs, ethanol blending has been proﬁtable this year and ethanol production is anticipated to reach 13.5 million gallons, far above the mandated minimum of 12.6 million gallons. Still, the re-

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World Grain - October 2011

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