Spotlight on Economics: Essential Amino Acid Content Has Positive Impact on N.D. Soybean Basis
Soybean buyers appear to adjust their basis bids in response to nongrade quality factors.
By David Bullock, Research Associate Professor
NDSU Agribusiness and Applied Economics Department
Soybeans are an increasingly important crop to North Dakota agriculture.
In 2018, North Dakota ranked fourth in the nation in soybean area planted and harvested, with approximately 6.9 million acres planted. According to the U.S. Department of Agriculture’s National Agricultural Statistics Service, soybeans ranked third in North Dakota among all crops (after corn for grain and wheat) in total farm value at $1.41 billion in 2019.
However, unlike wheat, soybeans do not have explicit quality premium/discount schedules at origins outside of those covered by USDA grades and standards.
One emerging nongrade quality factor for soybeans is the essential amino acids (EAA) content. Historically, protein content has been used as a proxy for EAA; however, recent NDSU research published in the journal Agribusiness has indicated that protein is not necessarily a good proxy for EAA content.
The article also identified five EAAs (cysteine, lysine, methionine, threonine and tryptophan) that have potential value in soybean meal for livestock feed.
While not explicitly present in origin pricing of soybeans, some nongrade determining factors may have an implicit influence on the origin basis (cash – futures price spread) as buyers assess available regional quality information. This hypothesis recently was tested in an NDSU master’s thesis research project titled “Soybean Quality and Market Factor Influence on North Dakota Origin Basis Values.”
In this study, soybean basis and quality data were obtained across eight North Dakota crop reporting districts (CRDs) for the 2010 through 2019 crop years in a cross section time series panel data set. Additional control variables such as Pacific Northwest export basis, transportation costs and nearby futures spreads also were included in the data set. The basis impact was examined on a marketing year and quarterly time frame using a fixed effects panel regression model.
The results of the regression analysis strongly support the hypothesis that higher EAA content in the North Dakota CRDs resulted in stronger soybean basis levels, particularly in the two quarters following the annual release of the North Dakota quality statistics (by CRD). Protein content also has a positive impact in the same two quarters.
These results provide support to the hypothesis that soybean buyers implicitly or explicitly adjust their basis bids in response to the reporting of nongrade quality factors (protein and EAA) on a regional basis.
NDSU Agriculture Communication - Sept. 16, 2020
Source: David Bullock, 701-231-8672, email@example.com
Editor: Ellen Cawford, 701-231-5391, firstname.lastname@example.org