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High oil pays premium

This winter, as you refine your soybean variety lineup, consider this: Selecting varieties with the potential to produce more oil could be worth up to 7 1/2 cents/bu. on next fall's harvest.

This year for the first time, many seed companies are providing information on oil content in 2001 soybean seed guides. The new focus on oil (and, to a lesser extent, protein) is a result of high-oil soybean premium programs from AGP, the nation's number-three soybean crusher, and Consolidated Grain and Barge (CGB), which has a single crushing plant on the Ohio River in southern Indiana.

The AGP program paid about $2 million in premiums on about 70 million bushels of soybeans in its first year, which ended October 2000. The program is offered through 278 affiliated cooperative elevators across Iowa, Minnesota, South Dakota, Nebraska and Missouri.

CGB began paying premiums to growers delivering high-oil soybeans to its crushing facility in Mt. Vernon, IN, last fall. Within two years, it expects to expand the program to its 12 elevators in Illinois and Indiana serving the Mt. Vernon plant.

Archer Daniels Midland Co. and Cargill, the nation's top two soybean crushers, aren't currently offering premiums for high-oil soybeans. Despite lack of participation by the Big Two, some experts predict that oil premiums are the wave of the future.

“This is the beginning of a more sophisticated premium structure for soybeans,” says Dr. Charles Hurburgh of Iowa State University. Hurburgh has conducted research to help identify the potential for high-oil soybeans through the producer-funded Iowa Grain Quality Initiative.

“Throughout the grain industry, there is a general movement toward specificity,” he says. “Grain is not a commodity; it is a raw material. This is certainly true for soybeans. Our research shows that about 20 to 25% of soybeans will have above-average yield and above-average oil.”

Added value

The motivation for crushers to pay premiums for higher oil is tied to tight crushing margins.

“Soybean varieties have an oil percentage range of about two percentage points,” notes Marv Wilson, marketing director for the Iowa Soybean Association. “We are learning that all soybeans aren't created equal when it comes to oil and protein.”

“If we can raise the oil percentage at our plants and refine that oil into value-added products like salad oil and cooking oils, it will add to our margins,” says Mike Maranell of AGP. “Even in this market, with oil at very low price levels, we are still competing in the oil market. The amount of oil can vary as much as 3 lbs./bu. at the same yields. With soybeans yielding 50 bu./acre, that equates to 150 lbs. of oil/acre. That is a significant improvement. And it is value worth capturing.”

Adds Doug Debelak of CGB: “In the past, soybeans have been grown for yield alone. If we want growers to focus on oil as well, we have to put a value on the extra oil and pay for it. If the value isn't shared, the program will not work.”

Premium basics

Both AGP and CGB pay up to 7 1/2 cents/bu. for soybeans at the high end of the premium scale. AGP premiums begin at 19.6% oil; 1 cent/bu. is paid for every 0.1 percentage point of oil above that level to a maximum of 7 1/2 cents. CGB pays 1 cent/bu./point above 20%, again to a maximum of 7 1/2 cents/bu. Both premium programs pay on an “as-is” moisture basis.

The premiums pay about half of the extra value resulting from the higher oil content, which is typical of premium programs for specialty grains, according to Hurburgh.

“In a competitive business like grain, it is easy to be a dead hero by being too aggressive,” he says. “If this program is successful, I would expect larger premiums in the future.”

In a best-case scenario, a high-oil premium could be worth about $3.50/acre on a yield of 50 bu./acre.

At that level, yield potential still is the top consideration when choosing a variety, points out Roger Shaw, general manager of Dedham Co-op Association, the first AGP member elevator to segregate high-oil beans and pay premiums directly to farmers.

“Once we identify the best beans for the ground, then we look at oil,” he says. “If you can potentially get higher value with higher oil at no cost, it's a no-brainer. But you can't afford to give up yield for oil.”

Last fall, Shaw says that about 30% of beans going through the elevator qualified for oil premiums. In 1999, because of cool, wet weather during pod fill, only about 4% of beans qualified for the premium. (See chart on the next page for factors that affect oil content.)

This winter, Shaw is providing growers with information on oil content from tests conducted on varieties grown last year. He also is encouraging them to gather additional information from seed companies.

“We would like to see all our farmers qualify for the premium,” he says. “We've got to get the information to producers. A two-minute decision could bring good money to the bottom line.”

Gathering oil information

Until this year, most seed companies didn't provide information about the oil content of soybean varieties. But with the advent of oil premium programs, major seed brands, including Asgrow, Dekalb, NK and Pioneer, are providing oil information in seed guides.

Monsanto has added analytical capabilities dedicated to determining the composition of seeds, which is showing up in seed guides this year for the first time, notes Joe Byrum, director of the soybean quality traits breeding group for Monsanto brands Asgrow and Dekalb.

“Seed companies historically have been good at determining yield and disease packages,” Byrum notes. “Now, for the first time, we have the assets in place to provide high-quality data on composition to our customers.”

Hurburgh cautions that because no uniform standards for testing and reporting oil currently exist, it may be difficult to make valid comparisons across seed brands. He suggests asking seed suppliers for details about oil test procedures if you wish to compare varieties. A national database and program for gathering uniform grain quality data — with soybeans as the first commodity — began in January. Uniform data gathered under that program should be available in a year or two.

Finding a premium buyer

Maranell of AGP suggests contacting local grain buyers to see if oil premiums are being offered in your area. Although the AGP premium program is available to all 278 AGP member elevators, only a small number is equipped to test and segregate high-oil soybeans. Some AGP affiliates work with growers to deliver soybeans directly to an AGP crushing facility, all of which are equipped to test soybeans for oil content.

The Dedham, IA, co-op uses a near infrared (NIR) testing machine that can read moisture, protein and oil levels in about a minute (see sidebar on the next page). A sample is drawn at the scale. Oil information is radioed to the dump pits so that, by the time the truck arrives, the beans can be augered to the high-oil bin if they qualify for a premium.

There is little room for error when segregating. Commingling lower-oil beans could disqualify the entire bin when it is delivered to AGP.

“Not every elevator is equipped to use this program,” Shaw says. “We have been in specialty grain programs in the past, so we are used to segregating grain, and we had the NIR machine. We hope to use the oil premium program to give us a competitive advantage.”

The Dedham elevator discounted the AGP premium by 1/2 cent to cover shrink and the $22,000 to $26,000 cost of the NIR machine. With that, the program was roughly breaking even, Shaw says.

Better U.S. beans

If high-oil soybean premium programs are successful, they could improve farmer and crusher profitability and improve the quality and competitiveness of U.S. soybeans.

“By growing existing varieties with higher oil content, it is conceivable that we could increase oil by half a percentage point,” notes Wilson, of the Iowa Soybean Association.

“We certainly hope these programs are successful. We think this is crucial for maintaining the vitality of the U.S. soybean industry. We have to get better and more efficient to compete with Brazil, because Brazilian beans have higher oil content. If these crushers increase their market share because of premium programs, others will follow.”

If oil premium programs succeed, oil content of U.S. soybeans could go even higher if soybean breeders begin selecting germ plasm more aggressively for oil, Hurburgh says.

Over the past 15 years, soybean breeders have focused on maintaining oil and protein percentages, while increasing yield an average of 1/2 bu./yr., he notes.

“Overall, the amount of oil and protein raised per acre has gone up, but the percentage has not,” he adds.

Don Schafer, oilseeds general manager for Pioneer Hi-Bred International, says more attention will be paid to breeding for oil if market signals are strong enough.

Hurburgh cautions that the industry must be wary about focusing solely on oil, because protein tends to fall as oil content increases.

“We are aware of the potential concern,” says Maranell of AGP. “If it causes any difficulty, we will address it. But it has not been a problem to date.”

NIR tests push high-oil trend

Being able to test grains and oilseeds rapidly and accurately is critical to the success of premium programs, whether for oil, protein, specific starches or amino acids.

If a test takes more than a few minutes, segregating grain during the rush of harvest is impractical, says Dr. Charles Hurburgh, an Iowa State University agricultural engineer. And if the test isn't accurate, the risk to the elevator is high.

Near infrared (NIR) testing machines perform well on both counts, Hurburgh says. The tests take about a minute. Accuracy is equal to benchmark chemistry-based tests for components now being tested.

NIR machines are relatively rare in country elevators in the Midwest but are common in Plains states because of protein premiums paid on wheat. “Virtually any elevator of any size throughout wheat country has some type of NIR equipment,” says Allen Butler, regional sales manager for Foss North America, Eden Prairie, MN, the world's leading manufacturer of NIR testing equipment.

Soybean oil and protein response to weather and management variables
variable Impact on
Protein Oil
High temperatures unclear unclear
Early-season drought - +
Late-season drought + -
Additional soil nitrogen + -
Increased fertility (P, S) + +
Late planting + -
Insect defoliation - -
Insect depodding + unclear
Inoculation with rhizobia
(N-fixing bacteria)
+ -
+ = increase; - = decrease
Source: Iowa State University

The cost of an NIR machine — typically $22,000 to $26,000 — is an impediment for some elevators considering premium programs for oil and other grain constituents.

Despite the cost, more elevators are buying the countertop machines, which are about the size of a microwave oven. A year ago, about 45 Iowa country elevators owned NIR machines. Now there are about 60, reports Marv Wilson, marketing director for the Iowa Soybean Association.

NIR machines can be used to measure a variety of components besides protein, oil and moisture, says Butler. Corn can be tested for moisture, protein, oil and starch.

In the future, uses will expand as benchmark data are collected to calibrate machines to test for other factors. For example, Foss North America hopes to add a nutrient status test for growing crops by summer and a test for Roundup Ready soybeans and corn by harvest. Existing machines can be used to test for new components by adding additional calibration software as it is developed.

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