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Corn+Soybean Digest

Oil Premium Provides Soybean Bonus

A no-cost way to get more for your crop

They won't save the farm, but soybean oil premiums paid to Midwestern farmers by AGP this year will add $2 million to their bottom lines. The oil premium program is open to all farmers who sell to any of the 280 local cooperatives that own AGP.

AGP's nine processing plants in Iowa, Minnesota, Missouri and Nebraska have paid premiums on an estimated 65-70 million bushels since last October. Individual plants paid premiums on 10-60% of the beans crushed at the site.

Oil content in some areas has ranged from 16.6% to 21.6%, according to Jim Lindsay, AGP's CEO. That's a 3-lb/bu difference for oil production, which equals 150 lbs of oil on beans averaging 50 bu/acre.

"We knew that oil content varied by geographic location. But the biggest surprise is the variation within counties," says Lindsay. "There may be more variation than we recognized in the past."

AGP's price premiums start at 2 cents/bu for soybeans with an oil content of 19.6-19.7%. The premiums top out at 7.5 cents/bu for beans with 21.2% oil. While those premiums have remained steady since the program began, they will fluctuate with market demand.

"We're at rock bottom for oil prices right now, so we could see the premiums increase in the future," Lindsay says. There is no discount for beans testing low in oil content.

While oil premiums can help compensate for low prices, they won't save struggling farmers. If a farmer can average a 5 cents premium on 500 acres of beans that average 50 bu/acre, his premium check is $1,250 - a nice bonus that's relatively cost free.

The only cost snag is at elevators where the cost of equipment to test for oil content and the need to segregate grain create concerns.

As the program continues, AGP hopes to build a data base of soybean varieties that are most likely to produce oil levels that qualify for a premium. Ultimately that information will need to come from seed companies, according to Lindsay.

The AGP oil premium program has seed companies' attention.

"We're watching to see what it means," says Don Schafer, general manager for oilseeds at Pioneer Hi-Bred International. "There's no question traits such as oil content are growing in economic importance. We just need to make sure these traits don't impact yield or protein content. It's a tough balancing act.

"Yield is where the grower still gets compensated," Schafer adds. "You can't ignore herbicide tolerance and disease and pest resistance, either. I don't know of any company specifically focused on improving oil levels in its genetic lines."

The premiums are just a "baby step" toward a future of value-based marketing, says Lindsay. "It's a way to reward the farmer for a better product."

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