By Barb Baylor Anderson
Progressive Farmer Contributor Editor
Can a soybean pricing system more clearly based on the value of protein and oil become the norm for U.S. farmers?
"I have no doubt a value-based pricing system will work," says Robert Stobaugh, a soybean farmer from Atkins, Ark. "We can measure what animal nutritionists want with such precision that we can put specific products in the feed trough," he says. "Eventually, we will market soybeans based on quantifiable nutritional advantage."
Stobaugh farms in partnership with a brother and nephew about 50 miles northwest of Little Rock, Ark., in the Arkansas River Valley. The family has been farming since 1951. They raise about 4,000 acres of soybeans, along with rice, winter wheat and some corn.
The Stobaughs are familiar with the nutritional needs of animal agriculture, since much of their soybean crop ends up in local poultry feed rations.
"The poultry industry recognizes soybean meal is a superior feed ingredient, although the buyers we work with do not offer premiums today for higher protein or amino acid content," says Stobaugh, who also is a member of the United Soybean Board (USB) Meal Action Team. "The industry is getting better at detecting and measuring composition. As buyers become more aware of that information, they will demand certain components, and we will be paid based on it."
The truth is protein and oil content already are calculated into the soybean price farmers receive, whether they know it or not. First, purchasers quote prices to farmers based on customer demand. The soybean industry is working to make that value more clear to farmers.
"The biggest challenge today is the lack of transparency to farmers about what are their protein and oil levels," says Chris Schroeder, director with Centrec Consulting Group, Savoy, Ill. "Most do not understand the market price is based on protein and oil levels, and that quality and yield are both important to maximize profitability. Some buyers/processors are paying based on protein and oil, and farmers need to know the value the market places on them."
Tom Kersting, CEO with South Dakota Soybean Processors LLC, says they have tried programs to recognize and reward farmers for specific protein and oil levels. Operating in a traditionally variable protein quality area, they began experimenting with premiums to be more competitive.
"We tried paying a premium when minimums of 19% oil and 35% protein were met. But the weather has a say in protein and oil content, and producers lost interest when we were unable to pay premiums in some of those years," Kersting says.
Now, they alter their program annually based on protein and oil levels at harvest. All loads are tested, and farmers are notified where their composition ranked overall. If the top protein in any given year is 34%, for example, they pay premiums to the top 25% of loads based on that level. The company allocates a fixed premium of 7 to 14 cents per bushel.
"We send farmers a separate check for the premium amount so it stands out from their overall sales," Kersting says. "We are seeing a little higher protein levels, and we would like to think that is due in part to our efforts, but you can't really know for sure."
Tom Malecha, vice president of CHS's processing and food ingredients divisions, serves on the United Soybean Board Value Task Force. CHS has had a premium program since 2003.
"We use NIR [near-infrared spectroscopy] machines to test every inbound load and pay based on oil and protein content," he says. "NIR technology is becoming more widely approved because of its accuracy. If farmers and the industry decide that component pricing is appropriate, it will be imperative farmers understand NIR machines. I think you'll begin to see farmers put them on their farms and segregate soybeans coming off the combine based on oil and protein levels."
FUTURE VALUE-PRICING EFFORTS
Stobaugh doesn't see that as a problem. He says many farmers have increased on-farm storage capacity in recent years and can separate varieties as needed. "We can segregate from the word go. That means more dollars in our pockets," he says.
Ultimately for the system to succeed, farmers will need to evaluate protein and oil content of the varieties they select. "Farmers are beginning to let composition creep into their thought processes when selecting high-yielding varieties. If you look at two varieties, pick the better protein and oil one," Kersting says. "Seed companies also are looking at this information. That's good. As we all pay more attention to composition, we can put out a better product."
Stobaugh is optimistic. "There is no doubt in the future we can increase profitability. There is no golden egg, but small adjustments can make a big difference in meeting market needs and increasing what farmers receive for a bushel of soybeans," he says.
TASK FORCE STUDIES PRICING SYSTEM
The United Soybean Board Value Task Force is exploring a Value Enhancement Opportunity (VEO) to develop market standards, protocols and technologies that will allow farmers to be paid based on crude oil and protein. The goal is for farmers to seek out varieties that contain levels of oil and protein that will command the highest price and motivate seed companies to focus on those constituents.
The task force outlines the following benefits:
-- Soybean value, regardless of region produced, will increase gradually as farmers and seed companies seek out high-yielding varieties with optimal levels of oil and protein, and the global market reacts to U.S. soybeans with higher value composition.
-- Stronger international demand for higher quality U.S. soybeans.
-- Higher protein soymeal and more value to livestock feeders.
-- Improved soybean sustainability.
The task force identifies potential costs:
-- Measurement technologies will need to efficiently and accurately measure quality at multiple points along the value chain.
-- In some cases, maintaining some degree of "soft" segregation and sorting early in the grain-handling and processing stages will be required to preserve value differential.
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