In the last 25 years, U.S. exports of soybean products have increased from 600 million bushels to more than one billion bushels. However U.S. soybeans, which once dominated the marketplace, now account for less than half of the world's total soy demand. Domestic consumption accounts for 1 billion bushels annually, more than a third of annual U.S. soy output. However, U.S. soybean producers face tough market competition from other food, oil and industrial products. It is that competition that has led both farmers and industry to look for new ways to add value to the soybean.
To that end, As producer Nancy Crowfoot found last spring, a group of South Dakota soybean farmers are "molding" profit from their bean crop.
It is not obvious, but this pickup truck contains two bushels of soybeans. The truckbed liner is formed from soybean oil… blended with other ingredients.
The soy replaces 40% of the petroleum typically used to create the polyurethane bed liner. Slug Kerry Berg 1:18:00 "Last December, 2000, is when we sprayed our first batch of soy oil trucks."
While Kerry Berg hasn't switched his total product formula to soy, he is excited about the soy alternative ... albeit, after a bit of skepticism.
Kerry Berg, Midwest Line-X, Sioux Falls, SD "Typically with environmentally friendly products there's a catch. Either it's a lot more expensive or its not as durable, or it doesn't have the same qualities as the product it replaces. And I think that was my initial expectation and obviously I've been proven wrong and the product is just as good as the petroleum based product."
Berg says it never occurred to him to substitute soybean oil in his polyurethane product … until he received a phone call from an Illinois company. The company, Urethane Soy Systems, developed and patented "Soy Oyl," a bio-based, renewable resource to substitute for the non-renewable petroleum in urethane. In addition to being used in truck bed liners – other customers use it in carpet backing … and foam cushions for cars and furniture.
The Illinois company's current use of 700,000 bushels of soybeans to make its urethane product may not rank as one of the major consumers of beans. But it is enough to excite a group of South Dakota soybean farmers.
In 1993, the farmers formed a cooperative and just five years ago, opened their own soybean processing plant to add value to their soybean crop. The cooperative primarily processes beans into meal and supplements for livestock and into crude oil, which is further refined elsewhere for human consumption.
However, they expect growth in the soy "plastics" industry and conduct some poly oil research in their own lab. They have signed an exclusive 15-year contract to make a modified soy oyl for the Illinois urethane company … a company which projects its use of soybeans to increase to 141 (M) million bushels over the next five years.
Rodney Christianson, CEO, South Dakota Soybean Processors: "We looked at an opportunity on the industrial side that allows soybean oil to enter into the marketplace 5-30% cheaper. Nobody else is positioned there."
The coop's venture into "plastics" may be a far cry from what most farmers thought their beans would be used for … but the venture has contributed to their goal of finding ways of capturing more value of their crop … and to effectively get a higher price for their beans. Paul Casper is President of the coop's Board of Directors ... and remembers the price of beans when the coop was just an idea in the early 1990s.
Paul Casper, Lake Preston, SD & Pres. Of Board, SDSP, "What we were looking at was trying to change our basis. Our basis was 70 to 75 under, from Chicago Board of Trade. And we were paying $5 to $15 a ton more for meal."
After trying – and failing – to recruit a soybean processor to their area … Casper and other farmers decided to build their own. They formed a limited membership cooperative and began an equity drive.
Paul Casper, farmer, Pres. Of Board, SDSP "we had one bushel with one stock and you bought 2500 stocks or shares, or rights to deliver 2500 bushels at $2.00 a share. So the minimum investment was $5,000. "
Just over 2,000 farmers invested $21 (M) million dollars to build a plant in Volga, South Dakota. Since the coop was built, offering a premium price for beans, the price of beans in the area are, on average, 20 to 25 cents higher.
Since production began in 1996, processing has jumped from 50,000 bushels a day to 80,000. In the first five years of plant operation, the venture has returned 80% of the farmers' initial investment.
Paul casper, pres. Of coop "I started my investment in '94, and so it would be not quite 7 years to have it paid back with interest. So from now on it's gravy and its part of my farm."
But the "gravy" train needs to keep moving forward to stay competitive. Both Casper … and Christianson, who worked for the agri-giant Cargill for 15 years … hope the coop's move into the soy urethane market succeeds and grows.
At the same time, they don't want to be dependent upon just one niche market. That's why, Christianson says, they are studying several options to vertically integrate in other areas... including soy foods, soy protein and– if a government mandate or incentive program is issued -- bio-diesel.
Rodney "you set your strategies, you try to execute, but then also, keep something in your back pocket, that if they don't come through, realizing that there are major hurdles in those two, we might have to revert back to the old fashioned way of earning money by refining."
Christianson says the U.S. already has excess capacity when it comes to refining oil for human consumption. However, he feels his coop's position to compete with the "big guys" like Cargill and ADM, could be strengthened by joining forces with a fledging neighboring cooperative in Minnesota ... where plant is not yet built.
The South Dakota management team is helping with the Minnesota coop's equity drive, and will manage the plant.
The proposed plant would be able to process 100,000 bushels of beans a day.
Rodney Christianson, CEO South Dakota Soybean Processors "One of the strengths of working with Minnesota is that the average refiner in the United States today is 850 tons per day. The two plants together, we would have control of 1,000 tons per day. We would be at the size of the oil supply that we feel then we would be able to compete into that marketplace."
That vision is nearing reality, with construction of the Minnesota plant expected to be completed by the summer of 2003.Crude oil and meal will always be a mainstay of both coop's … but this group of upper Midwest farmers hope to move their raw product "further up the food chain" … to create more products that deliver a higher rate of return for their soybeans.
And it just may happen as planned. Afterall, they've already tapped into the market for plastics.
For MTM, I'm nancy crowfoot.