Dale Tigges hauls his soybeans to the local co-op and collects an oil premium. All he does to get the bonus is pick the right high-yielding varieties that also are higher in oil content.

There's no extra fuss, no extra cost. But the Audubon, IA, farmer, who got oil premiums on 100% of his 2000 bean crop, is excited because he sees it as the beginning of something bigger to come.

“It's no big money, but for me it was somewhere close to a $1,000 premium, between 4 and 5¢/bu. All we really did was focus our variety selection on varieties with high oil potential and high yield,” he says.

The value-based pricing for higher oil content in soybeans was launched by Ag Processing Inc. (AGP). While headquartered in Omaha, NE, the company has six processing plants in Iowa and one each in Missouri, Nebraska and Minnesota.

“We know we're the first in the country to do this,” says Mike Maranell, AGP's vice president of member and corporate relations. “It made sense for us to do it because we are a farmer-owned cooperative. It's a way to take a leadership role in this new value-based pricing structure.”

The Premium Program is a joint initiative of AGP, Iowa State University, the Iowa Soybean Promotion Board, local cooperatives and producers. It started on a limited basis the fall of '99, expanded in 2000 and added a protein premium in 2001.

The whole concept is long overdue, say researchers. “It has really been the onset of technology that has allowed us to implement this type of program,” Maranell says.

“With the near-infrared (NIR) whole grain analyzer, we are able in just over a minute to get an analysis of the oil and protein in a soybean sample,” he says. “Then we're able to tie that into our office computers and consequently identify the premium and make that payment right with the settlement check for the grain as it goes through our doors.”

The first year of AGP's Soybean Value Testing Project tests were made on 137 varieties in northern, central and southern Iowa. The results: Oil content varied from 16.9% to 21.6% — nearly 5%.

Charlie Hurburgh, ag and biosystems engineer at Iowa State University, has been promoting variety selection for high protein and oil for many years. But there has been no payoff for that effort to the farmer until now. So he's a happy camper.

“They (AGP) have been regarded by some as mavericks in the industry for doing this. They have taken some chances, but I think it's going to start to pay off for them,” Hurburgh says.

“It's exciting for me because a number of things are really starting to come together,” the scientist adds. “It gives the plant genetics community something to shoot for. Opportunities to meet individual component markets are starting to show up, and that's where we're headed.”

There's no need to sacrifice yield to get these higher oil or protein contents, either, as is the case with some specialty trait soybeans grown under contract production. About one-fourth of the samples tested in the development program fell into the above-average yield and above-average oil and protein composition category, Hurburgh says.

Maranell says the program has been “well received” by AGP's cooperative member elevators and their farmer patrons. But, as expected, it's moving slowly because an extra few cents/bushel premium at this stage doesn't get farmers excited.

Yet AGP paid about $2.5 million in oil premiums on the 2000 crop. By adding premiums for protein and slightly changing the oil premium structure, AGP estimates that it will pay 25% more than that for the 2001 crop.

“Right now, the program hasn't caught on real big here,” says Roger Shaw of the Dedham, IA, Co-op Association, from which Tigges gets his oil premiums. “In my opinion, with government subsidies like $1/bu LDP payments, farmers are going to pay more attention to that than a 5¢ oil premium.

“Down the road, though, I think it's the kind of program that top producers are going to want to look at because price per bushel is critical,” Shaw adds. “And many growers will hold onto their beans for a couple of cents move in the market. So if you can pick up an extra nickel per bushel in this program, or perhaps even more later on, a sharp grower should be excited about it.”

Hurburgh says too many farmers get hung up looking at their gross returns rather than their net returns. A nickel premium on a bushel can hike the net return per bushel a substantial percentage.

Producing a crop with the component characteristics desired by the end user or consumer — and being able to certify its identity through the elevator and the processor to that end user — is the direction of the business, Maranell believes.

“We see this as the very beginning of what could be the future of soybean marketing,” he concludes.