Potential seen in oilseed co-op

Georgia farmers, through cooperative action, can improve their income by crushing oilseeds, refining the crude oil, packaging the finished oil and marketing it to consumers.

That's the basic premise of a study conducted by University of Georgia (UGA) agricultural economists, and it's the driving force behind efforts to form a farmer cooperative and build a processing facility for soybeans, canola and other oilseed crops.

A group of Georgia farmers requested the feasibility study in response to continuing low prices and subsequent low or non-existent profits for soybeans and canola.

“We want to remain individuals, but we have to be independent together,” says Marty McLendon, a south Georgia farmer who is vice president of the newly formed Farmer's Oilseed Cooperative, Inc. “If we can get a plant or processing facility to let the farmers gain more control in the marketplace, it's got very good potential.”

Acreage decline

Soybean production in Georgia has declined from about 19 million bushels harvested from 640,000 acres in 1992 to approximately 3.42 million bushels from 180,000 acres in 2000. Canola production, according to the UGA study, has gone through a cycle of virtually no production until 1990, to a maximum acreage of about 25,000 acres in 1996, and back to no production in 2000.

The reason for the decline in soybean production, says the study, is low returns relative to other crops, especially cotton. The promise of markets for canola initially encouraged many farmers, but those markets failed to materialize.

“Georgia appears to have the ability to compete with other canola-producing areas of the country and the world from an agronomic and cost efficiency basis, but absent a stable market with competitive prices, farmers see no incentive to produce canola,” according to the study.

As part of the Georgia Oilseed Initiative Study, the state's farmers were surveyed to gauge the level of interest in a co-op and processing facility. The survey found that Georgia growers will financially support and market their oilseeds though a cooperative effort if it will provide them a long-term, stable market with competitive profit potential. Growers also indicated they would accept state support to initiate the project.

Efficiency stressed

The study found that rather than retro-fitting existing crushing facilities, it would be more efficient to construct a new plant at an estimated cost of $56 million. The cost of retro-fitting existing crushing operations would cost more than $75 per ton while the cost of a new facility would be about $50 per ton.

It's estimated that the processing plant would add about $172 million in economic activity to the Georgia economy — $77.8 million from direct output in the oilseed plant and another $94.2 million induced from other sectors of the economy. The facility would create about 53 jobs directly and about 1,100 jobs indirectly, mostly in rural Georgia.

Three different sized crushing facilities were considered, and the study concluded that a 800 ton-per-day plant would be the most efficient operation. The plant would need to process 190,000 tons of oilseed per year to break even. This is equivalent to operating for 238 days at an average of 800 tons per day or 65 percent of capacity.

Georgia farmers would need to commit about 200,000 acres of oilseeds to the facility to meet the required production capacity.

The UGA study states that locating the plant near the source of the oilseeds will minimize acquisition costs. Location on or near major transportation routes such as interstate highways and major rail lines also is important, it says, since most of the feedstocks and end products likely will be transported using these methods.

In examining markets for oilseed products, the study found that Georgia and Florida present attractive markets for both meal and oil products. Both states are net importers of meal, and the proposed facility would provide about 13 percent of the two-state meal requirement. While Georgia has an excess of oil, Florida must import about two and a half times the Georgia excess supply, making it an ideal market. The refinery would provide about 17 percent of the two-state demand for oil.

There also is potential for “niche market” products, says the study.

The Farmer's Oilseed Cooperative, Inc., is a direct result of the study's recommendation that a “New Generation Cooperative (NGC)” or a “closed cooperative” be formed. Such a co-op, according to the study, provides solutions to both financing and operating questions.

“Producers would raise an initial portion of the plant's cost through stock or options on stock sales. Each share of stock would provide the right and obligation to market one bushel of oilseed through the plant. The remaining capital would be raised through debt financing,” states the study.

State involvement through guaranteed loans, direct financing (with lease back to the cooperative) or direct grants would increase the likelihood of successfully financing such an operation, according to the report.

While the proposed facility would be designed to handle all oilseed crops, the focus would be on converting seeds from canola and soybeans into oils.

“The money is in canola. It's not in competing against ADM or Cargill who have the corner on soybeans,” says George Shumaker, UGA economist and one of the authors of the oilseed study. “You'll pay bills by crushing soybeans, but you'll make your money somewhere else. We believe you can double-crop canola and soybeans.”

Most of the canola currently used in the United States comes from Canada.

e-mail: [email protected]

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