Project would add value to crops

The original idea for creating an oilseed facility that would benefit Georgia farmers began humbly, at a poorly attended county production meeting.

“Several years ago, a group of us attended a soybean production meeting in Burke County, and about three people showed up. We decided then and there that something had to be done,” says Randy Hudson, director of the University of Georgia Emerging Crops and Technologies Program.

For about eight years, Hudson and other Extension specialists traveled throughout the state in an effort to commercialize canola and make the crop a viable alternative for Georgia producers. And, while the canola project never became reality, it did give birth to the Georgia Oilseed Project, a concept that includes building an oilseed processing facility that will be owned and operated by producers.

Hudson and others involved in the project reported on its progress at recent Symposium on Value-Added Agriculture held in Tifton.

A first step in the Georgia Oilseed Project was to initiate a study to help answer the question, “Is it possible for Georgia farmers, through cooperative activity, to make more money by crushing their oilseeds, refining the oil and selling the oil and meal to consumers, than by selling their commodities in the traditional manner?”

“We looked at different sized operations to help us determine which size would be appropriate for Georgia producers,” says George Shumaker, University of Georgia Extension economist who helped to conduct the study. “It was agreed that the best fit for Georgia would be an 800-ton per day crushing facility where we could crush the beans and separate the oil from the beans.”

It soon was learned, says Shumaker, that there are several different approaches to the crushing process. “In most of the industry, facilities are designed to handle only one commodity. Very few U.S. facilities are designed to handle multiple oilseeds. We thought it might be in our best interest to design a facility that had the capability of switching between different oilseeds,” he says.

As a growing season progresses, and as profit potential changes from one oilseed to another, it would be advantageous if the facility's product mix could be changed, says Shumaker. Soybeans could be crushed one day, canola the next day, and then peanuts, he adds.

Alongside the crushing facility would be a refinery, continues Shumaker. “The refinery would take that crude oil from the crushing facility and change it into a form that would be purchased by consumers. It also was recommended that we put in a bottling or packaging facility so that we could extend the reach of Georgia producers beyond the farm gate.

“If you pay $1.39 for a 24-ounce bottle of oil at the grocery store, you're paying about a penny an ounce for the oil. Someone else is taking more than $1 worth of value out of that product. We need to figure out a way for the farmer to take some of that marketing margin for himself,” says the economist.

The crushing facility recommended by the Georgia study would crush up to 900 tons of soybeans per day and 700 tons of canola or peanuts, notes Shumaker.

“That would require about 260,000 tons of product per year or about nine million bushels — a product of about 225,000 acres of oilseed crops throughout Georgia. We currently have fewer acres than we'll need for this facility. It's a small amount by industry standards, but it's still larger than what we currently grow.”

The size of the facility was chosen due to the “economics of scale,” he says. “If you get much smaller than this, unit costs rise dramatically. If you get larger, you don't gain much in efficiencies.”

The plant proposed for Georgia could extract the oil from seed in one of two ways, says Shumaker. “Extraction could be done through the ‘cold press’ method where you squeeze the seed to the point of forcing out the oil. Or, you could break up the oilseed and apply a solvent that would dissolve the oil out of the seed.”

Some consumers, he says, are willing to pay more for products that are processed naturally.

“Why not design a facility that allows you to produce a natural oil that can be sold at a premium? This crushing facility is designed to produce oils in a natural manner or with chemicals.”

The plant designed for Georgia also would feature a large storage component, says Shumaker. This feature was suggested due to the difficulty of storing crops in Georgia, specifically canola.

“Canola comes off in early to mid-May. The weather usually is hot and humid, making it difficult to store canola for an extended period of time. Most grain-handling facilities in Georgia were not set up and designed to handle canola.

“We thought it would be a good investment to put in a state-of-the-art storage facility that could handle canola and preserve quality so we could produce canola oil over an extended period of time. Grocery stores want canola oil throughout the year, not just following harvest.”

The refinery, says Shumaker, would be oversized relative to the capacity of the crushing facility. This was recommended due to the lack of crushing facilities in the Southeast. There is profit potential, he says, in refining oil for outside customers.

The plant also will be capable of refining oil naturally, he says. “You can refine oil in different ways. You can put it in a centrifuge and spin it to remove impurities. Or you can use chemicals to refine the oil. This plant will be capable of doing either method.”

The packaging plant of the proposed Georgia facility would be equipped to package the oil in a variety of containers, from small bottles for consumer use to large drums and vats for institutional use, says Shumaker.

The estimated cost of the plant from the original plan in 2000 is $51 million, he says. “I encourage planners to think more in terms of about $60 million due to inflation and other cost factors.”

The Georgia study also looked at how much money could be generated from the oilseeds facility, says Shumaker. “We looked at the 20-year average of prices, how much revenue this facility is likely to generate and how much it would cost to generate that revenue. Whatever is left over are your net proceeds.

“Looking at the 20-year price average, it would generate about $10 million per year, which would pay off the facility in a little more than five years. We also looked at current prices, with soybeans at about $4.50 per bushels and canola at somewhat less than that. Under this scenario, the plant would generate about $4.5 million per year, and we could pay off the facility in about 12 and a half years.

“We also looked at what we could expect commodity prices to average over the next five to seven years. Still, the plant would generate money and pay off the facility in about seven years.”

The plant, says Shumaker, would be designed to operate 24 hours a day, seven days per week, with the only ‘down’ time being for repairs and maintenance.

“We looked at operating about 320 days per year as a baseline but would hope to exceed that. To break even, the plant would have to operate about 240 days or crush about 140,000 tons of oilseeds.”

The study also examined how much such a facility would enhance the value of commodities, he says. “We can enhance the value of these commodities, but there's a difference in how much we can enhance the value of soybeans versus the value of canola.

“On average, we can hope to lift the value of soybeans by about 10 percent at the farm gate. For canola, we could increase the value by nearly 40 percent. There are a couple of reasons for this difference. Whenever we conducted the study, canola was priced higher than soybeans. Also, we get 11 pounds of oil from crushing a 60 pound bushel of soybeans, while we get 22 pounds of oil from crushing a 50-pound bushel of canola. This highlights the importance of canola to the success of this project.”

The study concluded, says Shumaker, that strong markets exist both for meal and oil produced from such a facility. The analyses included both the Georgia and Florida markets, he adds.

Once all of the preparation for the oilseeds facility is completed, it would take about two years before it would be up and running, he says.

“A group of farmers from throughout Georgia have formed the Farmer's Oilseed Cooperative, Inc. This group, established in May of 2001, currently is seeking members who will join and make this facility a reality. This winter, they will be conducting a membership drive.”

The cooperative currently is organized as a “new generation,” closed cooperative, says Shumaker. “It will cost you $100 to join, but that will give you the right to buy stock whenever a stock offering is made. Once all of the stock is sold, the co-op closes, and no further memberships will be accepted. So, don't wait too long if you're interested in joining.

“The membership elects a board of directors and officers will hire people to operate and manage the oilseed facility. It will be a one-member, one-vote operation. Farmers will own and operate the cooperative.”

For more information about the Farmer's Oilseed Cooperative, Inc., contact Billy Wayne Sellers at (912) 367-6850 or (912) 367-4143, or Randy Hudson at (229) 386-7274.

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