LOOKING BEYOND SOYBEAN YIELDS MEETING CUSTOMER NEEDS WITH HIGH PROTEIN AND OIL

LOOKING BEYOND SOYBEAN YIELDS MEETING CUSTOMER NEEDS WITH HIGH PROTEIN AND OIL

FORWARD CONSIDER THE BIGGER QUALITY PICTURE BY Bill WykEs, ISA CHAIRpErson Ask soybean producers anywhere in the U.S. what their number one priority is and you ll likely hear yield. With today s crop technology focused on improving soybean yields in ever more sophisticated ways, modern soybean producers have made steady improvements in bushel-peracre soybean yields. These improving yields pay off for us at the elevator. But what happens to soybeans after they re off-loaded at the elevator? Beyond the elevator, beans are valued for their protein and oil levels, not yield. The bulk of Illinois soybeans are used as important raw materials for U.S. and global animal ag and consumer food sectors. Are our soybeans meeting the needs of these end-user customers? Research from the soybean checkoff, overseas customer input and tracking data for protein and oil levels show our focus on yield to the exclusion of protein and oil levels is affecting demand and reducing our global market share. In fact, beans with higher protein and oil levels command a higher value in the marketplace. Are we leaving profit potential on the table? While this situation is challenging, Illinois growers have the opportunity to produce a high-quality product with both high yield and high oil and protein levels. Focusing on our customers needs for higher protein and oil, in addition to high yields, is one important way we can differentiate Illinois soybeans, bring greater value to Illinois soybean producers and lead the way in improving U.S. soybean competitiveness. This piece will provide you with background, information and resources you need to better understand and meet the needs of soybean customers at home and abroad. By working together to improve yields and increase levels of protein and oil, when asked what our number one priority is as soybean farmers, we truly can say: To ensure Illinois soy is the highest quality, most dependable, sustainable and competitive in the global marketplace. 2

4 Introduction The Problem with Protein and Oil 6 Looking Beyond Field Borders 8 Composition Quality Key to Soybean Value 10 Marketplace Disconnects How Soybean Sectors See Composition 13 Estimated Processed Value Assigning Value to Soybean Components 16 Soybean Quality Surveys Protein and Oil Data for Illinois Farmers 17 Industry Efforts Supporting Soybean Quality 18 Farmers Can Take Control of Composition 20 Making a Difference Demanding Higher Protein and Oil 21 Frequently Asked Questions 22 Appendix Sixteen Tenets of Composition Quality 3

INTRODUCTION The Problem with Protein and OIl Disconnects exist between soybean producers and their customers because each sector places value on different aspects of the soybean. Those disconnected viewpoints hurt the farmer s bottom line in ways that are invisible to most producers. The gap is simple: Farmers raise soybeans for yield while the largest soybean customers, livestock producers, want protein and other key customers want high oil levels. The trouble is that U.S. protein and oil levels are dropping, and that means Illinois producers are losing value and losing sales. This paper explains what the problem is, how it s hurting producers and concludes with some simple steps producers can take to protect their market share and their bottom line. ISA is investing checkoff dollars to study this issue and help Illinois farmers stay competitive in the global marketplace. 4

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LOOKING Beyond Field Borders Many producers drop off their beans and don t give much thought to what happens to the crop after that. The train tracks behind the elevator connect those soybeans to a vast global network of food, feed, fuel and industrial markets. According to checkoff-funded research, nearly 98 percent of American soybean meal (SBM) goes directly to feed livestock around the world. Each year, more than 30 million metric tons of SBM, or 1.2 billion bushels of soybeans, go to domestic livestock operations, and globally more than 73 million metric tons feed livestock (Chart 1). Animal agriculture represents the best avenue for selling Illinois soybeans. Selecting only for yield and ignoring soybean protein and oil composition creates a disconnect with customers' needs. ISA High Quality Target Area Vice Chairperson Bill Raben, Ridgway The vast majority of the SBM fed to livestock ends up in poultry and swine feeds. Illinois produces an estimated 5.9 million tons of soybean meal annually, and nearly 87 percent is shipped to other states or exported overseas. Of that, more than 70 percent is fed to swine (CHART 2). Soybean industry leaders are now beginning to recognize that while crude protein is important as a measurable and marketable trait, end-users such as animal nutritionists are much more interested in the amino acid composition. Beginning with the 2012 crop, Illinois will be measuring amino acid content of soybeans and reporting these data in the Varietal Information Program for Soybeans (VIPS). While yields will always be a critical factor for farmers, it s ultimately soybean end components oil, protein and hulls in processed soybeans and amino acids in soybean meal that drive end-user purchase decisions. Crude protein, however, will remain a component of trade because it can be measured quickly and cheaply and can be valued accurately. Improving oil and protein levels of Illinois soybeans will require collaboration across the soy industry. Farmers, who care about yield, and soybean purchasers, who care about protein, oil and amino acids, both need to be more aware of this disconnect. Only then can the industry begin working together to better meet market demands. 6

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COMPOSITION QUALITY KEY TO SOYBEAN VALUE The soybean industry has always associated quality primarily with oil and protein levels while growers, elevators and seed companies associate quality with seed characteristics. Quality has been the word used by soybean associations and the processing industry to describe oil, protein and amino acid levels. However, confusion arises because quality means different things to different people. In most producers minds, quality refers to the characteristics for which they are paid (and sometimes docked) moisture level, damage, discoloration and foreign material (FM). They do not think of oil and protein. At the farm-gate and elevator level, quality does not include component levels. Yet, composition is what influences soybean buyer decisions at the processor or feedmill. Both oil and meal are important contributors to the overall value of soybeans. While oil tends to be more valuable than meal on a cents-per-pound basis, a bushel of soybeans typically produces four times more pounds of meal than it does oil. Thus, the value of the meal produced per bushel is greater than that represented by the oil. A better definition of soybean quality is composition, which would include the quantity of the bean s components protein and oil levels and even amino acid concentrations. THE MATURE SOYBEAN IS ABOUT 35% PROTEIN, 19% OIL AND 13% MOISTURE, ASH AND HULL* Source: American Soybean Assoication Protein 35% Insoluble Carbohydrates 15% Dietary Fiber Soluble Carbohydrates 15% Sucrose, Stachyose, Raffinois, Others Oil (0.5% Lecithin) 19% Moisture, Ash & Other 13% *Ratios are rounded and do not total 100 percent 35% PROTEIN 15% INSOLUBLE CARBOHYDRATES 15% SOLUBLE CARBOHYDRATES 13% MOISTURE, ASH & OTHER 19% OIL (0.5% LECITHIN) 8

More and more customers demand higher protein and oil. In order to keep their business, we need to put forth our best effort to deliver what the customer needs. ISA High Quality Target Area Vice Chairperson Tim Seifert, Auburn Crude Protein The world market refers to the protein in a soybean as crude protein an estimate of the protein in a bushel of soybeans. Crude protein is calculated from the measured level of elemental nitrogen in a material. Crude protein was adopted as a measure of quality for SBM trading rules years ago because it represented the best measure of this characteristic at the time. While the trading rules and various parts of the value chain continue to use crude protein to describe quality, the science utilized by the animal nutritionists who are the end-users is shifting to focus more on amino acid content. Amino Acid Composition Amino acids are the building blocks of proteins. While all proteins contain amino acids, not all proteins contain the same amino acids in the same proportions. Animals require the amino acids found in soybeans and other protein sources. Amino acids can be divided into essential and nonessential. Essential amino acids must be obtained from food sources such as soybeans. If livestock do not receive essential amino acids in proper amounts, it limits their productivity and efficiency. (See page 12 for more on amino acids.) Oil Soybeans with high oil content are valuable to producers of both industrial and edible products, as well as biofuel producers. After soybeans are dehulled, about 80 percent of processed crush product is SBM and hulls, which are primarily used for livestock feed. Most of the remaining 19 percent is oil, which finds its way into food products such as margarines and cooking oils, and industrial products such as plastics and biodiesel fuel. Increasing demand for soybean oil will result in greater supplies of SBM available for food rations. A 60-pound bushel of soybeans delivers about 48 pounds of protein-rich SBM and 11 pounds of oil. Each of the components listed above is critically important to every step in the soybean value chain. The trouble is that the value is not visible to producers. 9

MARKETPLACE DISCONNECTS How Soybean Sectors See Composition From a Midwestern seed company to a Middle Eastern poultry producer, each market segment places a different value on soybean composition quality based on their specific needs. Here s an overview of how each sector sees soybean composition: Seed Companies Seed companies place almost zero importance on soybean protein and oil. The overarching objective of seed companies is to maximize profits and provide a return on stockholder investments. They develop, market and sell soybean seed varieties that meet customer needs, expectations and requirements. Generally speaking, the research and development functions of most major seed companies focus on developing genetics and/or traits that help their customers maximize yields and profits per acre. This consists of producing varieties that maximize yield while incorporating biological features that combat pathogens, diseases and insects; varieties with improved specialty traits; and those varieties with resistance to nonselective herbicides. Seed companies do not consider breeding for higher oil and protein levels important when growers are only asking for yield and defensive traits. Most of the seed companies that breed and/or market soybeans do not breed or screen for protein and oil composition, nor do they report it in their annual seed catalogs. varieties that produce extremely low oil and protein levels. Currently, they are the stakeholder group that can affect component quality to the greatest extent. Until farmers ask for higher protein, or select only higher-protein varieties, the seed companies have little incentive to help solve this problem, and are likely unaware of the extent of the issue. That s why it is critically important for growers to ask seed companies for higher protein and oil levels. If growers demand higher protein and oil, seed companies will be more likely to deliver. Farmers For Illinois soybean farmers, yield is the primary focus because grain elevators pay them by the bushel. Because more bushels mean a bigger paycheck, farmers focus solely on boosting yields. Unless they get paid for component quality, most remain uninterested in doing something about it. Because they are sold bushels by seed companies, and paid for bushels by elevators, they have almost zero interest in protein and oil. A soybean checkoff-funded survey asked U.S. soybean farmers to rank the top factors they consider when choosing varieties. It found yield potential was by far the biggest consideration for farmers while protein and oil levels trailed well behind other factors (Chart 3). Seed companies could help solve the composition quality problem. They can produce varieties with higher oil and protein levels (a consistent 19 percent and 35 percent, respectively) and comparable yield. They can eliminate 10

CHART 3: Soybean checkoff research from 2010 shows U.S. soybean farmers rank yield potential much higher than protein and oil levels as the most important consideration in variety selection. However, once they leave the elevator, beans are valued for their key processed components protein meal, oil and hulls. Those compositional components impact elevator prices and customer demand. Farmers, therefore, have a hidden yet large stake in protein and oil levels because the value of those components is built into the elevator price and the price soybean customers are willing to pay for the soybeans. Elevators According to checkoff research, protein and oil content are not on the radar of grain elevators either. The elevator pays for soybeans by the bushel, docking any loads with high levels of foreign material (FM) and moisture levels of more than 13 percent. Protein and oil content are not measured. Because elevators sell soybean bushels to crush plants (processors), they are concerned only with grain quality (moisture, damage, FM) and not oil, protein and amino acid levels. Processors Processors pay elevators or producers for bushels of soybeans; however, the price they are willing to pay is based on the value of the soybean products that they are able to produce from a given load of beans. Maximum oil and protein content are critical factors for soybean processors because that s what their customers are demanding. Oil customers, such as biodiesel blenders, want oil at the cheapest price, while industrial users and food companies are focused on specific fatty acid profiles and other chemical traits. Meal end-users are concerned with nutritional characteristics, such as protein levels and amino acid profiles. Higher oil and protein levels both have a positive impact on the protein level in the SBM. That s why protein and oil levels affect processor profit margins. Since SBM price is discounted if meal does not meet minimum 47.5 percent protein levels, maintaining protein in the meal is also critical to processor profitability. In some export markets, processors buy soybeans from the country that offers the most protein. Protein and oil drive processor demand and pricing, which reaches back to the payment farmers get from the elevator. 11

Nutritionists Nutritionists want soybeans for protein, amino acids and energy. More protein equals more value. SBM is a complex feedstock. As such, it contains many chemical compounds that have nutritional value. Livestock feeding studies have shown that soybean protein is an ideal protein for animal diets because it s highly nutritional with an excellent amino acid balance and it remains the gold standard compared to other sources. Poultry and swine nutritionists use SBM primarily for its amino acid content. However, other nutritional characteristics, such as digestible energy, contribute value as well. Taken together, all of the nutritional characteristics attributed to SBM represent its value-bundle. In the process of formulating a feed, nutritionists mix and match different protein ingredient sources, each with their own unique amino acid profile, to best meet the nutritional needs for a given type of animal. SBM is highly valued because it contains high levels of certain essential amino acids, such as lysine, which are deficient in the protein meal of corn and other grains that typically form the basis of modern animal feed formulations. In this manner, SBM protein complements the amino acid profile(s) of the other ingredients in a feed formulation, making it an important part of livestock rations. Amino acids that are important in typical feed formulations for poultry and swine include: SWINE Lysine Threonine Tryptophan POULTRY Sulfur-bearing amino acids: Methionine and Cysteine Lysine Threonine The value nutritionists place on protein also reaches back to the farmers bottom lines. 12

ESTIMATED PROCESSED VALUE ASSIGNING VALUE TO SOYBEAN COMPONENTS When a processor purchases soybeans, it is possible to learn the value of the protein and oil levels through a measurement called Estimated Processed Value (EPV). EPV, sometimes called crush value, is the combined value of the protein, oil and hulls that processors and crushers expect to get out of a shipment of beans. USSEC research shows that beans with higher protein and oil have a higher EPV because they are worth more to a processor than beans with lower component levels. Higher oil and protein levels also create higher demand, which also drives up prices (Chart 4). CHART 4: Although farmers are paid for yield at the elevator, protein and oil levels (as estimated by EPV) are the underlying drivers of the farmer s price per bushel. By improving soybean component levels to 35 percent protein and 19 percent oil, Illinois farmers can better satisfy their customers needs, increase their crop s value to processors and, ultimately, maximize farm income. 13

U.S. farmers are the best in the world. Environmental conditions such as climate, growing season and soil conditions are all working against them, but awareness among Illinois producers is the first step in making seed selection choices that can change this. Sustainability Target Area Vice Chairperson Ron Moore, Roseville Farmers get a hidden premium for beans with a high EPV (and a hidden discount for low-epv beans). By increasing oil and protein content farmers can raise the EPV of their crop, as well as their overall profitability. The Chicago Mercantile Exchange provides an EPV/crush calculator on their website: http://www.cmegroup.com/tools-information/ag-calculator.html. The cash basis is unique to different areas because of transportation costs, local demand and other factors. Soybean component quality also affects the cash basis. Soybean EPV also varies from area to area. Local climate, weather patterns, agronomic conditions and other factors contribute to overall yield and component quality. Generally, soybeans grown closer to the equator tend to have higher levels of oil and protein. This is true within the U.S. and globally. Competing in Export Markets In Brazil, growers have an easier time delivering high EPV beans compared to the United States and are leveraging that advantage to increase their global competitiveness. At the same time that customers are scrutinizing soybean component levels, U.S. soybean producers in the Upper Midwest face seasonal and climate challenges that make producing high-quality soybeans more difficult than it is for competing soybean producers in Brazil. In addition, more of the lower-protein northern soybeans are being exported at a discount because of lower global demand and lesser value of the total protein and oil content. Although the volume of U.S. soybean exports is increasing, the total U.S. share of the global market is decreasing. The U.S. share of the soybean export market decreased 26 percent between 1991 and 2012 because foreign buyers perceive U.S. soybeans as having a lower EPV, according to 2010 USDA data (Chart 5). To remain competitive, Illinois soybean farmers should seek soybean varieties that deliver a minimum of 35 percent protein and 19 percent oil, along with meeting their yield expectations and agronomic requirements. Industry wants a high protein soybean meal of at least 47.5 to 48 percent. To produce a high-protein meal requires soybean seeds with 35 percent crude protein. 14

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SOYBEAN QUALITY SURVEYS PROTEIN AND OIL DATA FOR ILLINOIS FARMERS Soybean Quality Surveys have been conducted since 1986 by the U.S. Soybean Export Council and the American Soybean Association. The survey s objective is to help international customers with their U.S. soybean purchases by providing relevant and up-to-date crop quality data and information on where they can source bean purchases. Illinois soybeans are valued for their consistent yields and reliable supply. Our easy access to every major transportation method helps move Illinois beans across the country and around the globe efficiently. More than half of Illinois soybeans (54 percent) are exported, with the majority sold as whole beans to be processed for animal feed. Despite these advantages, a 10-year trend shows that protein and oil levels are declining in the state. Brazilian beans have consistently higher levels of protein and oil compared to U.S. beans (Charts 6 and 7), which make them more attractive to soybean purchasers. CHARTS 6 and 7: A ten-year trend shows that oil and protein levels are declining in Illinois beans. This threatens our market share. 16

INDUSTRY EFFORTS SUPPORTING SOYBEAN QUALITY There are numerous efforts at the state and national levels to increase soybean protein and oil levels. Illinois Leadership Soybean composition quality continues to be a primary driver for ISA efforts to ensure Illinois beans remain competitive. In recent years ISA has focused on research, education and communication to the industry on the importance of high protein and oil. Illinois Soybean Association supports federal efforts, including research studies and the annual U.S. Soybean Crop Quality Survey. Our efforts also can help farmers when making their annual seed selection. The Varietal Information Program for Soybeans (VIPS) is a powerful online tool operated by the University of Illinois designed to compare the performance of hundreds of soybean varieties being evaluated by the university. The wide range of varietal information available through VIPS includes yield comparisons, protein and oil content, and disease and pest resistance. To try VIPS, visit www.vipsoybeans.org. ISA has engaged with our crush plant partners to cohost a series of events ( What s in a soybean? What s in it for you? ) on the importance of high protein and oil. ISA has been engaging processors to provide incentives for component quality and other higher value soybeans. Visit www.soybeanpremiums.org for ways to increase profit with value-added soybeans. We also have developed a new tradeshow display and supporting fact sheet that provide additional data that supports the need for higher protein and oil levels, similar to this longer white paper. United Soybean Board Initiatives USB has worked for many years to educate the entire value chain about the soybean composition issue and develop practical solutions. The soybean checkoff recognizes the importance of composition higher protein and oil for soybean end-users. Checkoff has collaborated with the entire soybean industry on ways to improve the levels of these important components. For example, checkoff funds support public and private researchers efforts to develop germplasm with higher protein content. Checkoff dollars also fund the annual U.S. Soybean Crop Quality Survey, which measures components such as oil and protein in samples submitted from around the country. The checkoff uses the results of this survey to demonstrate the overall quality of U.S. soybeans to customers at home and overseas. Checkoff also funds analysis of samples from USDA-NASS and their Objective Yield Survey to determine average oil and protein levels. These data form a valuable source of information on the composition of each year s crop. Grower Outreach USB has compiled 20 years of data on the economic effects of lower crude protein levels, and provides farmers with local variety performance data. Data can be found online at www.soyquality.org. In 2010 USB initiated a marketing campaign in the Upper Midwest, which included print ads, radio ads and a series of direct mail pieces to educate farmers about soybean component quality. Nevertheless, grower awareness of the composition issue remains very low. Finally, we are developing presentation materials and other tools, which will be available on www.ilsoy.org. 17

Value Chain Outreach USB is encouraging seed companies to list protein, oil and amino acid content in seed catalogs and, most importantly, include protein, oil and amino acid levels as key targets in breeding programs. So far, those programs have not moved the seed companies to change their reporting nor motivated them to breed specifically for higher crude protein and oil content. Since 2004 USB has worked with coalitions in 12 states to support poultry, livestock and fish farmers through copromotions and other activities. SYQ USB s Select Yield and Quality (SYQ) initiative began in 2002 to help address concerns about declining protein content in U.S. soybeans. To date, SYQ has provided the industry with information and tools to help farmers make informed decisions that will lead to improved soybean quality and producer profitability. More information is available online at www.soyquality.org. There s little question that soybean component quality is vital to the continued success of the U.S. soybean industry. The genetics to meet global demand for high soybean quality are available. The question is, will you plant them? FARMERS CAN TAKE CONTROL OF COMPOSITION Soybean seed companies play a critical role in increasing soybean component levels without sacrificing yields. Unfortunately, few seed companies are talking publicly about steps to increase protein and oil content. They don t readily screen for these quality characteristics and few provide measurements in their seed guides. Although high-yielding, high-component varieties are available, there are also many lower-protein or lower-oil varieties lurking in seed variety lists. Websites, including www.soyquality.org and www.vipsoybeans.org, have searchable databases that include yield data as well as protein and oil levels for varieties available in your area to help you sort out the under-performing hybrids. By using those resources, farmers can see the 20 percent of varieties that are quality dogs, and select seed that delivers high yields along with higher protein and oil. ISA strongly encourages farmers to seek out the varieties that deliver high yield and high protein, and to let their seed dealers and seed companies know they are missing the boat with the low-protein varieties. VIPS The Varietal Information Program for Soybeans (VIPS) is a tool to assist farmers in comparing soybean varieties on the market. VIPS currently tests the performance of hundreds of soybean varieties at 13 locations throughout Illinois. Visit www.vipsoybeans.org for comparison data on: Yield Protein content Oil content Disease resistance Other agronomic characteristics Beginning in 2012, Illinois will begin measuring amino acid content of soybeans and reporting these data in VIPS. 18

Chart 8 is a snapshot of 12 varieties showing how varieties with lower protein and oil and lower EPV are sprinkled throughout the high-yielding and lower-yielding varieties (2010 data). BRAND VARIETY YIELD (BU/ACRE) EPV. $/BUSHEL Brand 1 Variety 1 73.7 $10.81 Brand 2 Variety 2 70.7 $10.64 Brand 3 Variety 3 70.3 $10.78 Brand 4 Variety 4 70.2 $10.80 Brand 5 Variety 5 69.8 $10.39 Brand 6 Variety 6 69.7 $10.59 Brand 7 Variety 7 69.6 $10.68 Brand 8 Variety 8 69.4 $10.76 Brand 9 Variety 9 69.1 $10.70 Brand 10 Variety 10 69.0 $10.41 Brand 11 Variety 11 63.7 $10.70 Brand 12 Variety 12 68.1 $10.76 CHART 8: Soybean seed companies play a critical role in increasing soybean component levels without sacrificing yields. Unfortunately, no seed companies are talking publicly about steps to increase protein and oil content. They don t readily screen for these quality characteristics and few provide measurements in their seed guides. If Illinois growers avoid planting varieties with low protein and oil content, they will take a simple step to improving Illinois soybean component quality and will also send a message to seed companies that growers want new varieties that deliver high component levels as well as bushels-per-acre. If more farmers demand high-quality, high-yielding varieties, seed companies will adjust their research and screening to meet these needs. Illinois soybean farmer Dale Crawford, Sullivan Most farmers think yield is easier to control than protein and oil levels. Actually, research shows that yield is more variable than protein and oil within a given variety (Chart 9), which means that protein and oil are more predictable than yield. Therefore, choosing a high-yielding variety with good oil and protein levels will help the industry deliver the high-quality soybeans users demand and provide your best chance of increasing your profits over time. CHART 9: Within a given soybean variety, oil levels are much more predictable than yields. 19

MAKING A DIFFERENCE DEMANDING HIGHER PROTEIN AND OIL The protein concentration of a variety has less variability than yield. When you plant the same variety at different locations, yield can vary widely (which we can see in drought years), but protein remains more stable. This is not to say that protein concentration is completely stable, it isn t. However, it is more stable than yield. Illinois farmers can change the sagging composition of our nation s soybeans by planting varieties that have high yields as well as high oil and protein levels. Illinois soybean farmers should seek soybean varieties delivering a minimum of 35 percent protein and 19 percent oil, along with yield. The yearly seed variety decision impacts far more than yields; it reaches right into the bottom lines of producers and soybean customers alike. So let your seed dealer know you want high protein and oil levels. Beyond your seed dealer, ISA and USB provide additional resources to help you select seed varieties. The USB Soybean Quality Toolbox (www.soyquality.org) and the data at the VIPS website (www.vipsoybeans.org) make it easy to find varieties for your area that deliver high protein and oil along with yield, protecting your markets and profits at the same time. Brian Diers, Professor, UI Department of Crop Sciences 20

FAQS Are soybean varieties available that truly deliver high protein and high yield? The answer is a resounding yes. Not only are both available, but farmers who rush their variety choice can pick a quality dog without even knowing it. All Illinois soybean farmers are urged to choose varieties that produce high yields AND high protein and oil to help keep Illinois soybeans the top choice of customers. Compare multiple variety characteristics for your area at www.vipsoybeans.org. I don t get paid for protein and oil. Why should I bother? Research shows that market prices move along with quality. That means all soybeans receive a lower market price when there are lower-quality beans in the mix, and a higher price with higher-quality beans. Although elevators buy and sell on yield, protein and oil levels are factored into the total price with EPV. Farmers don t see it, but they ARE paid relative to the overall quality of their beans. In 2011, some growers in Minnesota were docked for low protein and oil levels. Ultimately, as more and more customers place higher value on protein and oil, it is critical for Illinois to choose high-yielding, high-quality varieties to deliver on customer preferences. This helps us stay competitive in today s marketplace. We already sell all the beans we grow, so how can there be that big of a problem? Demand for nutritionally balanced animal rations is growing globally, but lower composition quality requires nutritionists to supplement with other feed sources or competing feeds. That reduces our value and allows others to capture profit that could be ours. Yes, the market will work and your beans will be sold. The question we need to ask is, at what price? And, can we capture more of that value back to our bottom lines here in Illinois? Is there an online resource that compares yield and component data on various varieties? Yes, there are two of them. Farmers can see variety information for their local area at www.soyquality.org or www.vipsoybeans.org. Here they ll find a toolbox to help choose specific varieties for their farms that deliver high yield, protein and oil. Are there base-level protein- and oil-content numbers farmers should look to achieve? A good GENERAL target is to shoot for 35 percent protein and 19 percent oil. Even higher levels are possible in Illinois, depending on your location and local variety availability. What if my seed dealer is only focused on high-yielding varieties? Seed companies push yield in large part because that s what growers ask for. Once growers start to ask for higher protein and oil along with high yield, seed companies will listen. Talk to your seed reps about soybean quality. Ask what they re doing to help U.S. beans deliver on customer demands for higher quality. Even though most seed companies are not promoting high protein and oil, many high-yield varieties are available now. As a first step, encourage your seed company to provide consistent reporting for protein and oil levels of their seed varieties. What if I m not ready to change my seed selection? You can still help by asking about high-protein, high-oil seed. If you do nothing but discuss this topic, you will be helping yourself get a higher price in the long term. Choosing varieties that perform well in your local region, and that provide high yields along with high oil and protein levels is the best way you can help Illinois soybeans stay competitive in global and domestic markets. 21

APPENDIX SIXTEEN TENETS OF COMPOSITION QUALITY 1. U.S. and Illinois soybeans are experiencing a downward trend in crude protein content while whole soybeans in general, and meal in particular, from Brazil display higher levels of crude protein. 2. Composition quality awareness is low in Illinois and across the U.S. This comes after a decade-long national effort to build awareness, even as the downward trend continues. 3. Soybean prices have been negatively affected, but that is not apparent to the grower. The prices of soybeans and soybean meal today reflect the downward trend in U.S. quality, higher quality from global competitors and the pressure of competitive products. 4. The composition quality of soybean meal matters to end users (feed millers, nutritionists and livestock producers); bushels matter to growers and elevators; and crush margins matter to processors. 5. The processing characteristics and utility of soybean oil matters to end users (food processors, nutritionists and consumers); bushels matter to growers and elevators; and crush margins matter to processors. 6. Crush plants are aware of the low crude protein problem in today s soybeans. This makes the competitiveness of soybean meal low, prices soft and more difficult to market the product as a quality protein source. 7. Crude protein is really just an indicator to nutritionists of the available essential amino acids in soybean meal. However, it also is the basis for trade and feed formulation as it is readily measurable by near-infrared spectroscopy (NIR). 8. The immediate goal for aggregate (statewide average) quality is 19 percent oil with crude protein at 35 percent or above at 13.5 percent moisture. Nineteen percent oil allows for better competitiveness in the marketplace. Delivering a 35 percent protein bean makes a marketable 47.5 percent or greater protein meal, which is desired by the animal feed industry. 9. The long-term goal for aggregate quality is 37 to 37.5 percent crude protein and 19 percent oil. Crushers want oil content not less than 19 percent to maintain crush margins. Industry needs 37 percent crude protein level to provide a buffer against weather-induced stress that can cause up to a two-point drop in crude protein. If crude protein is pushed any higher than 37.5 to 38 percent, oil levels will decline. 10. While soybeans have a little more than half as much oil as protein (19 percent compared with 35 percent) the oil is worth more than three times as much as the protein ($0.51 per pound compared to $0.16 per pound). When protein content of meal falls below market thresholds, nontransparent discounts are applied that outweigh the gains from greater oil content. 11. Soybean protein will be the immediate focus with Illinois soybean farmers. The composition in terms of digestible amino acids, metabolizable energy and anti-nutritional factors that constitute the core value of soybean meal will be a concurrent focus with industry. One goal is to increase the essential amino acids including lysine, methionine, threonine and cysteine to meet the needs of poultry, which will meet the needs of pork as well. 22

12. Seed companies need to be engaged. They are partners in the value chain, important to improving the quality of commercial soybeans and can influence growers to purchase a seed variety with higher quality. 13. Soybean farmers need to be engaged in discussions since they are not aware of downward quality trends, have not recognized the discounts that impact soybean price and seem content with yearly increases in commodity prices. Farmers need to recognize the issue, realize they can select high-yield varieties and be aware that VIPS can help them select such varieties. 14. Offering a premium for soybeans with higher protein levels is not the expectation or goal of ISA. As an Illinois pork producer at a pork roundtable explained, If you want our business, improve the quality of your beans to meet our needs; do not expect to get paid more (premium) for it. However, high quality will lead to greater demand and market share and a better price. 15. Among existing commercial soybean varieties, there is not necessarily an inverse relationship between yield potential and protein and oil content. Varieties can be chosen from high-yielding, agronomically sound selections that also exhibit oil (19 percent) and protein (35 percent) composition with no negative impact on yield. 16. Illinois produces soybeans with competitive protein levels in the U.S. However, there need to be improvements, which should result in additional value capture for Illinois soybean producers from improved composition as well as competitive positioning in the domestic and international markets. 23