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Pocketbook Padder

Monday, February 1, 1999
filed under: Marketing/Risk Management

Maybe it could be a special bumper sticker just for sunflower producers: 2 for 1 = $$ No one else on the highway would know what it means; but that’s OK. It can be a fraternal honking signal exclusively for members of the sunflower community.

The oil premiums which sunflower producers have been receiving since the early 1980s have put tens of millions of extra dollars in growers’ pockets each year over the past decade and a half. By paying a premium of two percent of the cash price for every percentage point of oil above 40, domestic crushers have long encouraged seed companies to breed and sell higher-oil varieties and growers to buy and plant such varieties.

Of course, the crushers’ motives are not totally altruistic. They generate most of their own revenues from sales of oil, not meal. So the higher the percentage of oil they can extract from purchased seeds, the more efficient, competitive and profitable they can be as well.

Given the 2:1 premium, are those hybrids with the highest oils in public and/or private testing automatically the most profitable ones for growers to produce?

Often, but not always. A high-oil hybrid that does not yield adequately compared to other varieties can actually end up providing less income per acre for the producer.

For example, as the chart at right indicates, a 1,600-pound crop at 47-percent oil will generate — based on a 10-cent seed price — $182.40 of gross income per acre. That

will beat an 1,800-pound yield at 40-percent oil; but it will not provide more income than an 1,800-pound crop with 41- or 42-percent oil.

Processors typically discount two percent for each point of oil below 40, down to 38 percent. (After that, the discount is 3:1; but most of the lower-oil seeds tend to flow into the birdseed market rather than to oilseed crushing plants.) But even after being discounted for low oil, a 38-percent/1,900-pound sunflower crop will generate the same revenue as the 47-percent/1,600-pound result.

The advantage of a high-yield/ low-oil combination versus a lower-yield/higher-oil becomes more pronounced as one moves toward the low end of the yield spectrum. For instance, a 47-percent oil at 1,000 pounds will produce $114 in gross income when including the 2:1 premium. To gain a similar gross return at 40-percent oil, the grower

is looking at about 1,140 pounds. So in this case, 140 pounds more yield per acre makes up for the seven-percent drop-off in oil content.

The differential narrows somewhat as yields increase. Under 2:1, a 1,400-pound yield at 45-percent oil grosses $154. That income level likewise can be achieved by a 1,540-pound yield at 40-percent oil. Of course, at the lower oil the farmer also must harvest, store and transport a larger volume of seed in order to earn the same number of

dollars. — Don Lilleboe

Gross Return (Dollars/Acre) of Various Yield & Oil Combinations,

Based on a Premium/Discount Schedule of 2% of Base Price

Per Point of Oil Above or Below 40%*

------Percent Oil-------

* Base price of 10 cents per pound

	38	39	40	41	42	43	44	45	46	47	48
900	86.60	88.20	90.00	91.80	93.60	95.40	97.20	99.00	100.80	102.60	104.40
1,000	96.00	98.00	100.00	102.00	104.00	106.00	108.00	110.00	112.00	114.00	116.00
1,100	105.60	107.80	110.00	112.20	114.40	116.60	118.80	121.00	123.20	125.40	127.60
1,200	115.20	117.60	120.00	122.40	124.80	127.20	129.60	132.00	134.40	135.80	139.20
1,300	124.80	127.40	130.00	132.60	135.20	137.80	140.40	143.00	145.60	148.20	150.80
1,400	134.40	137.20	140.00	142.80	145.60	148.40	151.20	154.00	156.80	159.60	162.40
1,500	144.00	147.00	150.00	153.00	156.00	159.00	162.00	165.00	168.00	171.00	174.00
1,600	153.60	156.80	160.00	163.20	166.40	169.60	172.80	176.00	179.20	182.40	185.60
1,700	163.20	166.60	170.00	173.40	176.80	180.20	183.60	187.00	190.40	193.80	197.20
1,800	172.80	176.40	180.00	183.60	187.20	190.80	194.40	198.00	201.60	205.20	208.80
1,900	182.40	186.20	190.00	193.80	197.60	201.40	205.20	209.00	212.80	216.60	220.40
2,000	192.00	196.00	200.00	204.00	208.00	212.00	216.00	220.00	224.00	228.00	232.00
2,100	201.60	205.80	210.00	214.20	218.40	222.60	226.80	231.00	235.20	239.40	243.60
2,200	211.20	215.60	220.00	224.40	228.80	233.20	237.60	242.00	246.40	250.80	255.20
2,300	220.80	225.40	230.00	234.60	239.20	243.80	248.40	253.00	257.60	262.20	266.80
2,400	230.40	235.20	240.00	244.80	249.60	254.40	259.20	264.00	268.80	273.60	278.40