Striking Oil: South Dakota Soybean Processors Finds New Ways to Add Value to Crop

Article excerpt

South Dakota Soybean Processors is a successful, producer-owned soybean business that was organized in 1993 and began operations in 1996 to add value to its members' crop. "Our goal," says CEO Rodney Christianson "is to be financially strong and make a maximum value-added payment to our members while maintaining growth and capital stock. South Dakota Soybean Processors (SDSP) will maintain a competitive position in the marketplace by providing quality products to our customers with highly efficient and cost-effective processes."

SDSP's state-of-the-art soybean crushing plant east of Volga, S.D., began operations in late 1996. The plant was built to crush 16 million bushels annually and has since expanded to 28 million bushels. In 1997, SDSP crushed 13.4 million bushels, increasing to 21.1 million bushels in 1998, 24.1 million in 1999, 26.2 million in 2000 and 26.8 million in 2001.

The expansion in 1998 cost $1.8 million and was funded primarily through earnings generated in 1997. Local soybeans are annually processed into about 600,000 tons of soybean meal, 157,000 tons of crude soybean oil and 49,000 tons of soybean hulls.

SDSP's plant is on 47 acres, and the co-op has an option to purchase an additional 60 acres. The plant can currently process about 80,000 bushels per day and has historically run at 88 to 95 percent of capacity. The plant generally runs at full capacity from December through May and then undergoes two weeks of maintenance.

Most of the soybeans are trucked to the plant. Trucks are weighed and then sent to one of two receiving lines that can process 15,000 bushels per hour. The soybeans are sampled and graded for moisture, foreign material and other quality factors, which impact the price. The plant has capacity to store 1.5 million bushels of soybeans, or about four weeks of operations. It can also store about 5,000 tons of soybean meal (about three days of operations) and 30 million pounds of soybean oil.

Passing the profit test

South Dakota Soybean Processors has been profitable since it began operations in 1996.

"Anything that we do, first of all we have to pass the test--do we remain financially strong or do we get better financially because of what we're going to do?" Christianson says. "If we make this investment, will it then allow us to pay a larger value-added payment?"

It has paid back to producers approximately 70 percent of all income each year, retaining about 15 percent to be paid back in future years. It keeps 15 percent as retained earnings for future growth. The first shares of stock purchased in 1993 and 1994 for $2 each have appreciated in value. Stock share price traded locally at $2.49 in 1998, $2.86 in 1999, $3.03 in 2000 and $2.67 in 2001. Later stock sales were priced at $2.25 and $2.50 and have also increased in value. In addition, the local basis for soybeans has narrowed by about 25 cents per bushel since the plant opened.

Since 1996, three board retreats have been held and the core strategy has been revised three times. "The soybean industry is very competitive, and we need to keep track of what's going on in our industry," Christianson says.

At its last board retreat in 2000, SDSP developed a five-year strategic plan. The goals of this plan were to: 1) maintain its competitive advantage in processing soybeans at the lowest possible cost; 2) move its products up the value-added food chain; and 3) develop strategic alliances to help meet its goals and objectives.

SDSP plans to add an additional 20,000 bushels of daily capacity to further its ability to process soybeans at the lowest cost. The co-op is committed to generating 50 percent of its revenues from high-margin, value-added products. This means further refining soybean oil. Four options (discussed below) were considered for accomplishing these three strategies.

Turning soybean oil into polyurethane foam

SDSP has acquired exclusive rights to supply soybean oil to Urethane Soy Systems Company Inc. …