The Power of Compounding Oil Premiums
Thursday, February 15, 2007
filed under: Marketing/Risk Management
Remember last year, when new crop bids didn’t come out until February? How things have changed – with the short crop in 2006, and the aggressive buying for acreage in 2007, the sunflower crushing plants have raised their bids several times already this winter to attract acres. In January, the oil crushers in West Fargo and Enderlin, N.D. raised their new crop bids by $1.50 per cwt, and the Goodland, Kan. crush plant raised its bid by $2.25 per cwt. Depending on the contract and delivery option, new crop oil sunflower bids in January were ranging between $14.25 and into the $16 range, the highest prices in recent memory.
“This is the first time I’ve seen $16 bids in the 11 years that I’ve been with the NSA,” says John Sandbakken, marketing director of the National Sunflower Association.
Don’t forget to factor in oil premiums, which push gross returns from oil sunflower even higher.
Oil premiums are offered at the Enderlin and West Fargo plants on oil content above 40% at a rate of 2% price premium for each 1% of oil above 40%. For example, 45% oil content results in a 10% price premium, or $1.55 cwt at a $15.50 cwt price, making the contract worth $17.05 at the crush plant. The crushing plant in Goodland is also offering oil premiums on oil content above 40%.
The calculations below show the value of high oil contents. As you can see, oil content can be worth a lot in terms of return per acre and can add significantly to the bottom line.
Example: $15.00 base price and 2 for 1 oil premium
• 41% equals .30 cents
• 42% equals .60 cents
• 43% equals .90 cents
• 44% equals $1.20
• 45% equals $1.50
• 46% equals $1.80
• 47% equals $2.10
• 48% equals $2.40
The oil crushing plants are offering various delivery and Act of God options for farmers to market their 2007 sunflower crop. Growers are encouraged to contact processors or their local elevators, since new crop prices can change as bids are secured.
ADM Enderlin: 1-800-553-6032
ADM Goodland: 1-800-542-7333 or 785-899-6500
Cargill Processing: 1-800-742-0051