2017 UPDATE

Growing the Profit Potential of Soybeans

VALUE TASK FORCE

Report

VALUE TASK FORCE

Report

USB VALUE TASK FORCE 2017 REPORT

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TABLE OF CONTENTS

Table of Contents ........................................................................................................................................1–2

Executive Summary .........................................................................................................................................3

1. What Industry Said About VEOs ...................................................................................................................5

1.1 Constituent Pricing (CP) ..................................................................................................................5

1.1.1. Opportunities Presented by CP .............................................................................................5

1.1.2. Challenges of Implementing CP ..........................................................................................5

1.1.3. Needs to Advance CP ..........................................................................................................6

1.2. Enhanced Nutritional Energy Meal (ENEM) ......................................................................................6

1.2.1. Opportunities Presented by ENEM .......................................................................................6

1.2.2. Challenges of Implementing ENEM .....................................................................................6

1.2.3. Needs to Advance ENEM .....................................................................................................7

1.3. Reduced Carbohydrate Soybeans (RCS) ....................................................................................7

1.3.1. Opportunities Presented by RCS ..........................................................................................7

1.3.2. Challenges of Implementing RCS ........................................................................................7

1.3.3. Needs to Advance RCS ........................................................................................................7

2. Updated Recommendations ........................................................................................................................8

2.1. General Recommendations ............................................................................................................8

2.1.1. Industry Engagement ..........................................................................................................8

2.2. VEO-Specific Recommendations ....................................................................................................9

2.2.1. Constituent Pricing ............................................................................................................9

2.2.2. Enhanced Nutritional Energy ............................................................................................10

2.2.3. Reduced Carbohydrate Soybeans ......................................................................................11

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TABLE OF CONTENTS (CONTINUED)

3. Summary of 2016 VTF Activities ................................................................................................................12

3.1. VTF Meetings ..............................................................................................................................12

3.1.1. March Meeting in St. Louis ................................................................................................12

3.1.2. August Meeting in Indianapolis .........................................................................................12

3.2. Industry Engagement ..................................................................................................................13

3.2.1. One-on-One Industry Meetings .........................................................................................13

3.2.2. VTF Update Webinars .......................................................................................................13

3.2.3. Composition Workshop .....................................................................................................14

4. Summary of Related Research Activities ...................................................................................................14

4.1. Past Research .............................................................................................................................14

4.1.1. Existing Constituent Pricing Programs ..............................................................................14

4.1.2. Agencies and Associations ...............................................................................................17

4.1.3. Seed Technology Development Status for ENEM and RCS Traits .........................................20

4.1.4. ENEM Feeding Trials .........................................................................................................23

4.1.5. RCS Composition Targets – Value Proposition and Market Considerations ..........................24

4.2. Process for Ongoing VEO Identification Process ...........................................................................27

4.3. Currently Funded Research ..........................................................................................................29

4.3.1. Crusher/Elevator Industry Consortium ...............................................................................29

4.3.2. Elevator Pilot...................................................................................................................30

4.3.3. Measurement ..................................................................................................................31

USB VALUE TASK FORCE 2017 REPORT

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EXECUTIVE SUMMARYBackground

The “2015 Value Task Force Report” was released in December 2015 and provided a comprehensive summary of

the activities and recommendations of the Value Task Force (VTF) since its inception. This “2017 Update” builds

on that initial report and provides updated recommendations based on the industry engagement and results of

research that has been conducted during calendar year 2016.

Activities Since the 2015 Report

Industry engagement has continued to be a key activity for the VTF during 2016. In-person visits, webinars,

and phone calls were conducted as a way to communicate the Value Enhancement Opportunities (VEOs) and

direction to industry and to get their feedback about challenges and opportunities they present (Section 3). A

valuable outcome of these activities is that the level of awareness about the work of the VTF and the VEOs that

are being evaluated has been expanded to a much broader industry stakeholder audience. This is important

because advancing the VEOs will require broad engagement and support from across the soybean value chain.

A key development is that the recommended VEOs have been solidly embraced by USB and research supporting

various aspects of the VEOs was included as part of their FY2017 work plan (Section 2.1).

Seed research in areas that support the Enhanced Nutritional Energy Meal (ENEM) and the Reduced

Carbohydrate Soybean (RCS) continues at a solid pace. Continued industry support and evidence that these

targets are being embraced across the sector will provide private and public seed developers with the confidence

they need to continue to invest in developing these technologies (Section 4.1).

The VTF will sunset in February 2017, but there is still much to do to keep the momentum moving forward

and advance toward the evaluation, development and adoption of the recommended VEOs. This will be

accomplished through coordinated efforts between the USB, the QUALISOY Board and individual organizations

across the industry (Section 4.2).

Highlights for VEOsConstituent Pricing

Industry awareness about the importance of CP is growing (Section 1.1). A recognized challenge is that the

incremental value of quality improvement may be relatively small, even though the results of changing the

directions of trends can have significant economic impacts to the sector. This requires that the incremental

cost of administering CP programs needs to be extremely low. Measurement technologies are improving in

terms of capabilities and cost, and there is confidence that these challenges will be overcome if the industry can

accurately articulate needs.

Looking forward, recommendations (Section 2.2.1) are to continue defining measurement technology

capabilities needed and in understanding/resolving the challenges of passing incremental value through the

value chain. Also, effective strategies need to be developed and implemented to communicate the opportunities

that can be realized from properly aligned market signals across the value chain.

Over the last year, work was done to better understand what has been learned from companies who have offered

CP programs in the past and what agencies and associations will be important to engage going forward (Section

4.1). USB has funded research programs related to defining measurement technology needs, developing

protocols for reporting constituent values to farmers, and developing pricing mechanisms to support CP

(Section 4.3).

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Enhanced Nutritional Energy Meal

The value proposition for ENEM is straightforward and generally embraced by nutritionists (Section 1.2).

However, many questions remain. Is the incremental value sufficient to support the cost to deliver and to

overcome the resistance to change in the existing commodity system? Can nutritional energy, or a proxy for it,

be measured with sufficient accuracy to support trade? How can segregation costs be minimized or eliminated?

Should all soybeans be ENEM?

Recommendations focus on addressing these questions with the most immediate need being to gain a clearer

understanding of the incremental feed value of ENEM for different species of livestock under different

conditions (Section 2.2.2). Other areas of focus going forward include determining ways to measure nutritional

energy along the value chain, understand the challenges of getting ENEM into elite varieties and stacking with

other quality traits, and in understanding the logistical and economic impacts of the different strategies for

broad commercial rollout.

During 2016, initial feeding trials were conducted with baby chicks to understand the incremental feed value

(Section 4.1.4). Soybean breeders from the public and private sectors were also engaged to understand the

possibilities of stacking ENEM with other quality traits such as high oleic soybeans (Section 4.1.3).

Reduced Carbohydrate Soybeans

The concept of replacing non-nutritional fractions of the soybean with oil and/or protein is generally

embraced as a good thing that will add value to the sector (Section 1.3). But when digging into the details, it

gets a bit more complex. There are mixed opinions about what would happen to oil prices when supplies

increase by 10-16% over conventional soybeans if RCS soybeans were broadly adopted. At the same time,

the adoption of RCS soybeans into the marketing system seems much less complex since identity preservation

(IP) will not necessarily be required. Value from increased oil levels can easily be captured in existing value

chains. For meal traits, IP may be required initially until commoditization occurs. In order for the protein to

maintain or add value, the amino acid balance and digestibility would need to be equal to or better than for

conventional varieties.

Two of the key recommendations (Section 2.2.3) are to better understand the economic implications of

increasing oil supplies and how the market values meal with higher protein. Work is needed on the breeding

front to understand if yield parity is possible and to understand the amino acid makeup of the higher protein.

Finally, processors and processing equipment manufacturers need to be engaged to understand if and how the

changed soybean composition will impact the crush process for these soybeans.

When the VTF initially recommended the RCS VEO, it was unclear how long it might take to develop and bring

this soybean to market. Discussions with seed technology companies helped to frame the timeline for the

introduction of RCS soybeans into the market which is currently expected to be 9 to 12 years (4.1.3). Also, initial

efforts were undertaken to quantify the change in meal and oil yields and how that would impact the overall

value of the RCS soybean as compared to conventional soybeans (4.1.5). Currently funded projects focused

on constituent pricing and measurement technology will help to develop the market platforms needed to

effectively bring the RCS soybean to market.

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INTRODUCTIONThis report update builds on the contents of the 2015 Value Task Force Report. That report detailed the activities

of the VTF since its inception and concluded with recommendations for continued exploration of three target

Value Enhancement Opportunities (VEOs). This report update provides:

• A summary of feedback from continued industry engagement.

• Updated recommendations for:

– continued industry engagement,

– identification of future VEOs, and

– activities that need to continue to support the ongoing development and implementation of

the VEOs.

• Initial results of targeted research activities.

• An overview of initial research activities supporting the assessment and development of the

target VEOs.

Following this introduction, this report is divided into four sections. Section 1 provides a discussion of what was

learned through conversations with industry representatives during one-on-one encounters as well as group

discussion events (meetings and webinars). Section 2 provides updated recommendations based on industry

feedback and results of initial research activities conducted on behalf of the VTF. Section 3 provides a summary

of VTF meetings and industry engagement activities conducted during 2016. Finally, Section 4 provides a

summary of VTF sponsored research conducted during 2016 and three current USB-funded research projects

that are focused on advancing the recommended VEOs.

1. What Industry Said About VEOsDuring 2016, the VTF’s recommendations were presented to representatives across the industry. Information

about who was engaged in these discussions is outlined in Section 3. The following summarizes some of the

feedback that was received.

1.1. Constituent Pricing (CP) Core Value Proposition: Effective constituent pricing systems will be key to enabling value improvement strategies.

1.1.1. Opportunities Presented by CP

• Allow everyone along the value chain to focus on creating the composition attributes that are most

valuable to end users creating a larger value “pie” for everyone.

• Evolves the growers’ seed purchase criteria to include oil and meal value creation rather than just

bushel yield per acre.

• Address the erosion of crude protein in U.S. soybeans.

• Build a foundation for pricing enhanced traits beyond crude protein and oil.

• Aligned market signals will allow companies to justify R&D investment in the technologies needed to

improve soybean quality/value.

1.1.2. Challenges of Implementing CP

• Few in the industry are convinced that the erosion of soybean and soybean meal protein is a compelling

enough problem to need addressing at this time. At the same time, a growing number of industry

leaders, including USB are convinced that doing nothing is not an option, due to the long-term threat of

continued protein content erosion.

• The relatively low economic value of incremental increases in protein and oil content does not provide

enough direct economic margin to motivate change in behavior. At the same time, the incremental

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declines over time are having a significant and growing negative impact on the demand base for

U.S. soybean meal.

• Measurement of crude protein and oil in soybeans is not universally practiced as many origination

locations do not have the ability to do so (typically through NIR technology).

• Direct premiums and/or discounts based on protein and/or oil content are limited to processors in the

Upper Midwest.

• Beyond crude protein and oil, it is not yet clearly defined what attributes need to be measured and the

degree of accuracy that will be required to support trade.

1.1.3. Needs to Advance CP

• In order for change to occur, the majority of the soy industry needs to believe that change is warranted

and that there is real value to be gained from improving certain soybean compositional attributes.

Convincing communication across the industry that the cost of lower protein levels greatly exceed the

apparent short-term value loss is necessary. The demand lost in the recent past from DDGS and canola

meal nutritionally supported by synthetic amino acids is accepted as fact by most of the industry. The

future threat from these substitutes that will result from continued protein erosion is not understood

or appreciated.

• The opportunity presented by other enhancements to soybean meal nutrition is not understood

by industry.

• Innovative approaches to motivate behavior change that do not rely on substantial premium payments

need to be developed and implemented. This would include the development of programs that motivate

individuals across the value chain to take no- or low-cost steps to incrementally improve soybean

quality.

• The specific capabilities of measurement technologies need to support different quality attributes to

be defined. Ideally, measurement technologies can be low enough in cost to be widely deployed at the

grower level in addition to receiving facilities.

• Measurement capabilities must become ubiquitous at all points across the value chain at which

ownership changes. The measurement technologies to support this need to get cheaper, faster and

more accurate with standardization across locations. Most importantly, the data generated must be

highly trusted if it is to drive payment systems.

1.2. Enhanced Nutritional Energy Meal (ENEM) Core Value Proposition: Replaces non-digestible components with higher energy components.

1.2.1. Opportunities Presented by ENEM

• Add value to soybean meal (and thus soybeans) by eliminating anti-nutritional carbohydrates while

increasing nutritional energy.

• Make U.S. soybean meal (SBM) more competitive in the market among other amino acid alternatives by

enhancing the nutritional bundle to include more energy.

1.2.2. Challenges of Implementing ENEM

• Motivating change when the amount of total added incremental value on a per bushel basis is less than

$0.50 per bushel and that needs to cover all costs across the value chain.

• The value of increased nutritional energy will differ for different species of animals and be dependent

on a number of factors.

• Measuring the amount of nutritional energy in soybeans or soybean meal is technically very challenging

and no mechanism to reliably do so currently exists. Such a mechanism will need to be relatively

accurate and inexpensive.

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• It is not clear at what points in the value chain nutritional energy (or a proxy) will need to be measured.

• Producing and processing ENEM soybeans, and handling ENEM will require segregation throughout the

chain in order to capture value and measure that value properly.

1.2.3. Needs to Advance ENEM

• Determine the true incremental value from ENEM – for different species and under different market

conditions.

• Develop varieties that produce consistently higher levels of nutritional energy and have yield parity

with existing elite varieties.

• Develop market systems that mitigate IP costs by stacking the ENEM trait with high oleic soybeans

(HOS), or some other enhanced trait soybean that already requires segregation up to the processor.

1.3. Reduced Carbohydrate Soybeans (RCS) Core Value Proposition: Carbohydrates are replaced by higher levels of oil and crude protein.

1.3.1. Opportunities Presented by RCS

• Increase the level of high value constituents (amino acids and oil) in the soybean relative to low/no

value constituents (carbohydrates). Value generated by simultaneous oil and meal improvement

is likely to be significant enough to overcome commodity system resistance.

• Make SBM more competitive in the market among other amino acid sources due to its already strong

balance of amino acids combined with a denser nutritional bundle. The RCS soybeans do not have to be

segregated to capture much of this value, even during the early market conversion process, considering

the ease of increased oil value captured from day one.

• Converting the entire market from conventional to RCS can make soybeans more competitive with soft

seeds for oilseed. It is expected that the value of vegetable oils will decline relative to the value

of protein from soft seed crushing. This disadvantages margins from soft seed crushing relative to

margins achievable from soybean crushing.

1.3.2. Challenges of Implementing RCS

• Future uncertainty about demand and energy policy scenarios for vegetable oils and protein feeds

makes it difficult to project the expected economic impact of changing the fundamental balance

of oil and protein in soybeans. However, even with macro oil and meal market adjustments as a result

of RCS introduction, the competitiveness of the soybean relative to other oil and protein sources will be

significantly enhanced from an acre productivity basis.

• Different RCS composition levels (i.e. RCS 3.0 versus RCS 2.1) will result in different value propositions

and market responses.

• Understanding how to effectively convert the market from conventional to RCS over time to maximize

the value. The value proposition will change as the share of the market dedicated to RCS evolves.

• Must assure that the amino acid concentrations (as a percentage of crude protein) remain the same or

improve as meal crude protein levels change (and soybeans in the case of version 2.1).

1.3.3. Needs to Advance RCS

• Understand the impact on SBO (and other vegetable oils) prices and volumes with SBO output increases

of 11% (RCS 2.1) to 16% (RCS 3.0) over time as the market transitions.

• Understand the value and pricing dynamics that higher protein meal would create in the market.

• Develop trading standards that fairly compensate for high protein meal. This includes trade practices,

NOPA Trading Rules and CME soybean meal standards.

• Understand the impact on agronomic yield potential.

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• Understand the impact on amino acid composition and digestibility.

• Understand the operational challenges of extracting and finishing more oil per bushel.

2. Updated RecommendationsThe 2015 report outlined recommendations for activities three to five years into the future. One of the core

recommendations in that report was to review and update the recommendations each year. As a follow-

up, this set of updated recommendations is organized using the same categories, starting with general

recommendations followed by VEO-specific recommendations. For each, the summary recommendation

statement from 2015 is provided as a point of reference followed by the current updated recommendation.

Note that in some cases, the same recommendations (or a variant) continue going forward.

2.1. General Recommendations

2.1.1. Industry Engagement

2015 Recommendations:

Continue with and grow the engagement of representatives from across the value chain in VTF conversations.

Educating the industry about the VTF’s recommendations was a significant part of the 2016 activities

funded by the VTF. This will continue to be an important element of success going forward. The

involvement of industry representatives will facilitate better decisions along the process and create

industry buy-in as progress is made. In the short term this is accomplished through the Crusher and

Elevator Industry Consortium and longer term by the involvement of QUALISOY.

Develop and implement a process to continually scan for and evaluate new VEOs.

This recommendation remains largely unchanged from the previous report other than this year’s

recommendation specifies giving the responsibility to the QUALISOY Board. That recommendation is

stated below along with some details about a process that could facilitate the ongoing evaluation of VEOs.

Migrate the VTF from a “task force” status to be a long-term entity designed to bring the industry

together to continue to identify, evaluate and implement high value VEOs.

This recommendation has led to a general plan for migration of many VTF activities to be taken on by

the QUALISOY Board.

2017 Recommendations:

Transition the responsibility of industry engagement to a durable entity that can continue to define and

drive the necessary dialogue to successfully evaluate and advance the VEOs.

The QUALISOY Board is the entity slated to take on the responsibility of engaging industry on an ongoing

basis. Some specific considerations for this role include the following:

• The nature of the messaging to and engagement of industry that will be required to effectively

advance the VEOs will change over time as each one progresses toward implementation.

Thus, it will be important to continually evaluate who will be impacted by the adoption of VEOs

and be sure that they are engaged appropriately.

• Identify ways that industry can put some “skin in the game” through their engagement and

financial investment. One way to leverage these parties is to have them assist in developing

and delivering the messages to their peers across the value chain.

Finalize and implement a process to continually scan for and evaluate new VEOs.

USB’s Long-Range Strategic Plan (LRSP) encompasses five-year time spans. In order to maintain a robust

portfolio of forward-looking value opportunities, a process for periodically reviewing potential VEOs

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becomes essential for the efficacy of investment strategies across the industry (by USB and private

sector organizations). The goal is to set forth an ongoing process to identify and evaluate emerging VEOs

as technological advances and new market paradigms continue to provide opportunities. Section

4 provides a description of a conceptual framework for a process that can be used as a starting point for

developing a specific set of action plans by QUALISOY.

Recommended strategies include:

• Develop an annual process to review past VEOs that have been identified to determine if any

factors have changed significantly enough to warrant reconsideration.

• Develop an annual process as part of industry engagement activities in order to surface new

possible VEOs.

• Based on the activities of the prior two strategies, make recommendations to the industry about

the appropriate actions needed for additional research or further consideration.

• Continue to place high emphasis on keeping sharp focus on a limited number of investment/

activity priorities that bring significant industry advancement opportunities as opposed to

many small niche concepts that lack critical mass.

2.2. VEO-SpecificRecommendations

2.2.1. Constituent Pricing

2015 Recommendations:

Study existing constituent pricing programs to understand results as well as farmer perceptions.

Results of initial work in this area are included in Section 4.

Engage nutritionists and feed ingredient buyers to document how a constituent pricing system would

impact usage and value for the ENEM and RCS traits.

Work is still needed on this front.

Engage measurement technology companies to explore various options with an emphasis at the farm and

grain elevator levels.

This will be an integral part of the Crusher/Elevator Industry Consortium (CEIC) and Elevator Pilot

projects.

Identify and engage with appropriate agencies to understand impediments and set the stage for gaining

their support. This would include organizations such as FGIS, NGFA, AFIA, NOPA and others.

Results of initial work in this area are included in Section 4.

2017 Recommendations:

Define measurement technology needs to support constituent pricing programs.

The specific measurement capabilities needed will be different for each type of constituent being

measured. For example, the capabilities needed to support a protein and oil program will be different

than that for an enhanced nutritional energy program. Accordingly, this recommendation will emerge

over time as new constituents are being considered. At this time, the recommendation is to focus on two

sets of constituents.

• Protein and oil to support current programs that would motivate better selection from existing

varieties in addition to the RCS VEO.

• Nutritional energy – to support programs for the ENEM soybean.

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Develop strong communication campaigns with the farmer audience on a continuing basis.

USB is a driving force behind the adoption of constituent pricing because they have studied the facts

and understand its potential value to farmers as well as the rest of the soybean value chain, from creating

aligned market signals. However, a movement toward constituent pricing will not necessarily be

embraced by all farmers because it represents change in a long-standing system and can be perceived as a

negative without understanding its merits.

Carefully crafted communication campaigns need to be developed to help the U.S. soybean farmers

understand the long-term benefits of constituent pricing. This will be a challenging campaign and it will

evolve over time as different types of programs emerge.

Determine the challenges of second buyer transactions based on constituent pricing.

A constituent pricing transaction between a farmer and an originating elevator is relatively simple

when compared to transactions between the originating elevator and the next buyer whether it be a

processor of larger grain handling operation. This recommendation is to understand the nature of those

“second buyer” transactions in order to identify the challenges that exist in preserving the value and

providing fair compensation for that value. Stated another way, an elevator cannot afford to pay a

premium to the farmer if they cannot get a premium when they sell the grain to the next entity down the

value chain.

Follow the progress of the CEIC and Elevator Pilot projects and assimilate results into recommendations

for future activities.

These two projects are described at the end of Section 4.

2.2.2. Enhanced Nutritional Energy

2015 Recommendations

Conduct feeding trials on different species to determine the performance gains and implied value

from ENEM.

As reported in Section 4, work has begun in this arena, but this recommendation carries forward

into the 2017 recommendations to expand feeding trials.

Understand the feasibility of stacking this trait with high oleic varieties in targeted regions.

This recommendation carries forward into the 2017 recommendations.

2017 Recommendations

Continue feeding trials (continuation of 2015 recommendations)

The value of increasing nutritional energy in soybean meal is tangible and real, however the

extent of the value is not completely understood. Further, the value will be different for different

species and for animals of different ages within the same species. In order to determine the added

value, it is essential to continue the feeding trials that have been started as quickly as possible

given adequate supplies of the soybean meal. As part of this value assessment, it would be useful

to also explore the value that new and emerging feed products that may have a future impact on

the value of soybean meal (i.e. higher protein canola meal or amino acids).

Understand the agronomic impact of varieties currently under development.

The varieties that have been developed to date are through traditional breeding and conventional

wisdom in that they do have some yield penalty compared to current commercial varieties. The

nature of this and any constraints on other agronomic traits need to be more fully understood.

The need for this information is very time sensitive as any decrease in yield will alter the value

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proposition significantly. Also, there is a need to better understand the variety development

scalability of these products and the breeding considerations associated with a large number of

genes that may be involved in delivering the trait.

Work with measurement technology companies to determine if and how energy or a proxy can be measured.

It is generally understood that directly measuring nutritional energy in the field is not practical in the

foreseeable future. This raises questions about whether proxy measures can be used as an indicator of the

presence of higher levels of nutritional energy. Measurement technology companies need to be engaged

at a level of detail that allows them to help discover possible approaches that could be used to support the

trade of soybeans and meal on the basis of having higher levels of nutritional energy.

Advance research and development on stacked varieties.

Stacking ENEM traits on top of other specialty varieties such as HOS could help mitigate the cost of IP

at least up to the point of processing. As discussed in Section 3 of this report, initial research suggests

that it is technically possible to stack ENEM and HOS. However, research needs to continue to identify any

constraints that do exist so that breeding objectives can be clearly defined for seed companies.

Assess alternatives for broad commercial rollout of ENEM.

There are many factors that will impact the success of bringing ENEM to the market. Learning from

the HOS experience, this starts with having adequate seed varieties, producers on board and ready

to participate in growing ENEM soybeans, origination and processing capabilities to handle them, and end

users who understand and acknowledge the value being provided. Research defining the hurdles and

possible strategies for rollout is needed to support the industry conversations that need to take place.

2.2.3. Reduced Carbohydrate Soybeans

2015 Recommendations:

Assess current research programs/targets which compliment a RCS platform.

Initial research on this is reported in Section 4.

Establish the blend of compositional changes (oil versus protein content changes) that stand the greatest

probability of creating the maximum added value to the soybean industry as a whole.

Conversations with industry have confirmed that the magnitude of increases in oil and protein levels

are at or above the 3.0 and 2.1 soybeans that have been contemplated to date. Thus, there is no need to do

an evaluation of levels below these two scenarios.

2017 Recommendations

Understand the impact of increasing oil supplies over time on oil prices.

Initial analysis of the market impacts of adopting RCS points out that the oil price response to increased

oil supplies is critical to how much additional value is created and captured (see discussion Section 4). At

issue is whether the value of the additional volume of oil would be offset by a decrease in oil price from

basic supply and demand economics. General consensus is that gains would still exceed price declines

which are currently estimated to be modest since soybeans are a minor oilseed with relatively low total oil

output per acre. But further research is needed to understand the magnitude of this impact.

Understand the operational challenges of extracting and finishing more oil per bushel.

Initial conversations with crushers and other experts indicate that capital investments may be required

at some, if not most, plants due to producing more oil per bushel crushed. This would be in the area of oil

finishing after the extractor. Research and industry dialogue is needed to understand whether this

presents a significant roadblock to trait implementation.

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Understand the true value of very high protein meal.

Experts agree that higher protein meal is better, especially when talking about increasing from 46%

to 48% protein meal, assuming the amino acid balance is unaffected. However, it is less clear how much

the market will value an additional 3% to 4% meal protein. At the same time, the RCS will yield fewer

pounds of meal per bushel resulting in pressure for higher meal pricing, so the added value from a higher

nutritional density meal needs to be sufficient to offset that economic change as well. Nutritionists need

to be engaged to run least cost rations under a variety of assumptions to determine the break-even values

for meal with different levels of protein.

Understand the impact on amino acid concentrations.

Seed breeders working on this trait believe that there is no technical reason that the concentrations of

essential amino acid in the RCS protein will be different from today’s conventional soybeans. However,

the market is very aware of, and sensitive to, what happens to the levels of essential amino acids as crude

protein levels increase. For this reason, the current beliefs around this issue need to be conclusively

validated.

Understand the impact on agronomic yield potential.

Much like the amino acid situation, seed breeders are confident that RCS will achieve yield parity with

conventional soybeans. Again, solid evidence is needed in order to get the confidence of growers and

others across the value chain.

3. Summary of 2016 VTF ActivitiesThe feedback reported in Section 1 and the recommendations in Section 2 were compiled from a number of

engagement activities and initial research efforts. This section provides an overview of some of the more

notable meetings and industry engagement activities that occurred during 2016.

3.1. VTF Meetings There were two in-person meetings with the VTF members during 2016 plus numerous webinars with VTF

members and USB staff for updates, planning and strategy discussions.

3.1.1. March Meeting in St. Louis

The objectives of this meeting were as follows:

• Review the recently completed LMC report titled “The Impact of Soybean Quality on

U.S. Competitiveness.”

• Link VTF activities with USB’s new Long-Range Strategic Plan (LRSP) for the period 2017-2021.

• Review and provide input on VTF activities and outcomes planned for the remainder of 2016.

• Identify additional research activities to advance toward the goals of the VTF.

The report from LMC provided the foundation for a discussion of the value of increasing protein levels in

U.S. soybeans. While many questions remain, there was definitely a feeling that there is significant value

to be had from improving protein content in soybeans and soybean meal.

It was very positive for the VTF to see how the recommendations have influenced the focus of USB’s LRSP.

These recommendations also set the tone for the discussion of ongoing research activities.

3.1.2. August Meeting in Indianapolis

The objectives of this meeting were as follows:

• Review and get input on VTF activities and outcomes planned for the remainder of 2016.

• Get input on strategies for the VTF migration to a sustainable entity.

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• Identify purpose and parameters of engagement with industry representatives this November.

• Relate what we can learn from the processing plant tours to VEO implementation challenges.

This meeting was comprised of three parts. First was an overview of the research activities underway

at that time. This set the stage for some useful feedback and opinions about the importance of

communicating the right messages with regard to improving U.S. soy quality. The second part was

focused on how the VTF winds down and transitions in February 2017. This included feedback on engaging

the industry in the fall to bring them up to speed on VTF activities and status. On the second day, VTF

members participated in a tour of Bunge’s processing plant in Morristown, Indiana. This provided a

tangible backdrop for discussions about the real-world challenges of segregating soybeans, meal and oil

through a typical processing plant.

3.2. Industry EngagementIndustry engagement continued to dominate the activities through 2016. At this juncture, key objectives were

twofold. The first objective was to create awareness about the VEOs that are being pursued and how USB is

moving them forward. The second objective is to get feedback from industry about the VEOs that can help to

identify questions that will drive relevant research going forward.

3.2.1. One-on-One Industry Meetings

Visits were made with individuals representing the following organizations during the summer of 2016:

• ADM

• AGP

• Bunge

• CHS

• Perdue

• Pioneer

• South Dakota Soybean Processors

• Monsanto

The discussion at these meetings was focused on the interests of the particular audience, but generally

included an update on the research being conducted, getting their feedback on challenges and

opportunities, and discussing how to keep the momentum strong. The feedback received from these

meetings is integrated into the first two sections of this report.

3.2.2. VTF Update Webinars

The Industry Workshop (Nov 2014) and Industry Roundtable (Nov 2015) events were successful in

engaging industry partners to create awareness about the VTF efforts and in generating dialogue that

has helped to guide the VTF direction. In addition to those who participated in the Workshop and

Roundtable events, a number of other individuals and organizations have been engaged in the VTF

conversation through one-on-one meetings with individual organizations.

These past activities were heavily focused on fostering dialogue. While additional input from industry

will be paramount going forward, as we approached the sunset of the VTF it was determined that it was

more important that we pause to communicate the path forward based on input already received. A

webinar format was chosen as the vehicle to communicate the path forward.

The objectives of the webinars were as follows:

• Provide an update to individuals who have been engaged in the past.

• Convey that the recommendations of the VTF are being pursued aggressively through USB’s 5-year

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strategic plan and ongoing research in the private and public sectors.

• Provide participants with an understanding of how they can stay engaged and be part of the

path forward.

• Explain how functions of the VTF will transition to other organizations.

The webinar was offered at three different times to accommodate individual schedules. A total of 23

individuals participated in the webinars.

A brief online survey was conducted as a follow-up to the webinars. This included questions about the

relative importance of the VEOs and challenges they will face. These responses are integrated into the

first two sections of this report.

3.2.3. Composition Workshop

Two presentations were made at USB’s annual composition workshop to make participants aware of

the VTF’s direction. This meeting is attended by public and private soybean breeders to share results of

their research and discuss strategies going forward. The first VTF presentation outlined the

recommendations in the 2015 report and provided the rationale for the three target VEOs. Also discussed

was the role that the VTF had with USB and how that fit within the industry as a whole looking forward.

The second presentation focused on the market considerations for extracting value from compositional

enhancements. This was especially relevant to this audience since they, like most everyone else in the

value chain, understand their own discipline very well and can find it difficult to relate to why the value

chain would not just take these enhanced soybeans in with open arms.

4. Summary of Related Research Activities

4.1. Past Research The following summarizes some research activities conducted on behalf of the VTF in response to the

recommendations from the 2015 Report.

4.1.1. Existing Constituent Pricing Programs

Purpose and Process

The objective of this research was to understand the experience of producers and processors as past or

present participants in constituent pricing programs. Through conversations with producers and

processors, the goal was to capture knowledge that can be used in recommendations for a USB

pilot program.

Processors that have or are currently offering programs that pay premiums (or discounts) based on

protein and oil content were identified. These processors included:

• South Dakota Soybean Processors

• CHS Inc.

• Ag Processing Inc. (AGP)

• ADM, Mankato, MN (not interviewed)

• Minnesota Soybean Processors (not interviewed)

A list of producers to contact was generated for us from each of the organizations interviewed.

Information on premium schedules and program details for each company are provided at the end of

this section.

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Conventional Wisdom – Producers

The following summarizes comments that were made by producers interviewed and from other

conversations with producers (including USB Board members) on the topic of constituent pricing.

• Soybean quality is a function of seed selection, environment and the location of the farm.

• Seed selection decisions are made based on yield potential and cost, with the primary goal to

maximize yield.

• Producers trust varieties that have proven results, usually through their own experience with certain

varieties – if it is good one year, it will be good the next year. They want to know they are choosing

varieties that produce good yields.

• Seed dealers’ recommendations play a significant role in seed selection, and protein and oil

composition of seed varieties are not highlighted by seed salesmen.

• Producers are not asking about protein and oil in seed varieties because those factors aren’t important

enough to influence their decision.

• Producers are skeptical of new programs - premiums to some imply that discounts are possible and

even likely.

• Premiums are not high enough for producers to factor protein and oil composition into their seed

selection decisions.

• Premiums that only cover the transportation cost to deliver to the elevator/plant may not be incentive

enough to change behavior.

• Producers are incentivized to maximize yield. Until the market incentivizes quality, nothing

will change.

Conventional Wisdom - Processors

The following summarizes comments that were made by processors interviewed.

• The protein and oil content of soybeans is influenced significantly by seed selection, growing

environment and the location of the farm that produces the soybeans.

• Farmers select seed based on yield potential and cost, with the primary goal to maximize yield.

• SDSP and AGP feel that their programs have influenced seed-buying decisions toward higher protein

and/or oil varieties, assuming the farmer’s perception of equivalent agronomic performance.

• Premiums based on the value that processors can recapture through soybean meal sales prices and/or

higher oil yield are not high enough to strongly and widely influence farmers’ seed selection decisions.

• Dealers and seed companies seem largely disinterested in this aspect of soybean seed value.

• Processors should always look for ways to “reinvent” or promote these programs annually. In the words

of one, “Our program has gotten a bit stale. We need to jazz it up.”

Implications for a Pilot Constituent Pricing Program

The primary goal of this outreach was to learn from past experiences and use that knowledge to inform

decisions on creating future programs. The programs that have been researched focus on creating value

out of the current diversity of varieties currently in the market. The market is rewarding soybeans that

have higher quality (or the optimal protein and oil profile), and discounting those that are below an

acceptable minimum. Future programs will focus on moving to different levels of quality, but some of

the same issues will still apply. Some implications for a pilot program and future programs include

the following:

• Processors must see value of such a program over and above their cost of program implementation.

Given the relatively low direct margin on a per bushel basis, their perception of value must include the

long-term maintenance of soybean meal market share versus substitute protein sources in order for

them to want to participate.

• Farmers must understand that constituent pricing programs are more about driving changes that will

result in making soybeans more competitive with other proteins and oilseeds in the future than they are

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about generating incremental returns on bushels today.

• The processor must be highly effective in promoting the program to farmers and other suppliers.

Partnerships with others in the value chain may be useful in helping to deliver these messages.

• Grain elevators must be involved and also promote the program vigorously.

• The seed dealer and the seed companies must be engaged in the process for success to be possible.

• If protein and oil become a higher priority in farmers’ seed-selection decision and in the seed dealers’

sales pitch, then farmers’ buying behavior will change, which will put the onus on the seed company/

breeder to select varieties that yield well and are higher quality.

• Coop processors seem to have the most success with premium programs. The processor can rationalize

that he is merely reimbursing “shareholders,” and producer members have a direct tie to the processor

because they share in the success of the coop.

These points were used to generate the results summarized in the first two sections of this report.

Premium Schedules

Included below are brief descriptions and links to the premium and discount programs for three

processors. The producers that were contacted for this report have participated in one of these programs.

South Dakota Soybean Processors ValueTrak Program

The ValueTrak program pays out premiums every quarter based on an Estimated Processed Value

(EPV) proxy of the soybeans delivered. Instead of paying based on absolute levels of oil and/

or protein, the program pays premiums to the best 25% EPV soybeans delivered in the quarter.

The EPV is determined from the oil and protein of soybeans and is expressed as a value of

converting the protein and oil in the soybean into sobyean meal, oil and hulls.

A summary of the ValueTrak program can be found here.

CHS Inc.

Producers are eligible for premiums if loads meet the minimum 19% for oil and 35% for

protein, adjusted for 13% moisture. Loads that fall below the minimums of 18% for oil and 33.5%

for protein will be discounted.

The premium and discount schedules for CHS’s program can be found here.

AGP

AGP premiums are paid on soybeans with a minimum oil content of 19.5%. Premiums are adjusted

to market conditions and are applied to soybeans on “As is” moisture basis.

AGP’s premium schedule can be found here.

It is interesting to note that these three programs are considerably different than one another in terms of

the absolute levels of protein and oil required to get a premium or discount and the share of producers

that will actually receive a premium or discount in a given years. Part of this is driven by the geography

and part by needs of the downstream customers for the processors.

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4.1.2. Agencies and Associations

Purpose and Process

The primary objective of this effort was to identify and engage with appropriate agencies and associations

to understand their potential roles, identify perceived impediments, and set the stage for gaining their

support for a soybean constituent pricing program.

Organizations Contacted

A short list of organizations was compiled and internally vetted before selecting a core group of

organizations to engage. The initial list included:

• Federal Grain Inspection Service (FGIS)

• National Grain and Feed Association (NGFA)

• American Feed Industry Association (AFIA)

• National Oilseed Processors Association (NOPA)

• Chicago Mercantile Exchange (CME) Group

• North American Export Grain Association (NAEGA)

All of these organizations were contacted with the exception of CME Group and NAEGA. The CME Board

of Directors approves the description of soybean meal as it relates to the soybean meal futures contract.

This description consists of the basic specifications for moisture, protein, fiber and fat. Historically, the

CME has been very slow to change these specifications, thus there has been significant lags between

changes in the cash trade and changes in the CME contract specifications. For instance, the processing

industry for several years evolved to produce almost exclusively dehulled high protein meal before the

CME adopted dehulled specifications. Even though a minority of plants consistently produces 48% protein

meal, the CME contract still requires 48% for delivery under their contract.

NAEGA is a trade association that represents private and public companies and farmer-owned

cooperatives involved in the bulk grain and oilseed exporting industry. Many of the same companies

represented by NAEGA are also represented in NGFA. It was recommended that we not engage CME or

NAEGA at this time, and rather, keep in mind that at the point of commercial introduction, a dialogue

should then begin.

The following sections describe the purpose or mission of each organization and the roles they may play

in the development of a constituent pricing program. General reactions from conversations with key

members or staff are also summarized. The final section summarizes recommendations for USB as we

move forward with pursing a constituent pricing program for soybeans.

Agency/Association Roles

FGIS

FGIS is a branch of the Grain Inspection, Packers & Stockyards Administration (GIPSA). It was

created by Congress in 1976 to manage the national grain inspection system, which was initially

established in 1916, and to institute a national grain weighing program. Today FGIS facilitates

the marketing of U.S. grain and related products by establishing standards for quality

assessments, regulating handling practices, and managing a network of federal, state and

private laboratories that provide impartial official inspection and weighing services.

FGIS activities include establishing and maintaining official U.S. grain standards for barley,

canola, corn, flaxseed, oats, rye, sorghum, soybeans, sunflower seed, triticale, wheat, mixed

grain, rice and pulses. FGIS inspects and weighs grain and related products for domestic

and export trade. They establish methods and procedures, and approve equipment for the

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official inspection and weighing of grain, and supervise the official grain inspection and

weighing system.

FGIS has the authority to establish and maintain standards for grain trade. These standards are

occasionally open to the public for modification through the federal register process. FGIS is also

the authorized lab for national conference weights and measures, including evaluating and

recommending approval of instruments and calibrations used. FGIS is currently measuring

protein and oil using NIR technology, but only when requested and usually when part of the

sales agreement.

Representatives of FGIS indicated they would like to be involved in future conversations about

constituent pricing. Due to their role as the authorized lab for conference weights and measures,

their involvement in the development of NIR calibration standards could be beneficial.

NGFA

NGFA represents and provides services to the North American grain, feed, grain-processing

and export industries, and a wide range of related commercial interests. Activities are focused on

providing services and advocating policies that enhance the climate for growth and economic

performance of agriculture participating in a global marketplace.

NGFA is member driven, and a key part of their organizational structure is the 19 different

committees that consider issues related to specific industry segments or specific issues based

on subject matter. Committee membership is diverse and represents a broad spectrum of the

grain and feed industry (e.g. ADM, Bunge, Cargill, CHS, CGB, Purina, The Andersons, General

Mills, etc.). NGFA staff monitors trends, and if an issue impacts their members, they reach out to

those committees for review. Committees meet twice a year to discuss issues raised by staff or

those brought forward by individual committee members.

Members of the Country Elevator and Grain Grades and Weights committees were contacted for

this report. The Country Elevator committee focuses on issues related to grain warehouse

operators, including federal and state regulatory issues. It provides input to other NGFA

committees on issues including futures market performance, transportation, safety, health

and environmental issues, agricultural biotechnology and industry education and training.

The Grain Grades and Weights committee focuses on inspection and weighing practices that

facilitate grain marketing. The committee provides input to Congress and the USDA on official

grain standards and weighing practices.

NGFA would like to be kept informed on any progress in the development of a constituent pricing

program. Issues are discussed and addressed at the committee level. Any changes to policy

or recommended stances are thus driven by the committees. Continued communication with VTF

member organizations that also have representatives that sit on NGFA committees will be crucial

to promoting a constituent pricing program.

AFIA

AFIA represents the total feed industry, as a key segment of the food chain, and member

companies’ interests on matters involving federal and state legislation and regulation. Their role

includes keeping members informed of developments important to them and creating

opportunities to network and address common issues and interacting with key stakeholders

essential to the success of the feed and animal agriculture industries.

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AFIA is not involved with marketing or pricing activities, and therefore they don’t believe they

have a role to play at this time, but would like to be more involved once a constituent pricing

program has been finalized.

NOPA

NOPA’s mission is to assist the U.S. soybean, canola, flaxseed, sunflower seed and safflower seed

processing industries to be the most competitive and efficient in the world by utilizing the

combined expertise, knowledge and resources of its members to foster market- and science-

based policies.

NOPA would generally be supportive of a constituent pricing program. However, constituent

pricing is not something they discuss as an organization because it is considered a marketing

exercise that is not acceptable to discuss due to antitrust issues.

General Reactions

The following summarizes the commentary provided through conversations with representatives of the

four organizations. These are comments from individuals and do not necessarily represent the official

position of the entities.

Among the trade associations, there was broad concern regarding the costs of implementing a constituent

pricing program. This included questions on who would bear the costs, and if any value created would

be sufficient enough to offset those costs. FGIS is already testing for protein and oil on a contract basis

and has experience in utilizing the technology necessary for a constituent pricing program. As a

governmental agency, they are independent and take their direction from policies recommended,

supported, and driven by the industry. Other comments included:

• Value for constituents will be market driven and specified by the end user.

• Of concern is if the costs of implementation (testing, segregation) will be more than the

value created.

• Behavior won’t adjust until the premiums are high enough to incentivize change.

• Perceived “discounts” if protein and oil standards are not met will likely result in

producer resistance.

• The amino acids are the important constituents in meal - reporting crude protein content alone

may not be enough to make a difference to end users.

• Markets for certain traits are already established - processors already know where to procure

soybeans that have desired characteristics (e.g. IOMs – Indiana, Ohio, Michigan soybeans)

• Protein and oil are not likely to become part of the official grade factor due to the expense and

the current lack of industry demand for that information.

• Changes to standards are market driven and will require the support of a broad coalition of

industry players to effect change (with commodity groups playing a role in this coalition)

• If a significant portion of the trade should request that protein and oil become part of the

official grade factor, FGIS could open the standards for modification.

Recommendations

Continued engagement with FGIS will serve USB well as a resource in developing a constituent pricing

program. It is still unknown if it will be necessary for constituents to become a part of the official

grade standards. If that is the recommendation, FGIS will have a prominent role, but it will also require

broad industry support. NGFA members represent a broad spectrum of the feed and grain industry. It will

be important to garner their support if a constituent pricing program becomes more widespread. They

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are open to communication and should be kept aware of any progress made toward implementing the

program. NOPA and AFIA are not involved in marketing activities, and while initially supportive of the

idea, they will not have a role to play until a constituent pricing program is implemented.

Continued Engagement

The following prioritizes organizations in terms of when and how follow-up engagement is suggested:

SEQUENCE ORGANIZATION OUTREACH Primary NGFA, FGIS Annual Webinar Secondary AFIA, NOPA, Milestone outreach (once constituent pricing program has been implemented CME Group, NAEGA

4.1.3. Seed Technology Development Status for ENEM and RCS Traits

Purpose and Process

The purpose of this engagement was to understand the development status of Enhanced Nutritional

Energy Meal (ENEM) soybeans and Reduced Carbohydrate Soybeans (RCS) and to determine where in the

development timeline these VEOs stand. In addition, one of the key factors to advancing ENEM is the

ability to stack the ENEM trait with high oleic varieties in targeted regions. Given this, it was important

to understand the technical requirements of stacking ENEM on top of existing high oleic varieties. Seed

breeders from public and private organizations were contacted to understand how far along ENEM and

RCS are in the development pipeline. The organizations contacted were Schillinger Genetics; USDA-ARS

Columbia, Missouri; and DuPont Pioneer as it is generally understood that these are the entities focused

on research in these areas. Following is a brief summary of the status of development in these areas.

ENEM

The development timeline for ENEM soybeans (also known as HPULO or High Protein Ultra Low

Oligosaccharides) is five to seven years (see timeline in the table below). The genes/alleles responsible

for this trait have already been identified and some markers have been developed. The trait has already

been crossed into adapted high-yielding germplasm and backcrossing to the adapted lines has been

initiated. Given progress that has been achieved, we are likely in year two of the development timeline,

which means commercialization is likely within three to five years.

ENEM-Stack

Schillinger evaluated lines of the HPULO soybean crossed with the Missouri HOLL (High Oleic Low

Linolenic) soybean lines this past summer. While full results are forthcoming (including composition

data), early indications are that the crossed lines resulted in a 1.5-pound oil reduction per bushel in

the stacks. In addition, there was a range of yield in a bell curve, with a larger range of protein content

than normally experienced. Since this is an early generation cross, this variability is to be expected.

Trait Physiology 100%75–80%Marker Development

Crossing/Backcrossing/Seed IncreaseTesting – Yield & Trait ExpressionRegulatory ApprovalsVariety ReleaseCommercial Entry

ENEM (Low Oligosaccharides) % CompleteTIME, Years

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

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Schillinger is attempting to combine eight to nine genes to get the desired traits, so this is not a

straightforward, simple cross. They believe they are closer to identifying acceptable combinations since

the crosses were made between advanced high oleic and HPULO lines.

Experimental work led by Dr. Kristin Bilyeu with USDA-ARS Columbia, Missouri has shown that there

is no technical barrier to stacking high oleic with low oligosaccharide (ENEM) soybeans. They have been

crossing single genes into high oleic, instead of the combination of genes that Schillinger is using. There

is one line that inadvertently has Schillinger’s patented genes, but they are in contact about working

together to develop this line into a variety. The stacked traits are yielding 85% of the commercial varieties,

but there has been no backcrossing to increase yield at this time. In all the stacked lines, they are

achieving the expected compositional phenotype for high oleic, low linolenic and low oligosaccharide that

they achieve in the single trait lines.

The ENEM-stack variety is in the same position on the commercialization timeline as ENEM, with an

expectation that commercialization is within three to five years.

RCS

The development timeline for RCS is longer than ENEM due to trait development complexity, the testing

required to evaluate trait expression and agronomic performance, and the global biotech regulatory

approval process. For a transgenic trait, product development timelines, including regulatory approvals,

can range from 12-15 years. DuPont Pioneer is in the early development phase of producing soybean

varieties that will increase oil and meal value, including Reduced Carbohydrate Soybeans. This early

development phase includes selecting the best events across germplasm and environment, expanding

field testing and initiating regulatory studies. Pioneer expects these traits to be adopted in both North

and South American markets, with a potential market opportunity of over 100 million acres once it is

commercially available. More information on DuPont Pioneer’s long-term soybean biotech pipeline can

be found here.

Trait Physiology 100%75–80%Marker Development

Crossing/Backcrossing/Seed IncreaseTesting – Yield & Trait ExpressionRegulatory ApprovalsVariety ReleaseCommercial Entry

ENEM-Stack (Low Oligosaccharides) % CompleteTIME, Years

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

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The graphic below illustrates in detail DuPont Pioneer’s process for the development of soybean biotechnology.

Given Pioneer’s reported phase in their research and development timeline, commercialization of RCS is likely

within nine to twelve years.

Select product targetDefine targets based on current and anticipated future customer needs and advancing scientific capabilities.

Identify leadsScreen potential genes to find a gene or combination of genes that demonstrate efficacy against the target.

DISCOVERY

PHASE 1Proof of concept

PHASE 2Early development

DUPONT PIONEERNext Gen SoyOutput Trait(s)

Mid-to-late 2020s

PHASE 3Advanced development

PHASE 4Pre-launch

PHASE 5Launch

Crop transformationInsert gene leads into target crop.

Demonstrate proof of conceptTest genes to confirm efficacy against target.

Gene and construct optimizationEvaluate genes and constructs for trait efficacy and agronomic performance in the target environment. Optimize for trait/stack performance.

Crop transformationInsert gene leads into target crop.

Commercial sales begin

Product stewardshipContinue ongoing stewardship practices. Includes education to ensure compliance with regulations, Pioneer policies and crop management strategies.

Advanced field testingFurther characterize lead commercial events across germplasm and environments and select event(s) for regulatory submission.

Regulatory testingComplete regulatory studies for primary markets.

Regulatory dossier submissionSubmit extensive data package and analysis to authorities.

Production transformationInsert constructs to generate multiple events.

Event characterizationSelect events across germplasm/environments.

Event developmentEvent testing across germplasm and trait combinations.

Begin regulatory studies

Trait introgressionBreed events into broader germplasm.

Regulatory testingComplete regulatory studies for additional submissions (e.g. stacks).

Trait Introgression and seed ramp upBreed trait into elite germplasm across maturities and intensify ramp-up of seed.

Pre-marketingPlan grower education. Perform market testing, prepare commercial seed volumes.

IMPACT™ trialsField test products near the customer.

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Current research has proven that it is possible to successfully cross ENEM with high oleic varieties. The main

challenges going forward are with compositional variability and yield parity with commercial varieties of

soybeans. The table below summarizes the research and timeline expectations for ENEM and RCS as well as the

research and development priorities going forward.

4.1.4. ENEM Feeding Trials

Purpose and Process

Having an initial product around which to build and test Constituent Market concepts will greatly

accelerate progress. Schillinger Genetics has developed soybeans that are both higher in crude protein

and lower in raffinose-saccharides (HPULO). With this combination of characteristics, this soybean

addresses both the Enhanced Nutritional Energy Meal (ENEM) VEO and the Reduced Carbohydrate

Soybeans (RCS) VEO.

As part of any product-market development process, efficacy within the context of intended use needs

to be documented. The focus of this research is on documenting the efficacy of meal produced from the

HPULO soybean in the feeding of broilers.

A goal of these efforts is to bring forward commercially relevant information that is readily accepted by

industry decision makers to the extent that they will be willing to utilize the HPULO meal without the

need for additional research. To this objective, the ultimate plan is to evaluate a full-production-cycle

feeding program utilizing HPULO meal under commercial growout conditions.

Due to the complexity involved with this undertaking, and the stakes at risk if one or more of a number of

factors are not adequately addressed, a series of steps are incorporated into a process leading to the

commercial scale trials. The objective of these early steps is to ferret-out as many issues as possible prior

to the commercial scale evaluation through a combination of chemical analysis and small-scale feeding

trials. However, it must be recognized that even with such due-diligence related activities early in the

process, the complexity of the issues at play together with those associated with moving from a very small

scale to a very large scale is fraught with risks.

Phase 1: Initial Work

To initiate the process sooner than later, FY2016 initial efforts utilized a limited amount of soybeans

still available at the time from the 2015 crop to test not only the product but the proposed initial

evaluation procedures. HPULO soybeans were initially analyzed by wet-chemical procedures to confirm

anticipated increases in protein and reductions in raffinose-saccharides. A small lot of HPULO soybeans

RESEARCH

APPROXIMATE YEARS FROM COMMERCIALIZATION R&D PRIORITIES

ENEM Public & private 3-5 Years - Evaluate animal performance- Continue backcrossing for yield parity- Economic evaluation of benefits- Determine optimum rfs level for maximum benefit

ENEM-STACK Research 3-5 Years Research

RCS Research 9-12 Years Research

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were subsequently processed by Zeeland Agri-Services into meal. Meal produced from non-HPULO

soybeans within a similar time frame was acquired from Zeeland for use as a Control.

Comparison of wet-chemistry results for the HPULO and Control meals flagged several issues. First

the Control SBM tested at 49.6% crude protein as opposed to typical SBM around 47.5%. Some other

potential concerns presented themselves as well.

With the involvement of two industry nutritionists, including Dr. Randy Mitchell with Perdue Farms who

will be conducting the commercial-scale evaluations, two small-scale feeding trials have been conducted

at the University of Illinois. Anticipated results were not observed in either of the trials.

While the feeding trial results for the HPULO SBM were not as hoped for, the early evaluation steps built

into the overall process have shown their value. While the theoretical benefit, based on the application of

basic nutritional concepts to the observed wet-chemistry differences were not observed, unanticipated

differences between the HPULO and Control meals associated with processing could be a factor here.

These reinforce the need for a heavy focus on the processing step for both the HPULO and Control

soybeans. Due to the compositional difference between HPULO soybeans and “typical” soybeans, it

cannot be assumed that they will process the same as we move into Phase 2. Information from this initial

Phase provides us with information to use in trying to better set the stage for the processing of soybeans

for Phase 2.

Phase 2: Next Steps

Approximately 50,000 bushels of HPULO soybeans are available for processing into meal for the Phase

2 effort. Samples have been sent for laboratory analysis. Assuming that results from these analyses are

affirmative for moving forward, Perdue Agribusiness will process the soybeans into HPULO meal and set

aside a similar amount of Control meal from non-HPULO soybeans. The respective meals will be sent for

laboratory analysis. Small-scale feeding trials will be used to provide guidance prior to initialization of

commercial-scale feeding trials.

4.1.5. RCS Composition Targets – Value Proposition and Market Considerations

Purpose and Process

The purpose of this initial research was to explore the value proposition and market considerations for the

introduction of the RCS soybean. Results of this initial assessment can be used to guide future research

agendas and provide seed companies with guidance on the balance of oil and protein increases that will

provide the most value to the industry.

The process included the development of a simple model that illustrated changes in oil and meal

production during different stages of market adoption of RCS soybeans for two different types of RCS

beans. These results were then presented to industry experts who provided feedback about the potential

market impact as well as questions that such a change in the market raises.

RCS Composition Assumptions

The RCS is a soybean variety that produces significantly higher concentrations of protein (essential

amino acids) and oil. This is accomplished through redirecting the carbon from producing carbohydrate

to producing oil or oil and protein in the soybean. Technology companies feel this magnitude of change

is possible and at least one major company is pursuing development. One of the most direct market

implications of this reconfigured soybean is the increased production of soybean oil per bushel that

provides higher value. (Soybean oil is valued at two to three times the value of meal per pound.) At the

same time, the increased oil supply in the market as a result will decrease oil prices.

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In addition, the higher protein meal should command a higher price. Since there will be a lower volume

of meal produced from each bushel, it follows basic economics that this would also cause an increase in

soybean meal prices. The question for both the oil and protein/meal situations is around how much the

prices will be impacted and the net price impact on soybeans.

There are two different scenarios for RCS that were evaluated. One configuration would be RCS 3.0, or a

3-point increase in oil with soybean protein unchanged. The alternative is RCS 2.1, or a 2-point increase

in oil along with a 1-point increase in protein. The volume of oil per bushel increases and protein

concentration of the meal is greater in both cases. With a baseline soybean composition of 19% oil and 35%

protein, the following table summarizes the scenarios.

It should be noted that higher percentage point increases in oil are reported possible, but for the purpose

of this initial evaluation, we considered only the two configurations summarized in the table.

Market penetration of this soybean will be gradual over time, with an estimated 12- to 15-year time

horizon before the entire market would be converted to RCS soybeans. For purposes of analysis, three

different market expansion phases are considered.

• Niche – this includes the first four years where on average 20% of the market is RCS.

• Expansion – this includes the middle four years where on average 65% of the market is RCS.

• Full Market Adoption – this includes the last four years where 100% of the market is RCS.

A preliminary model was created to conduct a high-level analysis to help understand and illustrate the

fundamental changes that would result from adopting RCS soybeans. The purpose of the analysis is not to

estimate results, but to understand the dynamics and prompt additional questions.

For illustration purposes, results from the model for only the RCS 3.0 soybean for the three market

expansion scenarios will be discussed. A 3%-point increase in oil from 19% to 22% would result in a 15.8%

increase in oil yield (pounds per bushel). The following summarizes the volume changes in U.S. soybean

oil production at the three market expansion phases.

• Niche (20% of the market) – 3.2% increase in U.S. SBO production.

• Expansion (65% of the market) – 10.3% increase in U.S. SBO production.

• Full Market Adoption (100% of the market) – 15.8% increase in U.S. SBO production.

Impact Discussion

Soybean oil prices will decrease from where they otherwise would be as a result of increased volume, but since

oil yields are higher, the oil value on a per-bushel basis increases over the baseline for RCS soybeans.

However, for conventional soybeans, the oil value will actually decrease since the oil volume will stay the

same but the value per pound will decrease. For this simple illustrative analysis, the baseline soybean oil

value per bushel was $3.89. An important market factor is just how much the price of soybean oil will go

down as a result of increased oil supply – this is referred to as the oil price elasticity. The following table

illustrates a range of impacts for three different oil price elasticity scenarios – Zero, Low, and Moderate.

Zero elasticity means that the price of oil does not change at all as a result of the increased market supply

of oil and Moderate means that oil price responds fairly aggressively to the increased market supply of oil.

Note that the Zero scenario is not realistic, but provides a point of reference for the other results.

BASELINE RCS3.0 RCS2.1

Oil, % 19.0% 22.0% 21.0% Protein, % 35.0% 35.0% 36.0%

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The values are reported for both the RCS and conventional soybeans for each of the three market

expansion phases.

To aid in the interpretation of the results, the green shaded cells represent the highest relative and the

brown represent the lowest with yellow being in the middle. There are some interesting observations

from this very simple example that need to be considered when thinking about rollout strategies.

• If the price elasticity is zero, then the oil value differential between the RCS soybean and the

conventional soybean is constant across the adoption phases and driven solely by the difference in oil

volume per bushel.

• However, more realistically there will be a negative oil price response as the total supply of oil

increases. When that happens, the value of the oil in a bushel of both the RCS and the conventional

soybeans decline as the market penetration of the RCS soybean increases, causing an increase in overall

oil supply. That price decrease is greater when the oil price elasticity is higher.

• A significant market dynamic is that the value of oil in the conventional soybean declines as soon as the

RCS soybean begins capturing market share. This results in a built-in discount of sorts that will

motivate the production of more RCS soybeans.

The meal side of the equation is more complex. As stated earlier, there will be less meal produced from

RCS soybeans, but the value should be higher since it will have a higher nutritional density than meal

from conventional soybeans. Just as with oil, there will be a meal price elasticity response to the reduced

volume. However, the nature of the underlying product is different as it has higher protein content, so it

is not as straightforward as understanding the oil response.

Additional analysis needs to be done, but industry feedback supports the notion that the total value of

the meal from a bushel of RCS soybeans should end up having at least the same value as the meal from a

bushel of conventional soybeans. Being conservative, that would suggest that incremental increases in

the value per bushel would be at least equal to the differentials outlined in the oil table above.

The results of this initial modeling effort will continue to be utilized to facilitate conversations with

industry stakeholders to help build our understanding of how RCS will impact the soybean complex.

OIL VALUE PER BUSHEL SOYBEANS

RCS 3.0 Soybeans Conventional Soybeans

Price Elasticity Price Elasticity

Zero Low Moderate Zero Low Moderate

BASELINE (@ 35 cents/lb) $3.89 $3.89 $3.89 $3.89 $3.89 $3.89

NICHE $4.51 $4.46 $4.41 $3.89 $3.85 $3.81

EXPANSION $4.51 $4.35 $4.20 $3.89 $3.76 $3.63

FULL MARKET $4.51 $4.27 $4.03 $3.89 $3.69 $3.48

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4.2. ProcessforOngoingVEOIdentificationProcessInitial VEO Identification Process

One of the early activities of the VTF was to step back and take a broad view of potential value

opportunities for the soybean sector. That involved looking at new technologies or market developments

that would either lead to a competitive advantage, or that might result in a competing product becoming

more of a threat. The previous process for identifying and recommending VEOs began with a broad set

of VEOs that were then refined down into a select few recommendations as illustrated in the following

diagram.

Foundational research for the VTF in 2013 narrowed down the broad list of VEOs to a few selected

priorities. This initial foundation research was conducted by the following organizations to help identify

and prioritize VEOs:

• Purdue University

• North Dakota State University

• Battelle

• World Perspectives

• Informa Economics

The results of this research was presented to and discussed with stakeholders through industry

engagement meetings and ultimately prioritized by the VTF based on that feedback and then

recommended to USB and the industry.

It is this general process that this recommendation suggests emulating through an annual update process

into the future.

HISTORY & STATE OF INDUSTRY(PURDUE/MISSISSIPPI STATE)

BROAD LIST OF VEO CONCEPTS

PRIORITYVEOs

RECOMMENDEDVEOs

FOUNDATIONRESEARCH

INDUSTRYENGAGEMENT

MEETINGS

2012

2013

2014

MECHANISMS FOR VALUE ENHANCEMENTSGENETIC | TECHNOLOGY | MKT. TRANSFORMATION

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Process Roadmap Going Forward

Battelle and World Perspectives were contacted again in 2016 to discuss approaches for implementing

a process for evaluating VEOs going forward. The recommended process that follows is based on these

conversations as well as from interactions with others across the industry.

Once again, it was emphasized that the key for successful evaluation of these VEOs is providing an

opportunity for industry stakeholders to engage in ongoing dialogue. This will ensure that any changes in

policy or market drivers are captured and discussed in a timely manner. This will also allow for past VEOs

that were low priority to be reassessed, or will provide the space to discuss new opportunities that were

not possible previously.

The recommendation is to engage a process that is in sync with USB’s five-year strategic planning cycle.

With this framework in place, by the time each subsequent five-year strategic plan is being developed,

specific recommendations for the VEOs will have been made so that the Board can be adequately prepared

to commission relevant research for the next five years. The following diagram illustrates the process.

Note that the activities above the timeline relate to USB activities while those below represent QUALISOY

activities.

The primary activity of relevance for USB in this process is the development of a five-year LRSP which

begins during the fourth year of the current LRSP cycle. As illustrated with the curved green arrow in

the top center of this diagram, the results of QUALISOY’s ongoing process is recommendations that are

provided to USB just prior to the development of the next LRSP.

The QUALISOY activities are more involved on an annual basis. Four out of each five years, QUALISOY will

facilitate a process to review and update a current portfolio of VEOs. This process will include engagement

with the QUALISOY Board along with other industry experts, scientists and policymakers. This process

can most likely be accomplished using webinars and other engagement tactics that will not necessarily

require a large in-person meeting format. These webinars will allow ideas for VEOs to be presented for

discussion and facilitate ongoing dialogue that will allow timely topics and opportunities to be brought

to the forefront and discussed. The goal is to capture and categorize a “pool” of VEO candidates that will

serve as the basis for starting the discussion at the next annual webinar. This pool of VEOs will come from

three sources: current opportunities in the USB research portfolio, past and present VTF VEO candidates,

and new opportunities from current industry research.

UNITED SOYBEAN BOARD’S5-YEAR PLANNING CYCLE

QUALISOY’SONGOING OPPORTUNITY EVALUATION

LRSP YEAR 1LRSP YEAR 5

VEOCANDIDATES

LRSP YEAR 1LRSP YEAR 2 LRSP YEAR 3 LRSP YEAR 4

DEVELOPMENT OF NEXT LRSP

LRSP YEAR 5

VEOCANDIDATES

REVIEW & UPDATE REVIEW & UPDATE REVIEW & UPDATE

ABANDON

REVIEW & UPDATE

VEOCANDIDATES

EVALUATE & RECOMMEND

RECOMMENDED TARGET VEOs

POTENTIAL CANDIDATES(WAITING FOR MILESTONE)

UNLIKELY CANDIDATES

VEOCANDIDATES

VEOCANDIDATES

VEOCANDIDATES

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It is recommended that a synopsis of the current VEOs under consideration be maintained on a dedicated

section of QUALISOY’s website. This would provide an ongoing point of reference and create industry

awareness about the opportunities being considered.

Then, during each third year of USB’s LRSP, QUALISOY will conduct a more involved process with the

deliverable being a set of recommendations for a limited number of VEOs worthy of research investment

going forward. It is envisioned that this process would involve an industry workshop-type of event

similar in nature as the past workshop and roundtable events sponsored by the VTF. The meeting would

be spread across two days (the afternoon on day one and the morning of day two). The afternoon session

on day one could focus on technology and products, while the morning session on day two could focus

on market issues. With this proposed process, these final recommendations would be based on all the

multiple opportunities evaluated over several years and would result in a short list of recommendations to

pursue going forward in USB’s next five-year LRSP.

The resulting recommendations from this process would be available to the USB Board in February

of the fourth year of their current LRSP. This would allow the Board to consider if and how those

recommendations might be included in the LRSP that will be under development for the 18 months prior

to its adoption.

4.3. Currently Funded Research The recommendations outlined in VTF’s 2015 report influenced USB’s research agenda for fiscal year 2017

projects. Three projects that are especially relevant to the recommendations of the VTF are described

below.

4.3.1. Crusher/Elevator Industry Consortium

As a part of their five-year Long-Range Strategic Plan, USB has identified constituent pricing of soybeans

as a high priority. Soybean crushers and elevators supplying those crushers will play a key role in the

success of, and will have a strong influence on the terms and mechanics of these programs.

Constituent pricing programs are fairly broadly defined at this point and could include, but are not limited

to the following:

• Meal – the levels of protein, amino acids, and nutritional energy

• Oil – the level of oil contained in soybeans or fatty acid composition such as high oleic

• Other – non-GMO, sustainably produced, or other specified production methods

For this initial effort the focus will be on developing a program targeting the crude protein and oil levels

in the soybeans. It is expected that the findings from this exercise will provide a platform of standards

and protocols that can extend to cover other attributes in the future.

The CEIC will bring together representatives from approximately seven crushers and elevators to

accomplish the following:

• Examine the opportunities and challenges of moving the U.S. soybean industry to a constituent pricing

system for soybeans.

• Develop a prototype mathematical process for differentiating soybeans based on meal and oil prices and

soybean protein and oil content.

• Develop a constituent pricing process that incorporates the mathematical differentiation process.

• Evaluate measurement technology capabilities and costs relative to the deployment needs.

• Develop a roadmap for deploying measurement technology, pricing models and processes.

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The project consists of two phases. Phase I will build the foundation for Phase II by organizing a

consortium of crushers. USB desires to have a consortium of crushers/elevators engaged and ready to

begin work in January 2017 on the points identified above. In order to accomplish this, significant

outreach and organizational activities took place during the latter half of CY 2016.

In addition to laying the groundwork in identifying the opportunities and challenges, an objective of the

Phase I activity is to get the right people from the right organizations to understand the purpose of

the overall project and for some of those people to be willing to commit to be a part of the consortium

going forward. During this engagement, benchmarking to determine the number of crushers and

elevators who are currently using constituent pricing programs as well as their attitudes on possible

future adoption of such programs will be conducted.

4.3.2. Elevator Pilot

USB and the VTF intend to build industry intelligence around the tasks and components involved in

reporting soybean constituents, as well as relative value to farmers for their delivered soybeans. Because

USB’s Long-Range Strategic Plan includes significant focus on establishing constituent pricing systems,

a key capability in the facilitation of this project is the provision of a constituent/component statement

on the soybean sales ticket to farmers at the time of delivery. Provision of this new, valuable information

will help to drive behavior change of both farmers and elevators, which will ultimately support efforts to

increase U.S. soybean value.

While grain elevators represent the first point of sale for the vast majority of U.S. soybeans, few elevators

have the capability to measure constituents at the time of delivery. Those that do have constituent

measuring capabilities employ their own protocols not only for testing and value estimation, but also for

reporting that information back to farmers (if they do so at all).

The activities for this project, which build on current VTF constituent pricing efforts, include:

• Identifying target pilot regions and candidate crushers and elevators within these regions.

• Determining measurement and reporting protocols that provide farmers with meaningful feedback on

the relative value of soybean components/constituents.

• Determining the most appropriate technology available today for measuring protein and oil content.

• Securing appropriate measurement technologies to be used in selected elevators.

• Developing methods for computing and reporting differential value of soybeans based on composition

to farmers.

As a result of these activities, USB and participating elevators will gain:

• An understanding of the impediments and opportunities associated with constituent measurement

and reporting programs.

• Firsthand practical experiences with sampling, measuring, recording and reporting results.

• Insights on best practices for constituent measurement and reporting programs.

This project’s activities will be synergistic with the “Crusher/Elevator Industry Consortium” project,

which will provide important insight on value estimation methods and standards. Additionally, a key

milestone for this project is to have pilot systems in place to report relative value based on constituent

levels back to farmers during the fall of 2017.

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4.3.3. Measurement

Purpose and Process

Basic to a Constituent Market System is the ability to reliably measure value-associated characteristics

and then use this information within the context of value-chain needs.

Initial Activities:

An initial VTF measurement project was tasked with a broad overview of some analytical approaches

for measuring soybean constituents in a manner conducive to their use within the soybean value chain.

At the time of the project, light-based technologies utilizing the Near Infrared spectrum (NIR) were

considered to be the best option.

One limitation at the time of the project was that specific VEOs had yet to be identified. Since certain

analytical approaches may work better for certain chemical characteristics, the lack of specifics as to what

characteristic or characteristics were to be measured was a limiting factor in this review.

At the time of the project, and with the information at hand, it appeared that as a general statement, NIR

represented the best overall approach for a number of reasons including:

• Relatively short analysis time per sample

• Relative simplicity of associated procedures

• Per sample analysis costs

• Safety of procedures involved

Subsequently, VEOs targeting specific soybean compositional characteristics have been brought forward.

In addition, an increased recognition that total soybean value is based on a “bundle” of characteristics

has occurred. To this point, NIR’s ability to predict multiple characteristics using a single sample scan is

another relative advantage. At the same time, as new technologies continue to be developed, we must be

constantly on the look-out for better options.

NIR Performance Relative to VTF trait targets

To be accepted and utilized within the context of soybean and soybean product commerce, measurement

results must be seen as being reliable. Subsequent efforts have focused on documenting the capabilities

and limitations of NIR analysis relative to several value associated characteristics in soybeans. This

evaluation has included several NIR instrument, calibration and sample format (i.e. ground vs. whole)

combinations.

Measurement limitations will initially impose limits for a Constituent Market System and understanding

those limitations is critical to describing what is possible. At the same time, the information generated

from these efforts identify where improvements need to be made and serve as a basis for working with

measurement-technology groups to make those improvements.

NIR Performance Evaluation efforts to-date have illustrated the extent to which composition results

can vary not only between NIR machines and calibrations, but also within the same machine/

calibration combination. In a soybean value-chain network involving multiple NIR machine/calibration

combinations, such variation represents a risk to those trading product on the basis of measured

compositional values. Analytical variability must be adequately addressed if soybeans are to be traded

with confidence on the basis of compositional value.

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Next Steps:

A project funded for FY2017 continues to build upon the information and relationships created through

past NIR Performance Evaluation efforts but on a reduced scale. More important, the project begins to

address some practical application issues associated with a commercially viable constituent market

system specifically:

• ConfidenceinmeasurementresultsacrossmultipleNIRinstrument/calibration/location

combinations.

• Simple decision-making tools defining value based on NIR predictions.