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Major Issues Affecting the Cottonseed Oil Industry

Robert M. Reeves, PresidentInstitute of Shortening and Edible Oils

Presented at theNational Cottonseed Products Association

111th Annual ConventionDestin, FloridaMay 5-8, 2007

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• Trans Fat

• Biodiesel

• Federal Regulations– Environmental– Security– Food Labeling

• Sustainability

OVERVIEW

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• Requires Trans Fat Content on Label– Reason: trans fats raise LDL cholesterol,

therefore cause increased heart disease risk.

• Applies to packaged foods at retail

• Stimulated reformulation toward “0 g. trans fat/serving” throughout retail food industry

FDA Food Labeling Regulation (Effective 1-1-06)

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Total Fat =32%

Saturated Fat =11%

Trans Fat = 2%

AMOUNTS OF FAT IN DIET

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80-85% - Hydrogenation of Vegetable Oils

15-20% - Tissue of ruminant animals

SOURCES OF TRANS FAT IN U.S. DIET

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• Trait enhanced oils(e.g., low linolenic soy, high oleic canola)

• Naturally stable oils(e.g., palm, cottonseed, corn, mid oleic sunflower)

• Mixing fully hydrogenated “hardstock” with unhydrogenated oils. Interesterification of mixture customizes melt point

• Modification of hydrogenation process(time, temperature, pressure, catalyst)

• Gelling or emulsifying agents

TRANS FAT ALTERNATIVES

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• Naturally stable without hydrogenation

• Enhances flavor of foods cooked in it

• Low flavor reversion

• Economically competitive with other oils

• Good source of essential fatty acids (linoleic, linolenic)

• “Beta-Prime” crystalline structure promotes smooth creamy texture in shortening

COTTONSEED OIL AS A TRANS FAT ALTERNATIVE

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STATE LAWS AND MUNICIPAL ORDINANCESRESTRICTING TRANS FATS

• 20 states have proposed regulations

• Over 25 municipalities have proposed ordinances

– New York City Health Code:Requires restaurants to reduce trans fat to less than0.5 g/serving in cooking oils, shortenings andmargarine, by July 1, 2007

– All other foods must comply by July 1, 2008 (e.g. specialty baking shortenings)

– Requires restaurants to provide calorie information for standardized menu items

• Over 25 school districts have proposed standards

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STATE & LOCAL TFA RESTRICTIONS

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SUPPLY AND DEMAND OF MAJOR TRANS FAT ALTERNATIVES

Demand = 8 billion pounds (partially hydrogenated

oil subject to replacement)

Supply = Billions (Lbs.) Crop0.90 low lin soy1.25 high oleic

canola1.75 palm0.60 other stable

oils4.50 Total

Result: Large scale demand in short term unlikely to be met with adequate supplies.

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• Corn plantings for 2007 = 90.4 M acres (highest in 67 years)

• Corn production = 13.8 B bushels in 2007

• Farm corn prices to average $3.60/bu in 2007-2008

ETHANOL EXPANSION AFFECTING 2007 CROP OUTLOOK

DEC. 2006 Corn Futures Prices

(CBOT)

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MAJOR CROP PLANTED ACREAGE 2006-2007(Source: USDA – April 11, 2007)

2006 2007 %Crop (M Acres) (M Acres) ChangeCorn 78.3 90.5 +15Soybeans 75.5 67.1 -11Wheat 57.3 60.3 + 5Cotton 15.1 12.1 -20Rice 2.8 2.6 - 7

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National Ambient Air Quality Standard for Ozone (NAAQS)

• EPA ordered by Court to propose standard by 6-20-07 and finalize rule by 3-12-08

• EPA has proposed a standard of 0.06 ppm ozone average over 8 hours (current standard 0.08 ppm ozone)

• Significant implications for generators of volatile organic compounds (VOC) and nitrous oxide (NO).

• Edible oil extraction and refinement facilities potential generators of VOC’s

ENVIRONMENTAL REGULATIONS

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Spill Prevention, Control and Countermeasure (SPCC) Rule

• Designed to prevent oil spills

• SPCC applies to any facility having 1320 gallons of oil on hand, (e.g., cottonseed oil mills and refineries)

• Facilities in operation before 8-16-02 must maintain existing SPCC plan and amend/implement by 7-1-09

• Facilities in operation after 8-16-02 through 10-31-07 must prepare and implement by 7-1-09

• Facilities in operation after 10-31-07 must prepare and implement plan before beginning operations

ENVIRONMENTAL REGULATIONS (Continued)

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• Chemical Security Bill (S2145) passed 10-4-06 as part of Appropriations Bill

• Department of Homeland Security (DHS) designated to establish and enforce security standards at chemical facilities to thwart terrorist attacks

• DHS Interim Final Rule of 4-9-07 requires vulnerability assessments, response plans, facility registration, etc.

• DHS screening “chemicals of interest” which include some that may be used in edible oil extraction/processing plants (e.g., chlorine, hydrogen, ammonia, boron trifluoride)

CHEMICAL SECURITY

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• Requires food labels and warnings by states to be identical to federal rules

• HR4167 passed House by voice vote in September, 2006

• S3128 submitted in Senate and hearing conducted. No action taken. Bill died in Committee as 109th Congress ran out of time. Unlikely to be revived under Democratic control of Congress

FOOD UNIFORMITY LEGISLATION

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• Major corporations (e.g., WalMart) requiring verifiable sustainability polices from suppliers

• Environmental stewardship principal goal/focus areas:– Ingredients– Packaging– Energy use– Water use– Waste management/recovery– Emissions

SUSTAINABILITY