Big Crop, Big Problems

January 12, 2010 06:00 PM

The sun has set on the 2009 harvest season, but the problems associated with the big crop still linger for many producers. Harvest pressure and heavy dryer demand forced many elevators to discount more aggressively for moisture and reduce delivery schedules.

Prophetstown, Ill., farmer Rock Katschnig says he saw elevators round moisture up to the nearest half percentage point. For example, a load of beans that tested 13.1% (0.1% more than the zero-discount level) was discounted as if it was 13.5%. If the charge is 10¢ per half percentage point, the actual 0.1% is worth 2¢, yet the discount was 10¢, leaving 8¢ behind, he says. On a 900-bu. truck, that comes to $72.

Furthermore, a 12% load didn't bring a bonus. "If I bring in one load at 12%, one at 13% and one at 13.1%, I'm discounted $90,” Katschnig says. "Yet my average is only 12.7%. Is that fair?”

Elevator Viewpoint. In response to Katschnig's complaint, elevator managers, without exception, say they don't round up: "What the moisture is, it is,” they say. Some average a seller's loads in a given day. Others say each load is priced for what it is.

Mike Welbourne, general manager of Jersey County Grain in Jerseyville, Ill., says Katschnig states the farmer's side of the shrink issue superbly; however, the blend theory is correct only when the beans are put directly on a barge or a railcar.

Welbourne explains the economics from the elevator's viewpoint. "Suppose a producer wants me to store his beans so he can price them later. While those beans are stored, air will be applied to assure quality, and the moisture that elevators pay for across the scale is blown into the atmosphere via aeration.

"So the beans that were taken in at 13% will later be sold by the elevator to the river or a processor at 11.5%. Assume a moisture and handling shrink of 2% per point of moisture. At $10 per bushel, beans equal 16¢ per bushel. That $10 per bushel is now worth $9.71,” Welbourne says. That's not counting the drying cost.

If the producer decides to put the beans in his own bin, the same thing happens, Welbourne points out. "The farmer will typically sell fewer bushels out of his own bin because of moisture and handling shrink. Is that fair?” he asks.

"Sit on this side of the desk and have a bean train grade with average moisture on 50 cars of 12.6%. Then look at each car's grade and have 31 cars with 13.1% to 13.3% moisture,” says Chris Edingfield, an elevator manager in Winchester, Ohio. "How can an elevator turn its cheek to a 13.1% when the Federal Grain Inspection Service [FGIS] will hammer us for the same grade?”

Fairness. Elevators can spread discounts over all loads received from all farmers by widening the basis or by applying discounts to loads of less desirable grain, notes Diana Klemme of Grain Service Corp., a consultant to grain elevators. "The latter approach is fairer.”

There is a good reason for not simply averaging, she adds. "If an elevator has 10% FM [foreign matter] grain and blends with 0% FM grain, it averages 5%—and that's a major problem because acceptable FM for No. 2 corn is 3%. Nor can elevators be sure that they won't wind up with pockets of concen-trated high-FM grain.”

Local Leniency. A survey by Oklahoma State University Extension economist Kim Anderson found that grain buyers paid producers who delivered high-quality, low-dockage grain more than it was worth and underpaid those who delivered low-quality grain.

He also found that discounts for dockage and FM are not consistent throughout the marketing system: Local elevators have a tendency to be more lenient than FGIS on wheat dockage.

Local and river elevators also are more generous than feed mills: Elevators tend to begin discounting at 3.1% broken kernels and FM, while feed mills are more likely to deduct all of it from weight.

The end user has valid reasons for imposing a discount for grain above moisture specifications, or even rejecting it for being over the limit, says Chris McManus, grain merchandiser for Raley Bros LLC in Louisiana. "It all comes back to
elevators—and farmers—supplying customers with what they need,” McManus says.

Grain Quality. Now that the crop is finally in the bin, the concern becomes the possibility of increased FM and the risk of mold in stored corn. What is needed is vigilance and understanding.

"There will be huge problems as grain comes out of farm bins and temporary commercial storage,” Klemme predicts. Not only may FM be higher than usual, but the eastern Corn Belt, in particular, faces aflatoxin, vomitoxin and other mold-related issues.

Buyers will be well served if they are more diligent than normal and test more loads, Klemme says. "Don't be offended if the elevator insists on testing and waiting for results. In fact, for a charge, some elevators will come out to the farm to test,” she adds.

By the Numbers  I  This year, high-quality corn could bring extra premiums.
2% broken kernels plus foreign matter allowed for No. 1 yellow corn (3% = No. 2)
0.6% moisture lost in the field each day after reaching maturity
4–6 hours without aeration allows rapid fungal growth to occur
12% moisture and 55°: aflatoxin goes dormant and stops increasing

Basis Effects in Early 2010

Because most of the 2009 corn crop won't store well at commercial sites or on-farm, elevators want to quickly move supplies into the pipeline, says Diana Klemme of Grain Service Corp. "This could be hard on basis through February,” she says.

Top Producer, January 2010

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