Harvest States
Gary Anderson
Vice president, grain marketing

“You can’t be passive in the grain business and survive,” Gary Anderson advised, from his office in St. Paul, MN. Anderson, vice-president, grain marketing, oversees the purchase and movement of a billion bushels of grain annually through five export terminals – three of which are Pacific Northwest joint ventures – three inland terminals and six barge terminals located across the country. Harvest States is the third-largest exporter of U.S grains.

Q. What is the major challenge for country grain elevators?

A. No question, it is unit size for bulk shipments, but there are plenty of other challenges. When I joined Harvest States in 1986, a 25-car train was the biggest unit size. Now, following a dramatic period of consolidation, the typical unit size is 100 or 110 cars. Mergers and buyouts have resulted in fewer terminal managers running bigger, more sophisticated facilities. The railroad companies’ strategy to move more product with fewer resources has forced us to load 110-car trains in 12 to 15 hours. There is more risk associated with logistics than in price volatility when merchandising grain.

Q. How have markets changed?

A. Domestic consumption of corn is actually growing at a faster rate than exports. Gaining possession of any grower’s grain is no longer a given. Country grain buyers are faced with tough competition from new ethanol and wet-milling plants siphoning off local grain supplies. We expect annual demand for ethanol corn to jump from 780 million to 1.25 billion bushels in five years. Fewer farmers mean fewer sources and thus more competition. Local grain merchandisers are making one transaction for every four they made 15 years ago. Farmer-owned semis give them mobility to haul grain another 30 or 40 miles or more, which they’re more than likely to do unless they have a good reason to stay with their local buyer.

Q. What advice do you have for country grain buyers facing these changes?

A. Help the farmer market his grain. Help him make money. Then you’ll get his bushels year after year. Sounds simple, but it’s not. You can’t always give your customers what you think they need; you have to give them what they think they want to keep their business. That’s why it’s so critical to help producers work up a comprehensive marketing plan they believe in and that results in the end price they need. It might include hedging, options and/or forward-contracting, but these are only tools. If they don’t know how to use them, and believe they work, they can get hurt and hurt your credibility in the process.

Q. Is the Internet making farmers better marketers?

A. The Internet is a good tool to help you execute business, but it’s not a primary way to conduct business. At Harvest States, we’ve mostly adapted the Internet for distributing information to our elevators and producers. They can log on to look up account information, discover what they have in open contracts, find out what their grades and weights are or review sales activities. But when we look to transact new business with them, we do it on the phone or in person. Because if you’re passive doing business, someone is going to come up with a more creative program.

Q. How are specialty grains changing grain merchandising?

A. IP grains will be a must for anyone who expects to remain in the bulk grain business. But we’ve got a lot of logistics to work out. We’re barreling down a path that often doesn’t make a lot of sense from the standpoint of how our grain handling and transportation systems are going, compared to what our customers are really desiring and asking us to do. On the one hand, shippers driven by railroad-dictated freight economics, especially where practical river access is not an option, have to load 110-car trains virtually overnight. Meanwhile, IP grains, which cry for more, not less, handling time, are becoming essential to the commodity exporter. Today, ships leaving U.S. Gulf ports for Japan, for example, typically carry some IP grains, such as non-GMO-, high-starch or high-oil corn, or food grain soybeans. While it may be only 15 percent or less of the total cargo, it can be the bargaining chip that clinches a major commodity sale. There are logistical advantages of handling specialty products in the Gulf because barge shipping isn’t under the time restraints as the PNW shuttle rail business. This is one of the reasons PNW exports are at a 10-year low.

Overall, IP grains have been driven by seed companies coming up with new products containing certain traits before there was a market. What really needs to happen is to determine first what the consumer wants and then to develop value-added crops to meet demand.

Q. Where do you see export growth markets?

A. From a corn/soybean perspective and to some extent, wheat, China is the 10-ton gorilla. Last year, for example, China was a major exporter of corn – taking a big share of our Korean corn market – and a major importer of soybeans, some 14 to 15 million tons. China was neither an exporter nor importer three years ago. Big question: Does China have the resources to increase its own production? I would be surprised if it doesn’t. Back in the ‘70s and ‘80s we thought Russia could become a major buyer of U.S. grains; but we hardly sell them anything today. Only time will tell if the same thing happens with China.

Japan is our biggest customer for corn, including certified non-GMO shipments. However, it is a mature market. Japanese per capita grain consumption has been static for about the past 10 years

The European market is also mature. Ukraine will probably become a bigger producer and export grains in the future.

What will happen in South America? Politics in some of the countries there could hamper production, but it’s hard to predict. In the meanwhile, they’re a strong competitor for our soybean exports.

Malaysia and other Pacific Rim countries have the potential to be growth markets; when that happens depends on their economies taking off and growing their middle class populations.

GROWMARK, Inc.
Larry Keene
Director, value-enhanced products

“Practicing for the big game,” was the theme of GROWMARK’s last two annual marketing seminars. Larry Keene heads up efforts in six major corn/soybean states, and in Ontario, to help 200 local FS/GROWMARK grain originators profitably channel value-enhanced products.

Q. What have you learned so far?

A. We’re using ‘practicing for the big game’ as a strategy for FS member cooperatives to identify farmers interested in contracting, and we make available value-added contracts to those farmers. Many participating elevators and farmers would tell you they are not making much money from specialty grains. But they’re learning correct handling procedures to keep the supply channel clean and ways to make the system work more efficiently so the farmer and elevator can profit long-term.

As more varieties are introduced with specialty traits that carry value, we want to access the new traits available through biotechnology. We see contracting value-enhanced crops as a way to enhance our seed business, and we plan to be involved in both the seed and grain marketing sides of the business.

Practicing for the big game is not always about marketing grains containing value-added traits. It’s alsounderstanding how to keep the channels clean when handling commodity grains not yet approved in certain markets. For example, corn hybrids containing Roundup Ready genes or corn rootworm resistance are approved in Japan but not in Europe.

Q. Why is this important?

A. There will be more and more opportunities for premium-based specialty crops produced under contract in the future. What we are doing is getting people started in the type of agriculture that will be more and more common in the next 10 years.

Q. What makes a good specialty grains contract?

A. We help producers understand what they are reading in the contract and to know what to look for to limit their liability. Farmers like choices. We offer grain programs with premiums and support them with chemicals, fertilizer, seed and crop scouting to maximize their profits. We compare conventional crops with specialty crops in a way that producers can evaluate the positive and negative aspects of what is being offered.

Q. What percentage of your grain is contracted?

A. We probably parrot the national average, coming in at seven to 12 percent of total corn and a bit less on soybeans. In certain geographies, especially adjacent to the Illinois, Ohio and Mississippi rivers, value-enhanced products make up 15 to 20 percent of the total grain originated by GROWMARK member co-ops. There is a much higher percentage of contracted grain in areas located near large processing complexes like ADM or Stahley in Decatur, IL, or the Chicago ethnic food markets.

Q. What are the hottest value-enhanced products for 2002?

A. NutriDense corn is being contracted this year for a 25 cent-per-bushel premium at several locations. NutriDense, a non-GMO corn licensed by ExSeed Genetics to a number of seed companies, runs about 10.5 to 11 percent protein, compared to 7.5 to 8 percent for conventional corn. Last year, we also tested NutriDense LP, an exciting new low-phytate corn that allows swine to utilize more of the feed, and thus reduce phosphorus in the manure. Dow/Mycogen offers a similar patented product line called SuperCede nutritional traits.

High-fructose corn is a biotech product being tested in isolated areas. It contains a higher level of corn sweetener, which makes a lot of sense for the fructose and ethanol industries.

We’re seeing premiums from food manufacturers for hard-endosperm corn running six to 10 cents over No. 2 yellow bids. Some of today’s commodity corn will likely earn a premium as “super commodities” in the future. DuPont, Monsanto and Dow are taking a hard look at high-fermentable starch and high-extractable starch hybrids that would up efficiency of ethanol and wet-milling plants, for example.

Non-GMO soybeans are bringing an extra 12 to 40 cents per bushel, while non-GMO corn contracts are earning a six to 12 cents per bushel premium.

Q. How do you verify IP procedures are being followed?

A. The long-term goal is to be able to trace the crop electronically from field to end user, but we’re not there yet. Contracting farmers currently record and certify the crop history, including field location, planting date, weed and insect control, planter and combine cleaning, and bin segregation details. There’s no way elevator personnel can be out there to watch each farmer clean out his planter, so a lot is based on trust. Elevator employees inspect fields and enter tracking data into the computer, but the paper certificate signed by the farmer physically travels with the grain until it reaches the terminal elevator. At that point the grain buyer reenters the data to create an electronic trail. There are very rigid IP rules that track grain from terminal to ship.

Non-GMO grain is usually tested twice for purity: once at the local elevator or farm bin if it’s going directly to the terminal, and again after it’s loaded out. So what you’ve got is a signed certificate from the farmer and two trait tests before the grain heads down the river or rail track. Currently, non-GMO soybeans going to Japan have to be 99 percent free of Roundup Ready protein. I’ve seen lots of tests coming off barges in Illinois that were 100 percent pure, so we’re confident we’re doing a pretty good job of keeping supply channels clean.

Editor’s note: Watch our September issue for Grain Merchandising, Part II. You’ll learn how geography creates widely divergent challenges for local grain buyers.

"Verifeying" value
The first company to offer online tracking of IP grain and food products has grown quickly since its launch in May 2000.

CropVerifeye, LLC, from an initial 3500-acre pilot project, has expanded to a potential of about 500,000 acres under contract this year, reports Jim Mock, vice president of marketing. The firm is also introducing a new software package this summer that allows producers to develop farm “resumes.”

Season-long snapshot. Producers using the system enter data related to contract specifications into CropVerifeye.com, a secure online database, as the season progresses. The data provides the contract buyer a real-time picture of what’s happening to the crop from planting to harvest and storage. Validity of the data is assured by third-party auditing of fields, equipment and storage facilities.

Currently, most contracts are for specialty corn, soybeans and wheat grown in Michigan, Illinois, Indiana, Iowa and Canada. “We present contract buyers an electronic whiteboard which they customize with whatever data they want to collect. The system is a lot more flexible than when we started,” says Mock.

Two audited traceability service levels – Gold and Silver – are available. At the Gold level, CropVerifeye coordinates the entire process, including database management and field auditing. Silver level buyers also use the database, but they provide their own auditors.

Costs run between $2 and $6 per acre, with a typical contract in the $3.50 per acre range. “This equates to about 2 cents a bushel for 150 to 160 bushel corn. We think that’s a fair price for avoiding what could become a billion dollar problem,” Mock comments. He believes the costly StarLink contamination event could have been minimized if a system like CropVerifeye had been in place to validate proper field isolation.

Heritage launched. Heritage is a new branded product that allows growers to document production practices by collecting data from their farm operations with Settler AgExpert software via a handheld computer and storing it in CropVerifeye’s online database.

The $525 software package includes FieldMate for the PDA; FieldMaster for synching data to the producer’s PC and a disk for uploading to Heritage database on the Internet. Producers will also pay a 20-cents-per-acre upload fee and a 50-cents-per-acre fee to share data with others. Data sharing is by producer permission only, Mock says.

He says the Heritage program will help producers manage data more intensively than they have in the past, a must for growing value-added crops. Collecting data over a period of years provides the basis for a farm resume that can support and strengthen relationships with banks and insurance companies, as well as production contractors. The information will also be useful for writing environmental plans and creating a value for individual farm enterprises.

“We’re just getting started; we have a plan on the drawing board that could take Heritage to a very large number of growers very quickly,” he states.

For more information on CropVerifeye.com or the Heritage Program, call toll free 866/639-2767 or email jmock@cropverifeye.com.

Want to use this article? Click here for options!
© 2007 Penton Media, Inc.