Steve Kell
Farmers Forum
SIMCOE COUNTY — Everyone who handles, conditions, and stores grain knows that there are more than a few challenges in the business. Those perils extend right from farmers who store some or all of their own crop at home to commercial grain elevators who handle enormous volumes of grain for a list of growers. The problems for farmers and elevators are the same, with the only real difference being that the costs are multiplied by volume in the commercial operations. There is certainly room to share experiences and learn from one another. In my experience, the universal challenges in grain handling break down into three groups:
- Corn shrink
It is pretty common practice, both in commercial grain elevators and in on-farm storage, to over dry corn a bit below the standard grade specification of 15.5 % moisture, simply because it is a lot less stressful to over dry corn than it is to worry about whether or not it is keeping well in storage. It doesn’t seem like a big difference, but if an elevator were to over dry 10,000 tonnes of corn by 1 %, there would be 100 tonnes of shrink. At today’s corn prices, that little bit of extra drying to ensure that the corn stored well would cost $32,000.
Over-drying grain to ensure that the owners sleep well, is not limited to commercial grain elevators. Farmers who store grain on their own farms quite often do the same thing and suffer the same consequences. Where it gets more difficult for public receivers of grain is the wide range of moistures arriving at the same time, and the challenges of producing a uniform moisture coming out of the dryer. This is where on-farm grain dryers have an advantage. People who are drying their own crop are likely only harvesting one variety of corn, all likely planted and harvested on the same day, and coming from similar field conditions which is unloading on the same day. This makes the range in moistures on the inbound wet grain going into the dryer very tight. A commercial elevator who is unloading everything that comes up the driveway is generally receiving crop in a fairly wide moisture range between each inbound load because it is a lot of different varieties grown under a wide range of conditions. It’s not a big stretch to be filling the wet bin with corn in a range between 18 % and 24 % on the same day, and that makes it much more challenging to have it all come out of the dryer at 15.5 %.
Simply aerating corn enough to keep it fresh evacuates moisture and shrinks the weight. A good rule of thumb is that corn moisture drops roughly 0.1 % per month as it sits in the bin. So if you store corn for 10 months, (November harvest through to the following August), plan on losing 1 % of the weight to evaporation.
- Contract Execution
The reliability of how well grain contracts get executed is an ongoing concern across the grain industry. Certainly if we got a group of grain elevator operators together and asked them to talk about the consequences of times that farmers failed to deliver forwarded contracted grain it would be a colourful conversation. However, the problem with growers who don’t deliver is relatively small in terms of the total grain industry. There are very clear and well established trade rules which govern what happens in a contract default, so except for a few grain elevators who are reluctant to apply the legal muscle to neighbours, it is not a huge problem.
I would suggest that the bigger cost to the grain industry is actually delayed execution on sales contracts. We saw some great examples of this occurring in this past year’s harvest when a fast-paced harvest overwhelmed shipping logistics and elevators got full and backed up.
Suppose that you had a plan to re-fill a bin with corn after the wheat has been shipped out of it, and then even though there was a sales contract in place for that wheat to be shipped out in September, the buyer fails to schedule shipments fast enough and the product doesn’t all move out. If you’ve got 300 tonnes of wheat tying up space at the end of October in a bin that should be holding 3,000 tonnes of corn and corn harvest pace is pushing hard for space, the failure of the wheat sale contract to be executed within contract terms becomes a problem for everyone. Not only is there the obvious problem in terms of interfering in corn harvest, but there’s also likely 300 tonnes of wheat for sale way too cheap to any market that will take it quickly, and if you add up the same thing happening enough times across the region, it puts downward pressure on price.
- Quality Anomalies
Every once in a while there is a grain quality issue which impacts a significant portion of our region’s grain crop, and has a massive impact on both marketability and price. Four years ago it was vomitoxin in corn. Two years ago it was low falling-number wheat. The real question for grain handlers is: What is it going to be next? And when will it happen?
I’ve been in the livestock business for most of my life, and there have been more than a couple of times when I’ve stepped in something before I realized that there was a leak in my rubber boot. There’s an initial reaction in the first few seconds of surprise and shock followed by grief, and then we’ve got to trudge on and deal with the situation as it unfolds.
Take for example the 1999 corn harvest in Ontario where especially in the earliest days of combining, elevators were unloading high vomitoxin corn and drying it into storage without any real idea of either the extent of the problem, or how end users in the marketplace were going to deal with it. There is a really perilous tightrope walk between being fair with the farmers who are delivering the off-spec crop, and manoeuvring through the end users in order to limit the financial costs of owning off-grade inventory.
When the grain crop throws us one of these major quality problems, there is an advantage to commercial grain elevators, simply due to the way in which they manage risk and market crop. Farmers tend to make forward sales of grain to particular end-use markets, while grain elevators tend to sell futures in order to protect against price moves, and make the cash sales after the market develops.
If a farm has wheat forward contracted to go to a flour mill with a very tight falling number spec. or a steep falling-number discount, it can be pretty painful to deliver the forward contracted grain. A commercial operator who hedges can wait until after they have a sense of quality, and then make sales to feed mills when it’s time to ship. Lifting the hedges doesn’t avoid the price discount associated with owning off grade wheat, but it helps to eliminate the costs of dead freight on rejected loads and the stress of uncertainty.
