AgDM newsletter article, December 1997

The production and marketing of value-added grains

Roger Ginderby Roger G. Ginder, Extension Economist, 515-294-6260, ginder@iastate.edu

In the article Opportunities in Value-added Grain, I discussed the industry forces driving the movement toward specialty grains.  I also highlighted some of the specialty grains being developed.  In this article I would like to changes in the marketing system and the economics of producing specialty grains.

Different marketing procedures

Producing and marketing specialty grains is likely to involve several changes in marketing system.  It will affect both producers and elevators (or first handlers).

Separate Storage
First and most obvious is the need to keep specialty grains separate in order to preserve the desired traits.  Some specialty grains (such as high oil corn) that may be produced in large volumes may be handled similarly to commodity corn with a greater degree of commingling and bulk handling. But for more specialized grains or grains with very specific stacked traits, strict segregation and identity preserved handling practices will be necessary.

Purchasing
Purchasing is another area where significant change is likely to occur at the elevator level.  Grains with special traits generally require more planning and coordination as they move through the distribution channel. Elevators will need to offer marketing contracts to farmers for these products well before the seed is purchased and the crop is planted. For specialized grains with low volumes, the flow of product will need to be matched with the users ability to use it. They may need to use buyers call provisions where the end user dictates when grain will be delivered to properly regulate the flow of product to the user.

Grain testing
Elevators will need to do more sophisticated testing of specialty grains.  For traditional commodity grain, sampling and testing has routinely been done to determine moisture, condition, and foreign material.  However, specialty grains typically require additional tests for proteins, oils, and starch content.  For the most specialized products, amino, fatty acid, and starch profiles will need to be identified and measured. In most cases, these tests will have to be done by the elevator (at delivery) and will require more technical skills and equipment than is currently available.

Economics of specialty grains

The economics of producing and marketing specialty grains is different than the economics of producing undifferentiated bulk commodity grains. While the most common advantage of producing specialty grains is a premium price for the special trait grain, some specialty products (and the various contract arrangements to produce them) may carry additional advantages for you.

Risk management
Some types of contractual arrangements can reduce your marketing risks and allow greater diversification of production risks. 

In other cases, your financial risks may be reduced through specialized production arrangements between you and the seed company or the end user. These arrangements may involve risk sharing for yields and profits.

Economic costs and management requirements
You may be faced with different costs and management requirements if you enter these specialty markets.  Depending on the type of grain produced, there may be added seed costs, and/or differences in fertility, tillage, spraying, cleaning, or conditioning involved.  In nearly all cases, harvesting (and handling) equipment will need to be cleaned before special quality grain is handled and special traits must be preserved through the storage period in a separate bin.

Analyze profit potential
To be a successful producer of specialty grains, you will need to be fully aware of the costs and returns (profit per acre) for the specialty products you are producing.  This is essential in order for you to make this new enterprise fit into your overall farm production and risk management strategies.

Conclusion

Over the next decade, you will have an unprecedented opportunity to produce value-added or specialty grains in addition to (or instead of) the standard commodity grains - and to share in the higher value these specialty trait grains carry.

 

|Ag Decision Maker Home Page|