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Marketing Organic GrainsMarketing, Business, and Risk Management |
| By Holly Born NCAT Agriculture Specialist January 2005 ATTRA Publication #CT154 |
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AbstractOrganic grain and oilseed markets are growing, and organic grains can be successfully marketed at premium prices. This publication focuses on food grains, oilseeds, and pulses. A brief overview of feed grain markets and marketing is included. Organic grain marketing differs from conventional grain marketing in several key ways. Producers generally benefit from contracting a large portion of their acreage before planting the crop. Relationships with buyers should be cultivated early on and be maintained by meeting expectations consistently. Premium prices are generally for delivered products, and, depending on the market and the specific buyer, they may need to be cleaned and even bagged. Generally, meeting quality standards is essential. To achieve the best prices, growers need to understand and build relationships with buyers, find markets for most of the crops in the rotation, meet quality standards, be able to store the crop if necessary, and be able to contract most of their crop to reliable buyers. Table of Contents
Organic Food Grain, Oilseeds, and Pulses Market SituationOrganic markets can be volatile, with periods of high demand and short supply for certain crops and periods of high supply and sluggish demand for others. However, some grain markets are quite stable. The demand for organic grains varies widely, depending on the type of grain. Prices for organic grains and oilseeds were about double the conventional prices from 1995 to 2003, and occasionally three times as high as conventional. A 2004 study of organic grain and food-grade soybean prices from 1995 to 2003 (1) found that 2003 average organic prices were greater than 2002 prices for major grains and oilseeds. Corn, soybeans, and spring wheat had highs in 1996-98 and again in 2003. Lynn Clarkson of Clarkson Grain Company (2) in Illinois says that prices in the organic marketplace can be difficult to determine because of nondisclosure practices. He suggests that farmers make four or five phone calls to get a feel for appropriate prices before selling their grain. Pricing in the organic grain market is very specific to the grain crop variety. Choosing varieties with distinct traits, including top quality, is one way to create market advantage.(3) Premiums for some crops are falling, as more farmers get into organic production, but farmers who can ride out the transitional years still have opportunities to increase their incomes. Increased demand by food and feed manufacturers has helped to maintain organic prices for many crops, even as organic acreage increases. Clarkson says that foreign competition is creeping into the organic grain market. Several grain legumes are already coming into the U.S. at lower than domestic prices. Some buyers still prefer to buy domestic grain, however, and price premiums may hold up for some buyers, as long as the price difference between domestic and imported grain does not grow too large. Food GrainsRising consumer demand for organic pasta, cereal, and bread products signals a need for more organic flours and oils. Although smaller manufacturers historically dominated the organic foods industry, several leading grain-based food corporations have entered the organic market recently. ConAgra Foods, for example, has seen annual sales of its organic bread flour increase 10 to 15%. While this category has not grown as fast as other categories, slow and steady growth (about 28% annually) is expected to continue.(4) WheatAccording to Nancy Matheson, NCAT specialist and producer and handler of organic grains in Montana, organic wheat prices are less volatile than prices for conventional wheat, and premiums for organic wheat have remained steady for several years, at about 50% more than conventional. Good export markets exist for many of the wheats, along with domestic markets, if the quality and variety meet market criteria. The market for organic hard-white wheat is now well developed and stable. While the market has grown, it is still a much smaller market than the market for the hard red wheats. Demand for organic hard-white wheat should parallel conventional demand.(5)
CornOrganic food-grade corn and corn products such as corn syrup are seeing an increase in demand from food processors. Prices range from $4.50 to $8.00 a bushel.(6)
OatsPrices for organic oats are about double those for conventional oats.(4) Oat prices began to rise in 2002 and 2003 and appear to have leveled off in a higher price range than before. Food grade oats have a small but significant niche, and with larger companies such as ConAgra getting into the organic oats market, new opportunities for oats producers may exist.
OtherOrganic rice has seen a very steady, slow increase in demand. Markets for other food grains tend to be limited. While crop diversity is an important part of organic farming systems, it can be difficult to find markets for the grains that are less in demand. Establishing a relatively stable rotation allows farmers to plan marketing far ahead of time, rather than facing the question of what to plant every year. Crops such as buckwheat, rye, peas, and oats are important in crop rotations and as cover crops, but they may be difficult to sell in some areas, even without an organic premium. Some soybean buyers, recognizing this problem, are beginning to contract for some of the "other" crops in the rotation. Feed markets are another option for marketing these types of grains. OilseedsSoybeanDue to high demand based on the perceived health benefits of soy, both organic and non-organic soy foods have seen an average annual increase in sales of 14.3% over the past 10 years.(7) Once only used for tofu, soy is now found in hundreds of food products, and demand for organic soy is strong in both domestic and export markets. Organic soy prices tend to be quite variable.
Flax, sunflower, safflowerOther important organic oilseeds include flax, sunflower, and safflower, which are seeing increased demand as consumers learn more about the health benefits of these oils. Flax prices increased significantly beginning in 2003. Canola is in demand, but it can be risky to grow due to the prevalence of genetically modified canola in canola-producing regions.
PulsesOrganic dry bean prices tend to be volatile. There is a strong export market for organic dry beans. Pinto beans are the most important type of dry beans produced in the U.S.(8) There are small but steady markets for other organic pulses, such as lentils, green peas, and field peas. Organic Feed Grain Market SituationIncreasing interest in organic production of livestock has led to an increase in demand for organic feedstuffs. Organic meat and poultry represented the fastest growing organic category in 2003, with a 78% sales increase in 2004 from 2003.(9) Manufacturers expect that category to grow at 30% over the next four years.(9) Organic dairy has been one of the fastest growing organic categories for the past several years, and its successful introduction to mass markets means the category will only continue to grow. Because agricultural feed ingredients in the diets of certified livestock must be organically produced, continued growth in the retail market should increase demand for organic feed grains. It also provides a market for lower quality organic grains that fail to meet the quality standards demanded in other organic market segments. You may be able to sell organic feed-grade grain directly to local organic livestock producers or to organic feed manufacturers, as well as to brokers and merchandisers. If you do sell directly to farmers or small companies, you do risk not getting paid in a timely fashion—if at all. Try to find out from other producers of organic grains what the reputation of potential small buyers is regarding prompt payment. Be aware that the screenings also have value as feedstuff and are sought after by organic livestock producers as a low-cost ingredient.(10) You may want to contact one of your state organic groups to locate organic livestock producers in your area who need grain, if there are no organic feed-milling companies or organic grain merchandisers in your area. Many certification agencies publish lists of their certified producers and identify producer enterprises. ATTRA maintains a list of organic feed suppliers, available on request or by visiting www.attra.ncat.org. Typically, prices for organic feed grains are about 50 to 100% above conventional prices.(11) Recently, increased feed demands across the country and unfavorable growing conditions have resulted in some shortages and high prices for organic grain and soybeans. In summer 2004, organic feed-grade soybean prices ranged from $19 to $21 per bushel (up from $18 per bushel in April), and organic soy meal prices ranged from $700 to $850 per ton.(9) Prices range from $3.25 to $4.00 per bushel for feed-grade organic corn.(6) The high cost of organic soybeans and meal provides increased opportunities for producers of alternative sources of protein, such as feed peas. Current research is showing an emerging potential for grain vetch as a substitute source of protein comparable to soybeans.(12) Along with vetch, grain lupine—with the highest protein content of all the pulse crops (12)—is also being researched as a protein source for feed. Marketing Organic Grains, Oilseeds, and PulsesMarketing organically produced grains is different from conventional grain marketing. While the conventional grower can deposit a whole harvest at the elevator, organic production is usually contracted with a specific buyer ahead of planting. The marketing skills necessary for organic producers are often different from those for conventional producers.(10) Conventional grain producers can increase their returns by timing sales to take advantage of market fluctuations. Organic producers tend to get better returns by taking advantage of knowledge, experience, and relationships. Experienced producers know where markets are, know how to negotiate, and have established themselves as reliable suppliers through long-term relationships with buyers. Mike Pratt, former purchasing manager at the organic grain trading company American Health and Nutrition, says that the ability to meet quality standards and to store their organic crops are the main factors for prospective organic farmers to consider.(13) In addition to developing relationships with buyers, farmers also need to develop good relationships with their bankers. The organic market is not as liquid as the conventional market. Organics often do not have a spot market in which farmers and bankers can immediately turn grain to cash (14), and bankers need to understand that they may not get proceeds from crops for up to a year or more in some cases. However, if there is an organic handling or processing facility nearby, there may be a spot market. For example, Matheson says, General Mills' elevators and several smaller independent organic grain merchandisers in Montana offer producers the ability to sell their harvests directly at the elevator. While buyers such as General Mills can take large quantities, Matheson advises diversifying buyers if possible.
Finding BuyersProducers interested in going organic should contact several buyers to get a feel for the market and find out more about what crops are in demand, quality standards, and pricing. Experts recommend taking the time to understand the buyer's viewpoint, learning about the products that the grains go into, quality and other desired attributes, and so on. It can pay to talk to milling, baking, and other manufacturing associations, as well as producer associations, and build a marketing network with food industry contacts.(2) Make sure buyers know that you are focused on food quality and on meeting their needs. For food-grade products, the buyer will want a sample and the assurance that the entire shipment will be of equal quality. There is more flexibility on quality in the feed markets. Producers should be familiar with various sampling techniques and know how they affect the samples sent to the buyers. Many organic certification organizations offer information on sampling. If you are interested in targeting export markets, you will need to check with buyers to find out whether there are International Federation of Organic Agriculture Movements (IFOAM), European Union, or other specific certification requirements. The Internet can be a great place to find buyers, and it is important to get on buyers' e-mail lists. Buyers send out frequent requests to bid on filling grain orders, and they will pool products from several producers. Organic certifying agencies are not necessarily a good source of information on buyers. While some agencies, particularly state department of agriculture certifiers, freely give out lists of buyers, many private certifiers do not. Some certifiers will also provide potential buyers with lists of the farmers they certify who produce the crops that the buyer is looking for. A partial list of buyers and other sources of buyer information is included in the Further Resources section of this publication. Sales to Other Producers and Smaller Organic CompaniesOther farmers and ranchers and small organic companies may offer marketing opportunities to organic grain producers. However, it is important to make sure that you will be paid after you make the sale. Some buyers of organic grain are so small that they can't or don't always pay the farmers they're buying from. Fraud is unusual—more often, smaller companies may have too little cash-flow to pay their bills. If they get behind, they simply don't have the cash to pay the farmers. Also, many do not know they are required to have a commodity dealer's license—with the accompanying protection for payment. If you are a farmer selling organic grain—to a company or an individual—be sure that the buyer has a commodity dealer's license in your state. Many individuals will not have a commodity dealer's license, required only of those whose purchases directly from farmers exceed a certain dollar amount. For example, in Montana, anyone who buys $30,000 or more of grain per year from farmers must have a commodity dealer's license. The licensees must post a bond or buy an insurance policy that will cover their unpaid bills to their sellers if the licensees can't. Considerations for Contract ProductionContracting with a trader or processor is often the only way, and sometimes the best way, to sell organic products or alternative crops that lack established markets. Contract production offers producers a way to manage risk. While producers on contract will not be able to benefit from favorable price changes, they are protected from unfavorable price changes. In many cases traders will also give growers advice on how to produce and harvest a top-quality organic crop. Clarkson advises growers to contract a significant portion of their production before planting. Those contracts should be for acres of ground in production, not bushels of crop produced, to prevent shortfall on delivery at harvest time in a bad year. Buyers look for farmers who are in the right location with the right equipment and infrastructure. Beyond these basics, buyers also prefer to deal with farmers who have a good attitude and are sensitive to client needs. Farmers benefit by building relationships with buyers as they compete for contracts. One farmer compares finding buyers to going on job interviews.(15) Farmers are having more difficulty getting contracts to grow some of the specialty grains, such as blue corn. Clarkson says, "There is a definite limit to the ability of niche markets to absorb all the available supply. Open-market farm production tends to rapidly destroy the price advantages. Contract production tends to regulate supply to what the market can absorb and thus retains the premiums for longer than open-market production."
Communication with buyers is critical for producers in determining what to plant, how to fit it into their rotation plan, and how to grow and harvest a crop that meets each buyer's quality criteria. Understanding the standards and terms specified is vital. Grain cleaning and shipping charges are important factors when evaluating price and costs. Contracts may specify the producer as responsible for both, either one, or neither. For example, some prices are quoted FOB a destination point, and the producer must pay shipping and cleaning. Other buyers may quote a farm-gate price based on quantity after cleaning, but the buyer pays for cleaning and shipping. Experienced growers stress that cleaning and shipping are significant costs, and you must read the fine print to avoid unpleasant surprises. Premium prices for organic grain are sometimes on a "cleaned and delivered" basis. Many organic feed buyers and certified organic elevators will buy uncleaned grain. Premium markets may demand a shipment to be 99.9% clean. In order to separate out that last small percentage of weed seeds, stones, and other impurities, up to 10% of the grain can be wasted ("dockage"). Producers should find out how dockage is handled and whether any grain will be credited back to the grower. Keep in mind that organic screenings are in high demand by livestock and feed producers. If you have your grain custom cleaned, and you want the screenings, you'll need to request them ahead of time and reach an agreement on their per-unit value. Both producer and buyer need to carefully consider all terms of the contract before signing. It is important to understand what happens if the commodity is below contract quality specifications and what the buyer's rejection policy is. The producer, in particular, should learn about the legal aspects of contract production and know what his or her options for legal recourse are in case a buyer violates the agreement. Information on evaluating contracts is available at http://web. aces.uiuc.edu/value/contracts/contracts.htm. Collaborative/Cooperative MarketingThe additional labor and management required to meet quality and delivery specifications, as well as investments in cleaning and storage equipment, represent possible marketing costs that could eat into premiums. Transportation costs may be substantial if certified cleaning plants or points of delivery are located far from the farm. The need to invest in storage facilities and the costs of transportation may make cooperative marketing more attractive. Marketing agencies-in-common (MACs) are organized by groups of cooperatives to coordinate marketing and other value-added services for the cooperatives. Each individual cooperative retains control and ownership of its assets and is usually responsible for its own management. The MAC often provides marketing services that individual cooperatives cannot afford by themselves. The Organic Farmers' Agency for Relationship Marketing (OFARM) is a marketing agency-in-common for organic grain grower cooperatives in 18 states and Ontario. OFARM's target prices for several types of grain, along with conventional prices, can be seen at their Web site or at www.newfarm.org/opx/market4_choose.php (prices are FOB at the farm, not including storage and handling). Contact: John Bobbe, Executive Director Preserving Organic IntegrityHarvest Considerations for the Split OperationThe producer or handler of a certified operation managing organic and non-organic components of one farm must document the measures taken to maintain organic integrity from seeding through harvest, transportation, and storage. Buffer zones, field isolation, adjusted planting dates, and varietal selection are common means of reducing contamination. To avoid contamination and preserve organic integrity, you may want to plant and harvest organic crops first, if maturity dates allow.
When equipment used for planting, harvesting, transporting, and storing conventional crops is used for organic crops, there is a high risk of commingling or physical contact between organic and conventional crops, if any of the conventional crop remains in the equipment. An Iowa State University study showed that there can be more than 60 pounds of grain, vegetative matter, and dirt left in a combine, even after the grain tank appeared to be emptied.(16) While some equipment can be adequately cleaned by hand, other equipment such as gravity boxes, transportation units, and storage units may need to be cleaned with pressurized water or blown out with compressed air. Combines should have all trap doors opened and be run empty for 15 minutes or so. Sweep and use an air compressor or vacuum cleaner to remove leftover grain and contaminants, and shake out residues from the sieves. Before harvesting your organic crop, run three to five bushels of organic grains through the combine to purge leftover conventional grains (this grain cannot be sold as organic).(16) If you own a combine, you can take your time and pay attention to details. This will ensure a high quality harvest with minimal damage to the grain. Custom harvesters often cannot take the time necessary to assure such thorough cleanout measures. In addition, they are often not familiar with specialty crops such as spelt, food-grade soybeans, buckwheat, or flax. If you do hire custom operators, it may be necessary to pay them to be meticulous enough to clean their harvesters completely to avoid contamination, and to set the machine properly. Any hauling vehicle that includes augers should be cleaned thoroughly. Grain receiving pits, augers or conveyors, elevator legs, dryers, and bins are all possible sites of mixing. Clean in and around these parts of the system to minimize mixing. Run some organic grain at maximum capacity through the system to clean out conventional grain. Cleanout logs should be kept up to date for all combines, trucks, and farm and cleaning equipment that are used for both conventional and organic grain. Be sure to get a clean-truck affidavit from custom haulers. Post-Harvest Handling and ProcessingIf you process or perform significant value-added operations, you may need to be certified as an organic handler, in addition to your organic production certification. According to the NOP Final Rule (205.2) "handle" is defined as follows.
A "handling operation" is defined as
Check with your certifier to find out whether your post-harvest activities qualify you as a handler. If you do qualify as a handler, you must get an organic handler certificate. Handlers of organic grain must ensure organic identity and prevent contamination with prohibited materials. Bin tags, labels, scale tickets, and lot control documents must clearly identify the product as organic. Handlers of organic grain and grain products must demonstrate that they have procedures in place to ensure the identity and segregation of the organic products at all times. For more information on documentation needs and the certification process, see the ATTRA publications Organic Field Crops Documentation Forms, NCAT's Organic Crops Workbook, and the National Organic Program Compliance Checklist for Producers. In addition to offering a reliable supply, there are options to add value to your crop by cleaning, packaging, labeling, and/or palletizing your product and arranging delivery logistics for your buyer. Buyers vary in the degree of cleaning and conditioning they require. While many buyers do not want to have to clean the crop, others prefer to do their own cleaning, using their own equipment. Clarkson says that "few if any farmers could support the machinery array we think is needed to present excellent material to final processors of human foods. Rotary screens or auger screens may do more seed coat damage than we can accept." If pre-cleaning is required to meet quality standards, weed seeds, green material, and other trash must be removed before storage.
Adding value also adds costs. Depending on the type of activity, the producer may need to make considerable investments in equipment and time. If interested in doing his or her own cleaning and bagging to sell directly to the end user, for example, the farmer may need to purchase equipment such as small cleaners, fanning mills, and a gravity table. Pratt highly recommends running the grain over a gravity table to assist in removal of small stones, glass, and similar trash. He emphasizes that the trader (or the grower, if direct marketing) is liable for any claims related to foreign matter in the crop—for example, milling machinery damaged by stones in the grain. Product liability insurance will be a must. On-farm or cooperative grain processing, either for human or animal consumption, is another marketing option. For more information, request the ATTRA publication Grain Processing: Adding Value to Farm Products.
References1) Streff, Nicholas, and Thomas L. Dobbs. 2004. 'Organic' and 'Conventional' Grain and Soybean Prices in the Northern Great Plains and Upper Midwest: 1995 through 2003. Econ. Pamphlet 2004-1. South Dakota State University. 2) Lynn E. Clarkson. President, Clarkson Grain Company. 2001. Personal communication. October 18.
3) Maulsby, Darcy. 2004. Talking Shop: Wisconsin. Upper Midwest Organic Conference, Feb. 27-Mar. 1 Evaluate Your Organic Grain Marketing Opportunities. NewFarm.org. www.newfarm.org/depts/talking_shop/0403/marketing_ops.shtml 4) Gelski, Jeff. 2003. The organic reward. Milling & Baking News. November 18. Baking Business on-line edition. www.bakingbusiness.com/feature_stories.asp?ArticleID=68447 5) Matheson, Nancy. Personal communication with Andre Giles, owner and manager of Montana Flour and Grains, Fort Benton, MT. Oct. 20, 2004. 6) Frerichs, Rita. 2003. Organic Food-Grade Corn. College of Agricultural, Consumer and Environmental Sciences, University of Illinois at Urbana-Champaign. http://web.aces.uiuc.edu/value/factsheets/corn/fact-organic-corn.htm 7) Hansen, Ray. 2004. Organic Soybean Industry Profile. Agricultural Marketing Resource Center, Iowa State University. www.agmrc.org/agmrc/commodity/grainsoilseeds/soy/organicsoyprofile.htm 8) USDA Economic Research Service. No date. Briefing Room: Dry Bean Background. www.ers.usda.gov/Briefing/DryBeans/ 9) Organic Business News. 2004. Soybean Feed Costs Rising as Egg Prices Go Up. July. p. 7. 10) Swenson, Andrew, and Brad Brummond. 2000. Projected 2000 Organic Crop Budgets for South Central North Dakota. March. North Dakota Cooperative Extension. www.ext.nodak.edu/extpubs/ecguides.htm 11) Anon. 2003. Organic Feed for Poultry and Livestock: Availability and Prices. Agricultural Marketing Service, USDA. www.ams.usda.gov/nop/ProdHandlers/FeedStudyJune2003.pdf 12) Krall, Jim. 2004. Trader's Dispatch. Valier, MT. October. p. C22. 13) Pratt, Mike. Former Purchasing Manager, American Health and Nutrition. 1998. Personal communication. April 15.
14) Traub, Jim. Senior Merchandiser, Clarkson Grain. 2001. Personal communication. October 18. 15) Burchett, Andrew. 2000. Contract quest. Farm Journal. October. p. 26–28. 16) Riddle, Jim. 2004. The Inspector's Notebook: Protecting the integrity of organic grains during harvest. August 17. NewFarm.org. www.newfarm.org/columns/inspector/2004/0804/081704.shtml 17) Anon. 2001. Choose GMO testing methods and labs carefully. The Organic Source. March. p. 4 Further ResourcesInformationThe Illinois Specialty Farm Products project provides information on contract evaluation for specialty grains, strategic planning, specialty corn and soybean technology, specialty corn and soybean markets, and more. They have publications on organic food-grade soybeans and organic corn that include recommended management practices and sample partial budget analyses. They also maintain lists of buyers for the different crops. This information is available at their Web site: www.aces.uiuc.edu/value/ For those without Internet access, contact:
North Dakota Cooperative Extension has some very good budgets and planning information for a variety of organic field crops online at: www.ext.nodak.edu/extpubs/ecguides.htm For those without Internet access, contact:
Blue River Hybrids is a supplier of organic row-crop seed.
Organic Grain DealersFollowing is a list of some organic grain buyers. This list is by no means complete, but should serve as a starting point in locating buyers. Ag Finder has merged into West Plains Grain (listed below). American Health & Nutrition Arrowhead Mills Ciranda, Inc. Clarkson Grain Company, Inc. Integrity Mills, Inc. Kreamer Feed, Inc. McGeary Organics, Inc. Montana Flour and Grains Pacific Soybean and Grain Profiseed-International Scoular Grain SK Food International Stonebridge Ltd. Sunrich, Inc. West Plains Grain /Specialty Grains Dept. Buyers in the Upper Midwest are listed on the Minnesota Department of Agriculture's Web site. www.mda.state.mn.us/esap/organic/orgbuyers.pdf Buyers for organic corn and soybeans are listed at the Illinois Specialty Farm Products Web site. www.aces.uiuc.edu/value More companies and cooperatives dealing in organic grains for food and feed can be found in the Organic Trade Association's Online Directory. www.ota.com For more information on finding buyers, including print directories for those without Internet access, request ATTRA's publication Organic Marketing Resources. GMO Test Kit Manufacturers Envirologix Neogen Corporation Strategic Diagnostics, Inc. GMO Testing Laboratories California Seed & Plant Lab, Inc. CII Laboratory Services Dupont Qualicon Genetic ID, Inc. Mid-West Seed Services, Inc. GeneScan USA AcknowledgementsThanks to Nancy Matheson, NCAT Technical Specialist and organic seed and grain producer and handler, and to Lynn Clarkson, Jim Traub, and Curtis Bennett of Clarkson Grain, for their review of this publication and their many helpful comments and suggestions.
By Holly Born
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