NEWS for North Dakotans
Agriculture Communication, North Dakota State University
7 Morrill Hall, Fargo, ND 58105-5665
September 21, 2000
George Flaskerud, Extension Crops Economist
NDSU Extension Service
What should you do with poor quality durum? Probably the worst strategy would be to sell it off the combine. Let’s call this strategy one. Instead, examine your alternatives.
Strategy two is to store the durum on the farm and take out a government loan. The durum could be held until loan maturity and delivered to the Commodity Credit Corporation (CCC). This alternative is likely to be at least as good as taking less than a dollar a bushel at harvest.
Other strategies depend primarily on the quality discounts getting smaller as the marketing year progresses. Discounts for quality are generally the most severe at harvest. The marketing system cannot handle a lot of poor quality at one time, so discounts are increased to discourage harvest delivery and to encourage farm storage.
Discounts generally decrease after harvest as the marketing system is able to assimilate the lower quality wheat. Relative to No. 1, 14 percent protein spring wheat, the discount for feed quality wheat decreased by 75 cents per bushel between September and February at Minot during this past year. In absolute terms, the price increased from $1.25 to $2.00, and then backed off to $1.90 where it remained through spring.
A third strategy takes advantage of reduced discounts. In this strategy, the government loan is taken out and then the elevator price net of discounts is monitored for a profitable opportunity to repay the loan at the posted county price and sell. Storage until at least February is likely.
A fourth strategy is to take the loan deficiency payment at harvest and store until at least February. This strategy could be the most profitable but it is also the most risky, since the net price may not increase enough to make this strategy more profitable than strategies two or three. Also, this strategy is less beneficial to cash flow than strategies two and three since the majority of the funds would not be collected until the durum is sold.
In pursuing strategies three and four, make sure that the durum of different qualities are segregated. It may be profitable for some or all of the durum to be cleaned and/or blended.
Once the durum is in the bin, check quality by getting a representative sample for each bin by using a probe. Make sure you get a sample for each bin. Some elevators will secure samples for you. Have one or more elevators grade each sample and determine falling numbers. Samples can also be sent to a licensed official agency for evaluation.
To get an idea of the value of your durum in each bin, obtain several bids on the samples from elevators. Take the grades on your durum samples to your local Farm Service Agency (FSA) for their estimate of the loan settlement value on each sample.
Keep in mind that an estimate of loan settlement value is just that, an estimate, and is based on your sample. It does not matter whether the sample was taken by you or the elevator. These estimates are not binding with the FSA, since the loan settlement value of forfeited durum is based only on the grade of the durum actually delivered.
Elevator bids based on samples are also generally not binding. Although some elevators may give you a binding bid if they sample your bins.
A schedule of CCC discount factors can be found on the Internet. The World Wide Web address is http://www.fsa.usda.gov/DAFP/psd/WhtBarOats2000PD.PDF .
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Source: George Flaskerud, (701) 231-7377
Editor: Tom Jirik, (701) 231-9629