Contracting and Grading of Malt

[wd9]

From another post it was suggested a new thread start into designing a malt contracting and grading system that would benefit farmers and ultimately the entire industry.

It is not so much that new specs or the concept of contracting is new to malt, moreso the culture of how things were and still may continue in terms of the farmer not actually being able to have a contract that actually makes it a contract.

Up to the whim of the maltster, malt can be rejected because the moon is out of alignment and be sold as feed. The concept of 'once the best is gone the best is left' or 'inventory control' governs the selection, not specs and contractability.

The challenge for the future without the CWB in barley is how to get the malt industry into the position that when a contract for malt is made, specs are held to and with firm and actual delivery dates. The CGC has confronted the CWB many times on this to no avail. It is just as frustrating for them to see what is going on.

What is needed, actual contracts with actual specs and acceptance rather than when the maltster has enough, all of a sudden your malt is not malt. This is not a contract, it's a whimpy handshake at best. Likewise, when the farmer makes a contract for malt, they had better deliver that malt or be penalized like every other commodity. If I contract 200 tonnes of canola with ADM for Jan 08, they don't care how I get it there, but if I don't, I pay.

The flipside, maybe production whimp contracts are good for the industry (maltsters anyways) and the lack of a contract or delivery is of benefit for the whole industry. Don't know.

Comments and suggestions. What is the ABC and the WBGA doing in this regard?

[parsley]

Grading?

CGC aren't the only game in town. What specs do they include?
Written report?

Do they do a good job for
(a)producers and/or
(b)buyers
Any complaints?
Cost? Anyone cheaper?

This is a new ballgame. New players welcome. Regulars must up their game or get benched.

Parsley

[furrowtickler]

Canada Malt called two days ago begging for more malt, one of my customers just sold them 2 year old feed barley, high protien - thin, and they were happier than hell just to get some. He said that they were willing to pay $3.25 in the yard even if they had to clean 50% out?
So really how important is grading?

[parsley]

Build, grade and gravel your road.

You might want to go down it on a muddy day

[rodb]

The contract will have to have teeth on both sides or it won't work.

Farmers will have to supply representative samples and keep it in good condition.

Malsters will have to assume some risk (now all down loaded on producer by the CWB)by paying storage and risk premiums for delivery of product later in the crop year and take the risk of germination going south.

These are probably some of the things that the CWB does get payed for and claims as a premium because of the monopoly.

As far as marketing,the CWB takes orders. They don't aggressively sell malt to the domestic malsters but wait for their phone calls.

[parsley]

rodb, appreciate the comments.

Is one of the things really important for farmers to view the maltsters as partners-in-making-money as opposed to being an isolated fragment?

That being said, putting together the data for what price farmers need from the maltsters in order to have profit, is crucial.

It's hard to negotiate with, "I just waaaaaaaaaaant" reasons. They must be articulated.

[AdamSmith]

WD9, I hear what you're saying and I agree that the way Malting barley is marketed will have to change drastically.

To remove barley from the cwb, just for the sake of removing it gains us nothing. There needs to be a radical change in which buyers and sellers of malt do business.

Maybe I'm just naive but the way I see it if the grain co's and the malsters don't get with program they will be out of the malt business as well. Rest assured there are companies and individuals who know how to buy malt barley from farmers, they operate in the U.S. and they will be more than happy to expand their business into Canada.

The way it works down there is the malt market will always put a premium on malt quality, the will pay the premium in order to secure the supplies. It's so much more easier for a farmer to sell feed barley, because the specs are not nearly as rigid. The market will set the premium and that premium will vary there will be times that it is higher than other times. Price premiums will buy malt.

As far as contracts, if a farmer agrees to a malt contract without a delivery date deadline, the farmer will get what he deserves. And if a company, any company thinks they can be in the malt barley business for very long if the don't change from the way it has been done in the past, that company is in for a rude awakening.

But personally, I'm not sure I would want to sell malt via a production contract. I wouldn't agree to anything with respect to malting barley until I knew what kind of sample I had.

Once I know what my weight, %plump , protein and moisture are then and only then am I in a position to negotiate. I can then shop the barley around and if someone wants malting barley and I have the samples to prove I do, then I can negotiate price and terms of delivery. This will be a lever that I've never had before with malting barley, and if the canuck industry won't deal, the Americans will for sure.

So my opinion is that it will be the cash market that matters the most and as long as it functions properly that will be the main thing.

But I will also say, that pre seeding production contracts may become more useful once we as farmers can be assured the companies who we are signing with are square and trustworthy, and that they won't downgrade just because they think they can, then the forward contracting part of the equation will develop.

My thoughts are, Get the bugs out with cash marketing and possibly some deferred delivery pricing then develop pre-seeding contracts.

The best lever farmers have when it comes to the open market is the ability to tell any buyer out there to go screw themselves, I deal with someone else.

[AdamSmith]

I kinda got beatup on Agri-ville back last fall for saying we need more commercial storage, I probably was wrong with respect to the overall system but I don't think I'm wrong with respect to malting barley. But I guess we'll wait and see if the industry can buy and store malting barley or if we're going to continue having farmers store it on farm and take all the risks.

There is nothing wrong with farmers storing grain but,it has to work in the farmers favour just as often as it works for the malsters and the grain co's.

If I can determine the risks and costs associated with storing malt barley and as long as we can negotiate a price which covers the cost and accounts for the extra risk, I'll store barley, but if I feel like I'm always on the losing end of storing malt barley, it will just keep going to the feed market.

But we need to let the free market function fisrt, and if it works properly, everything will sort itself out. And we must be prepared to give the market time to work things through. I have no doubt there will some eager, very eager to ponce on every little hiccup or price decline to say we made a mistake removing barley from the cwb, but this market will need time to mature and we should all be prepared to give it that time, but also be prepared to act accordingly if the players (malsters and grain co's) aren't adjusting as they should.

[AdamSmith]

Just to note for those interested,

Today's cash quotes for Minniapolis Cash, (on rail).

70% plump or better, 1ppm vomitoxin or less Robust (6-row) Malt Barley.

$4.20 U.S. or $4.82 Canadian

#2 Feed Barley

$3.25 U.S. or $3.73 Canadian

An 89 cent per bushel premium over feed.

If the Canadian grain industry can't figure out Malt barley, there's always our good neighbours down south who know how to buy grain.

[Braveheart]

I have delivered malt barley to a North Dakota elevator and had acceptance and payment on the spot. The grain co-op was a procurer primarily for Busch I think. They took the sample tested it for protein, aluerone color, fusarium level, and wondered the variety. They bought it on the specs the brewer asked and was paying them to select for. They know that if the specs of the purchase don't match the customer's order that penalties or rejection will result. I know that the manager of this "barley house" has the experience to blend shipments to match the order. I might have been discounted slightly for a little higher protein, but was still paid the malt price (less discount). This was still higher than feed.

I like this approach. Risk is transferred to the grain handler once in the elevator pit. Everyone in the chain knows where they stand and are accountable for their part of the chain. We have a chance now to move malt barley production to a fully commercial system which is where it should have always been. Let's get away from farmers storing grain, holding risk, while end users cherry pick and under pay.

If the CWB monopoly on barley is gone, companies in Canada will have to match the service and prices in the northern US tier or the US will take over the much of the malt barley handle.

[wd9]

AS and Braveheart, agreed. The old 'culture' of production contract without risk days may be over. Like peas, there will be risk penalties on price for a 'what will I produce contract' as opposed to a more realistic 'this is what I have produced' and now make a contract.

Storage is a good point AS and will be a large part for malt. This is being discussed with canola too as consistent supply and being paid to keep it in storage will be important to keep customers. Almost supply managementish. Storage and transportation also are huge issues, beyond the scope of this thread, but very important.

There are many instruments that can be used for contracting malt in place that are used for other commodities. I think the mentality of the business needs to come around to what is 'business as usual' for other commodities.

This is an interesting year in terms of what a huge premium could have been potentially paid for feed barley going in as malt. When demand is high, supply is low, for the farmer it is all rosy.

Most years however, maltsters will need to specify colour, protein, plump and germ, have the product tested to those specs, a contract with delivery date and price and storage premiums defined and agreed upon. This is not the way it is today. With a contract, they bought it and must take delivery if it meets the specs in the contract.

JD4ME, you grow a lot of malt, what do you figure?

Any other issues?

[parsley]

Contract prototypes that can be designer-modified to suit the participants. Is anyone working on them?