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Cleaning Up Wheat or Cleaning Out Farmers by Scott A. Yates Capital Press, June 6, 2003

New discount schedule implemented

SPOKANE -- Delivering clean wheat to local elevators won't be enough for farmers to avoid dockage discounts this year.

A new discount schedule being used by Pacific Northwest exporters will discount wheat 2 cents at 0.2 of a percent dockage. Industry observers agree it's impossible for farmers to meet that kind of a standard without cleaning, and even then it would be difficult.

Dockage discounts are a controversial part of the wheat marketing system. Exporters consider them an item to be discussed with customers and not in the press. Others, however, are not as reluctant to voice their opinion.

The last time exporters announced they were changing the dockage discount schedule was in June 2001. That time, Keith Kinzer, a grower in Genesee, Idaho, organized a meeting to learn more. Exporters didn't show up, but they did ultimately make adjustments to the discounts proposed.

Kinzer doesn't plan any kind of action this time, and he figures the more restrictive discounts will go through. "Basically this is another way for grain handlers to take another couple of cents out of the farmers pocket," he said.

Given the fact a 2-cent discount level applies on any wheat between 0.2 and 0.6, Kinzer suggested farmers may find it to their advantage to deliver wheat that's just a little dirtier than they have in the past.

"It's what the grain handlers have been doing to us - adding dockage to our good clean wheat because the specs are higher than what is required," he said.

Tim Mick, chief executive officer of the Washington Wheat Commission, agrees the discount schedule could encourage farmers to deliver dirtier wheat. The idea does not please him.

"Twelve years ago, 70 percent of the grain delivered to first handlers was over five-tenths dockage. Today, it is only 30 percent. Farmers are reacting to the call for cleaner grain. This may force a reversal in that trend. It is highly likely it will," he said.

Mick said exporters have made no bones about the discount schedule serving as a means to increase their margins to pay for the cleaners they have installed in Portland. Others, however, believe exporters are hiding behind their cleaners.

An elevator manager who asked not to be identified, said the Japanese have the tightest specs, requesting dockage at 0.3 percent. So kicking in discounts at 0.2 percent is illogical.

"The real reason for the new schedule is that no one is making money, and this is a way for exporters to increase their margins," he said, adding the cost will be passed directly through to the farmer.

Working from data he has on the Washington crop and extrapolating the numbers to the Pacific Northwest, Glen Squires, analyst at the wheat commission, came up with a preliminary cost of the new schedule to farmers. Given the fact that 83 percent of 2002's crop came in under 0.7 percent dockage (the point at which discounts were applied), he expects Northwest farmers could pay approximately $4 million more in discounts in 2003 under the new schedule.

The Washington Association of Wheat Growers is letting the wheat commission take the lead on the issue. But Roger Wesselman, president of the association, said it's a concern.

"And yet we can see the need to adapt to our buyers' needs. We just wish it could come in a different manner than as a cost to the grower," he said.

But it's really a cost to growers who do a good job of cleaning their grain, said Kevin Whitehall, manager of Central Washington Grain Growers.

His company opposes the new schedule, he said, but it hasn't made any difference. Not yet, anyway.

"It seems like there is always a part of the trade that tries to tighten the schedule, but because there is quite a bit of country opposition, it hasn't always been successful. It looks like this time the trade might be successful," he said.

Raleigh Curtis, manager of Mid Columbia Producers in Oregon, acknowledges that exporters have to cover costs, but it shouldn't be done on the backs of farmers who are doing their best for the industry.

"The reality is that every farmer who raises wheat gets to pay 2 cents a bushel - if they are doing the best job they can or if they are delivering six-tents," he said.

Curtis believes the system would work better if a schedule were implemented that discounted 0.4 a percent dockage by 4 cents a bushel.

"It would give the marketplace the opportunity to meet what (exporters) want. This way, it penalizes the marketplace and removes any opportunity from the supplier to provide what the buyer wants," he said.

Jonathan Schlueter, executive director of the Pacific Northwest Grain and feed Association, pointed out a discount schedule is not fixed in concrete, but rather remains "an elusive and moving target."

He said if growers do start to deliver dirtier wheat up to 0.6 of a percent dockage, then further changes will be necessary.

Schlueter, whose organization represents exporters and elevator companies, said he has not heard from anyone protesting the discount schedule. He believes this means the industry recognizes export demands are becoming increasingly restrictive "and that controlling or eliminating dockage from commercial grain shipments is necessary and inevitable."

Although four cleaners are cleaning grain off the Northwest now, Schlueter said the demand for cleaner wheat foreshadows construction of a cleaning capacity up-country.

"this (discount schedule) should be viewed as the latest in a continuing effort to clean the quality of U.S. grain. That function is best done in interior rather than port locations. Whoever wants to read the tea leaves, they are there to be viewed," he said.