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Corn+Soybean Digest

Beefing Up The Bottom Line

'It takes a little more care and a little more management. But when yields are good, you can improve your bottom line."

Mike Recker, Arlington, IA, is referring to value-added crop production. He's one of about 250 farmers who grow identity-preserved grains under contract for Pattison Bros., Fayette, IA.

That company, with value-added growers sprinkled across Iowa, southern Minnesota, Illinois and Wisconsin, first dipped its toe into the identity-preserved market back in 1992.

"The first year we had 2,000 acres out," says Tom McKay, who heads up Pattison's value-added crop business. "Since then, acreage has been growing by about 30% a year."

The company sees even more growth as the millennium turns. "We're even getting calls from producers in Nebraska and Ohio," McKay says. McKay, who works part time from Alexandria, MN, and Fayette, has been Pattison's value-added team leader since 1993. He helped the company jump start its producer and end-user programs, bringing buyers as far away as Japan into the loop with Upper Midwestern growers interested in beefing up their bottom lines.

Pattison's identity-preserved grain operation isn't a chicken or egg - which comes first - thing. Each year, the company obtains contracts to deliver product to end users, both domestic and international, then lines up growers to produce the grains needed to fulfill the contracts.

That approach assures specialty growers of both a market and a premium price before they plant a seed. And since contracts call for delivery from harvest through the off-season, there is no crop carryover as with commercial grain production. The old crop is gone before the new one is harvested.

"With low commodity prices, more and more growers are looking at these programs," says McKay. He points out that growers can net between $20 and $50 an acre more with a value-added program.

"The final bottom line depends on the type of crop produced, transportation costs and other factors," he says.

Recker agrees. "The return can run anywhere from zero to $50 an acre over commercial production," he reports.

Recker says that, in value-added production, just like with commercial crops, yield is the key factor. There's a yield drag with many value-added crops, but price premiums compensate for yield differences, he says.

"We know what the premium is when we sign the contract," says Recker. "We contract in acres and price in bushels. Say I contract 100 acres of waxy corn, which I did this year. They will take all the production from that 100 acres." Recker says that identity-preserved crops are priced at the same daily market quotes as their commercial counterparts, plus the premiums. "So we know where we're going at any given time."

McKay notes that value-added production is not for every producer, and says Pattison's expertise lies in three major areas:

1) Helping growers get started. 2) Creating win-win situations with producers and value-added buyers. 3) Focusing company-wide on quality and teamwork

"To get producers started, you have to have programs to offer them," McKay points out. "That comes back to the relationship on the sales side. We have a number of companies that we have developed relationships with both domestically and overseas through our commercial grain marketing."

One challenge Pattison had to meet early was handling commercial and value-added grains at the same time and keeping them separate. The company has dedicated one of its three barge-loading facilities on the Mississippi River at Clayton, IA, to value-added crops only.

"We built a special dock that handles only identity-preserved grains," McKay explains. "Our other two barge-loading facilities, plus our 50-car rail siding, are able to do business as usual in commercial grains without affecting our identity-preserved system."

Pattison's gentle-handling dock, as it's called, features a special conveyor system to gently move grain directly from the truck to the barge. "The customer gets a better product with lower foreign materials and less breakage," states McKay. "That's a win-win for everybody, and a good reflection on our producers and us with end users."

Pattison's identity-preserved product lineup includes everything from waxy corn to chemical-free soybeans.

"We do quite a bit of waxy corn, high-oil corn and some non-GMO corn," explains McKay. "On the soybean side we handle more than 10 varieties of food-grade soybeans."

The Pattison specialty team begins the contracting process with growers in November.

"We get new producers through listings and word of mouth," says McKay. "We have growers who have been with us since day one, plus our retention rate is good - 85 to 90%."

The company's regular growers get the first shot at new contracts. McKay urges new growers to go slow at first: "Get in with 20 acres. Get your feet wet."

According to Recker, switching to value-added production is not a big change. He started out six years ago with 90 acres of Vinton 81 soybeans, Japan's favorite Tofu bean.

"In six years my value added-production has progressed steadily, and now it's my entire soybean acreage - 475 acres," says Recker. He continues to grow Vinton 81 and has added a special food-grade bean that also goes to Japanese buyers.

Recker farms with his father, Carl, and between them they have 1,700 acres of corn and beans. About 60% of their acreage is in identity-preserved grains, plus they grow 650 acres of seed corn.

"The key to a good value-added program is to be quality-conscious," says McKay. "Make sure planter boxes are cleaned thoroughly. Do the same thing at harvest with the combine and grain handling wagons. Producers who do a good job come back and repeat their success. We find they do a little more every year and fine-tune as they go along."

Adds Recker: "We take a little extra care during harvest to keep seed coats clean, and try not to crack or injure the seed coat. We have to watch our combine settings closely, and sometimes we can't harvest late into the night or we'll get a stained or speckled seed coat. Also, we try to get beans harvested before they go below 12% moisture to keep them from splitting."

After harvest, distribution depends on the variety grown. Some food-grade beans go direct from the field to a waiting barge at Pattison's gentle-handling dock. Other varieties are stored in marked bins on the grower's farm, then moved after the first of the year. Besides barges, the company moves specialty grains in railcars and shipping containers.

While most of its identity-preserved grains are delivered to international markets, particularly Japan, McKay says U.S. markets will soon grow dramatically.

"Soy is hot," he states. "Every day there's more domestic interest because of the beneficial health aspects of soybeans."

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