Many Arkansas soybean farmers this week are seeing another kind of sticker shock when they send their beans to grain elevators and other buyers -- stiff penalties for beans damaged by too much moisture.
Some have seen "dockage" penalties of up to $1.45 a bushel for beans that don't meet quality specifications, a financial loss on top of lower market prices resulting from a trade war.
Rains in late September, from the remnants of Tropical Storm Gordon, delayed the harvest of soybeans planted in April. Many of those fields now have beans that have molded or sprouted, become discolored or hold too much moisture.
After soybeans are harvested and if intended for immediate sale, they are trucked to a grain elevator or other buyer where the beans are graded for quality. Damaged beans get a lower price. Dockage fees vary among grain buyers and can be levied whether the purchase is by contract or on the cash market.
Perry Galloway of Gregory, in Woodruff County, this week showed a reporter a chart showing dockage fees for 5 percent damage increasing from 22 cents a bushel on Sept. 27 to 65 cents on Oct. 2. Dockage fees for 10 percent damage on those same dates jumped from 54 cents a bushel to $1.45. Grain elevators typically impose no penalties on damage of 2 percent or less, he said.
"We know there are damaged beans," Galloway said, "but in the course of a few days, we're seeing the discount, or penalty, has nearly tripled." He said he's never seen penalties of $1.45 a bushel.
"There's always going to be damage," he said. "Five percent damage can be on the high end, and I've seen 34-cent penalties for that. It's not the end of the world, but $1.45 really hurts."
A grain buyer who asked not to be identified said Thursday that he agreed that the $1.45-a-bushel penalty was common this week but rare overall.
"That's a direct reflection of the rain and other events," he said. "There's also a smaller export program this year because of tariffs, and there were damaged beans last year. It's all just taking a toll. The market is being more selective because damaged beans are harder to get rid of." A grain elevator can't buy soybeans that can't be sold, he said.
Soybean prices have already dropped more than $2 a bushel since China levied 25 percent tariffs on American soybeans and other goods this summer. Until this year, China bought about 60 percent, or $13 billion worth, of the U.S. soybean crop. Stockpiles of soybeans continue to grow as prices drop and American farmers look for new markets.
Galloway said late September rains hit just as beans he planted in April were ready for harvest, and then the weather stayed warm. "We had all that moisture and then the heat, so the seeds did deteriorate, before we could get to them," he said.
With fields now dry, Galloway and his workers are harvesting the damaged crops. If he chooses, he can mix those beans with higher quality beans he already has in storage to meet quality standards at the grain elevators or hold the beans in storage in hopes of a better price. "A lot of farmers aren't able to do that because they don't have the storage capacity," he said.
Damage has been reported on all varieties of beans, whether conventional, Liberty Link or Xtend. "That shows Mother Nature wins again," he said.
Soybeans planted in May and later likely will be OK, if rain holds off, he said.
Galloway, as president of a relatively new group called Farm Voices, said he and other founders and members of the group have talked informally with representatives of the consumer protection division of the state attorney general's office about the dockage increases. Farm Voices, founded about 10 months ago, primarily represents row-crop producers, Galloway said.
"We're not alleging anything, we're not disputing damage, we're just questioning how discounts were tripled over a few days," he said.
Brad Doyle of Weiner, a Poinsett County farmer, seed dealer and board director* of the Arkansas Soybean Association, said moisture and warmth are a soybean's worst enemy.
"That's the down side of the early planted soybean system," Doyle said Thursday. "We've increased yields with improved genetics, and that has allowed us to plant beans earlier. But those beans are more susceptible to rainfall when it's still warm. Warm and wet is bad. Cool and wet, we can handle that a lot better."
The dockage fees are taken off a commodity's "basis," which is the difference between the price per bushel set by the Chicago Board of Trade and the price that a grain elevator or other buyer is willing to pay. Several factors go into the basis, including transportation costs, logistics, supply and demand, and inventory of stored crops. Sometime the basis works out for the positive.
The U.S. Department of Agriculture's daily report for Arkansas grain prices on Wednesday showed the basis for November soybeans at 13 grain elevators ranging from minus-42 cents a bushel at Osceola to minus-80 cents a bushel at Wynne, for an average of minus-58 cents. Soybean futures for November hit $8.58 a bushel on Thursday, about $2 less than a year ago.
Mississippi soybean farmers had the same problems last year, Doyle said. "We used to think this was regionalized, but it sounds like this is spreading up and down the South and Midwest."
Farmers might have to rethink their plans, he said. "There was a shift from [planting] later-maturing soybeans, which we used to harvest in late November," Doyle said. "We don't do that any more. Guys want to be on the deer stand or at the Thanksgiving table."
Grain elevators have a right to levy discounts on lower-quality beans, because grain elevators will see lower prices when they sell to other buyers. "An elevator can blend only so many good beans with damaged beans until they hit the threshold of selling or not selling," he said. "It's just heartbreaking that it's happening during a price-depressed year. Any additional dockage just takes more money out of farmers' pockets."
Some farmers will store damaged beans and use storage bins' fans to dry out their crops. "The farmers who'll get hurt the most are those who don't have their own storage and no way to dry them out and wait for a better price," he said.
Business on 10/12/2018
*CORRECTION: Brad Doyle of Weiner is a board director of the Arkansas Soybean Association. His position with the association was incorrectly reported in a previous version of this story.