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Getting Started with Organic Grain Markets

Getting Started with Organic Grain Markets

By Kristy Borrelli and Dave Wilson

A main difference between organic and non-organic grain markets stems from USDA National Organic Program (NOP) regulations for certification that allow products to be sold as organic. Because organic certification standards affect handling from field production through final product sales, it is important for organic producers to identify an appropriate certified market before growing any specific crop.

A good place to start is to contact a buyer who purchases certified organic grain to learn about their specific requirements and first-hand experiences. It is also a good idea to identify multiple buyers for your products. Understand that most grain buyers will differ from one another and may not purchase from farms of all sizes. Some farmers also sell directly to other farmers, restaurants, and retail stores, or in bulk to processors, like mills or malthouses. Unique niche organic markets are also available, but these are not typically publicized. Other organic grain farmers can provide helpful advice for identifying reliable buyers, handlers, brokers, or sales procedures.

When discussing options with buyers it is important to consider the following:

  • The types and quantity of grains they purchase
  • How grains are processed and final products
  • Associated quality standards for food and feed grains
  • Grain transportation expectations
  • Available options for grain drying, storage, cleaning, and quality tests
  • Requirements for contracts
  • Typical seasonal flow of supply and market demand

The intention of this article is to help you navigate these questions and make the best decisions when marketing organic grain crops.

Choosing which grains to grow

Due to very high domestic demand for livestock feed in the Northeastern U.S., corn and soybeans are the most reliable grains to produce organically because they are the easiest to sell. However, producers might want to grow other grains like wheat, barley, sunflowers, or hemp. Although the popularity and demand for some of these organic products are quite high, the immediate markets are less reliable, and farmers are strongly encouraged to identify a buyer and secure a contract before committing substantial acreage to producing any specialty crop. It is also important to have grain storage in place in case pick-up or delivery is delayed. Sometimes farmers will purposely hold grains in storage, waiting to sell them when demand or prices are high.

Regardless of which grain you grow, it is important to know if you want to target a food (human consumption) or feed (animal consumption) grade market. As you might expect, the prices for food grade grains are typically higher than they are for animal feed, however, grain quality standards are also stricter and more specific for food. Specific cultivars or varieties are often sought out in the food grade market because of the desired flavor quality or food processing objectives, so you should only produce the variety buyers want.

Organic regulations require that all certified organic crops and products are also non-GMO (Genetically Modified Organism). However, a non-GMO crop does not ensure that it is organic unless it is certified. Specialty markets do exist for non-GMO crops, but they are separate from certified organic products. Similarly, organic certification does not offer any assurance against gluten in products, because gluten is a naturally existing protein found in many grains regardless of management. If you are interested in selling non-GMO or gluten-free crops, it is important to find markets that specialize in these types of products and recognize that these labels are independent of the organic standards. Currently, the certified organic label is the only one regulated federally.

Grain quality tests

Each load of grain is tested immediately upon arrival for GMO contamination. Grain may be tested for pesticide residue and other certification standards during annual on-farm inspections . If any contamination is detected, the product will be rejected and must not be sold or labeled as organic. It may still be able to be sold to non-organic buyers, but without an organic price premium.

As mentioned earlier, grain quality standards are stricter for food than they are for feed, but similar to those for non-organic crops. Overall, food-grade grain must be cleaner and contain fewer weed seeds and other foreign particles. Other dockage factors such as underdeveloped and damaged kernels, or low test weights can also reduce overall quality. Grains like wheat and barley must also have protein and starch composition levels necessary for baking and malting, and it is important to be familiar with these quality expectations before the sale.

Grain intended for human or animal consumption must also comply with the current regulatory guidance for mycotoxins, substances produced by fungi that are highly toxic to humans and animals. The Food and Drug Administration (FDA) has issued guidance for the following mycotoxins: aflatoxin, deoxynivalenol (also known as DON or vomitoxin), and fumonisin. Mycotoxin contamination can occur in the field or when the grain is dried and stored in sub-optimal conditions. High levels of DON are common in grains grown in Pennsylvania because warm, moist summer growing conditions are ideal for the toxin-producing fungi. Organic small grains are at an even higher risk of infection since fungicides, the main way to control mycotoxigenic fungi, are prohibited in organic systems.

Advisory levels issued by the FDA vary according to the type of toxin and the final intended use. For example, food-grade levels of DON in wheat should be below 1 parts per million (ppm) for grain to be used for human consumption, while the level is 5 ppm in grain and grain by-products not exceeding 20% of the diet in swine feed.

If grain does not meet the quality standards for food, it can still be sold for feed, but it will likely be to a separate buyer and at a lower cost. Producing food-grade crops organically is often recommended for more experienced organic producers since optimal field management conditions are essential for achieving high quality.

Grain Storage and Transportation

Grain storage and transportation are critical considerations for organic grains markets. These services may not be offered by grain buyers and because they can come at a considerable cost to producers, it is important to understand your responsibilities before making a commitment of sale. Be sure to directly ask for information about these services from your buyer and make sure expectations for storage and transport are clearly outlined in writing.

Rules for storing grain are similar to those for non-organic producers with regard to environmental conditions and safety concerns . However, organic grain handlers must comply with regulations for controlling pests and diseases in storage facilities and must also prevent commingling of organic products with non-organic and prohibited substances during transportation and storage. Products and practices that can be used can be provided by an organic certifying agent.

Additionally, increasing concerns about organic fraud have required stricter methods for record-keeping associated with grain sales for which organic grain producers and buyers should both be familiar with.

Contracts with buyers

A grain marketing contract is common for organic grain sales and acts a legally binding agreement that describes the product being sold and the price that will be received for it. It is especially important to secure a contract for crops with a lower market demand than major crops, like corn and soybeans, which tend to be more liquid.

Using a contracted arrangement can offer significant security for the grain producer because the legal status of contracts necessitates a full understanding of what is being agreed to and protects both the producer and buyer from misunderstandings. Producers may consider having contracts checked by a lawyer and/or banker before signing.

It is typical to consider the following items when negotiating a contract:

  • When is ownership transferred
  • Delivery date and location
  • What the farmer is responsible for
  • What the buyer is responsible for
  • Price and quality deductions
  • Transport and storage expectations
  • Payment date
  • Number of bushels or acres
  • “Acts of God” clause
  • Compliance concerns

Value-added markets

Marketing products directly to consumers, bakers, or restaurants is a popular strategy for many organic producers but is more common for fresh products that do not need to be processed. However, that is not to say that grain producers cannot also use direct outlets to sell their products, since many do so successfully. The main markets for these products would likely be baking/milling and brewing/distilling and the product-specific quality standards mentioned above would be very important to know. In these scenarios, grain producers and suppliers usually have a direct relationship with a baker, miller, or malthouse or they own the facilities themselves, which furthers the value-added prospect of their business. Developing good communication and personal relationships often become an essential part of these direct marketing strategies. In some cases, the advertising or packaging of the final product will highlight or emphasize the farms where the products were grown and the farmers who grow them. This marketing strategy helps make the connection between the consumer and the farmer producer.

Because direct markets deal less with large quantities of homogenized products, and more with smaller-batch specialized products, quality distinction and production scale are important. Farmers should know the timing, volume, and product consistency that they can commit to and be able to capture the exact values and price points to determine fair prices for their products. Other factors such as processing, packaging, and promotion deals should be clearly identified between the buyer and producer.

Summary

Although this article attempts to break-down the various ways that farmers can sell organic grain crops, there is rarely one standard model that works for everyone. In Pennsylvania, buyers can range from large-scale corporations to neighborhood bakeries. Neighboring states also have many great examples of creative business structures. However, it is important to contact potential buyers early and develop an agreement based on mutual needs. Written contracts are always encouraged to protect both buyer and seller. Research the various market options and get familiar with their requirements early. Realistically estimate the yields that you can produce, know the quality of the grain that you can produce. Hedge and plan to keep your options open to sell to several different markets and possible crops.

Source : psu.edu