Pool ensures supply when producers can’t meet contract specs

The author is an NDSU information specialist and freelance writer.

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Prairie Grains is the
official publication of
the Minnesota
Association of
Wheat Growers,
North Dakota Grain
Growers Association,
South Dakota Wheat,
Inc., and the
Minnesota Barley
Growers Association.

Of course, Mother Nature signs nothing, so shareholders in processing co-ops need an option during those years when their actual production can’t match their contractual obligation.

"When we were forming, we did research on other co-ops that require delivery from farmers, and from that research we found out very quickly that if a member doesn’t have the quality or experiences a crop failure, he has to have another means of fulfilling his delivery obligation, and the only way you can do that is through a pool," says Tim Dodd, general manager of Dakota Growers Pasta Company in Carrington, ND.

Here’s how the pool works for Dakota Growers: The co-op procures grain on behalf of all its shareholders, who are assessed a "pool fee" during each marketing period. The fee is a fixed per-bushel amount.

Dakota Growers will buy durum meeting its quality requirements from any farmer-owned ND elevator. Shareholders whose durum can’t meet the quality specifications demanded by Dakota Growers typically sell their grain to one of those elevators and then use the pool.

Shareholders who have durum that meets the quality specifications demanded by Dakota Growers can enter into a pool contract with the co-op, and deliver to a pool elevator or directly to the plant. These members then have their respective pool fee reduced on a bushel-for-bushel basis.

If they deliver here, then we’re actually buying grain from them, for them," says Bonnie Abaurrea, durum coordinator for Dakota Growers. She adds that grower deliveries for specific days are scheduled on a first-come, first-served basis. Like an elevator, Dakota Growers posts daily the price it will pay for durum delivered to its plant.

How ProGold handles delivery

Here’s a more complex example of how a pool can work. This one involves ProGold L.L.C., the corn milling facility located in Wahpeton, ND. ProGold is operated as a limited liability company, under a joint venture agreement among American Crystal Sugar Company,

Moorhead, MN, Minn-Dak Farmers Cooperative, Wahpeton and Golden Growers, Fargo, ND. American Crystal and Minn-Dak are farmer-owned sugarbeet processing companies and Golden Growers is a co-op comprised of corn producers.

"From Golden Growers perspective, all members have an obligation to deliver corn to the ProGold plant, but on the advice of our attorneys, Golden Growers will not operate a pool," says Mark Dillon, Golden Growers executive vice president.

Instead, the pool is managed by ProGold Grain, an American Crystal subsidiary. ProGold Grain acts as an agent for Golden Growers to coordinate its members’ quarterly corn deliveries, explains Mike Hardy, ProGold Grain’s procurement manager.

Each quarter, ProGold Grain sends out notifications to Golden Grower’s members informing them of how many bushels they are expected to deliver. Also included in the notices are the delivery dates and the estimated quarterly price, which

is identical for every Golden Growers shareholder. Because the quarterly price is a forecast, Golden Growers authorizes an initial payment upon delivery which is only a percentage of that forecast.

Thus, Hardy says the quarterly notifications tell growers how much to deliver and when, along with what their estimated total quarterly payment may be and how much their initial payment is.

"On that same form we ask, ‘How do you intend to fulfill your obligation? Do you want to fulfill it by hauling directly to the plant.? Or, do you want to access the pool that ProGold Grain operates?’ For those who check the pool box, we’ve also enclosed another contract called the ‘corn pool agreement,’" says Hardy.

He stresses that the corn pool agreement is between only ProGold Grain and an individual producer and does not involve Golden Growers. Besides stipulating the number of bushels to procure and the delivery date to the ProGold plant, the contract also shows the due date, which is when the producer must pay ProGold Grain for the corn it buys on the grower’s behalf. The due date precedes the delivery date by 10 days, ensuring that producers have taken ownership of the corn before ProGold Grain makes delivery to the plant.

Respective amounts of the corn that ProGold Grain delivers are credited to pool-using producers on their delivery dates. Hardy says, "From Golden Grower’s standpoint, they now have contracts that have been delivered against, and the co-op will then pay those members their initial payments."

The net cost to producers for operating the pool varies by quarter and is based solely on the expenses incurred by ProGold Grain for procuring corn. Hardy estimates that net costs will fluctuate from 3 to 6 cents per bushel.

As part of its role in managing the pool, ProGold Grain has rented an elevator in Wyndmere, ND, and operates it as a public warehouse. It also leases storage space in Fairmount, ND, which serves as a receiving site for the Wyndmere warehouse. In addition, ProGold Grain has leased storage space in Minnesota, at Breckenridge and Brushvale. Deliveries made to those facilities are based on cash contracts with ProGold Grain.

In explaining why ProGold Grain is a subsidiary of American Crystal, Hardy says, "Crystal needs to go out and buy 46 percent of all the corn that goes into the plant. Minn-Dak needs to buy 5 percent of all the corn, and the members of Golden Growers wanted the option of accessing the pool. So, instead of having three entities out there all competing against each other, the thinking was to have a single, unified organization procuring on behalf of all parties needing to purchase corn in the marketplace. As ProGold Grain, we really try to separate ourselves from Crystal and act as an independent third party."

January 1997