Caught in the fallout of Producers Rice Mill’s Oct. 26 termination of its pricing pool, some farmer members of the co-op are reeling.

The mill’s move — which leadership says was prompted by “unprecedented” quality issues in the 2010 crop — has left them angry and fearful they’ll be short of money to pay off loans.

For more, see Pricing pool terminated and CEO explains milling concerns, actions.

“Let me tell you: this is a bad situation all around,” says producer Kenneth Graves, president of the Arkansas Rice Growers Association and a member of Producers. “I sympathize with farmers whose rice was affected by all the heat (during the summer) and that’s bad for the mills, too. Both sides have been hit.

“But the mill is taking care of the mill. The farmers are taking the brunt of this. Back in the day when farmers went with an LDP when rice was low, the mills made extra money by buying the low-priced rice. That (benefited) them. Now, when times are hard for the farmers, the mills are still being taken care of.”

Graves says farmers “are mad. They had to sign up acres with the co-op by the end of June. So, they committed ‘X’ number of acres.”

Largely based on those commitments, the co-op “markets a lot of the rice ahead of time and fills sales orders they need to. And if the farmers don’t bring the rice in, as promised, the co-op gets upset.”

Now, with the mill having taken members’ rice from the pricing pool and placed it in a seasonal pool, farmers “have lost control over their rice,” says Graves.

Another common complaint: even those with rice that milled well, or even decently, will also endure the expected financial hit to come.

“Depending on the variety, a lot of the rice is sampled and then co-mingled,” says Graves. “Well, if a farmer brings in bad rice and another brings in some good milling quality rice, it can all be dumped together. So, the farmers who had good milling rice can’t pull their crop from the bad. That puts the farmers with good rice in the same bad price boat — and many don’t think that’s fair.”

(For the mill's response to this, see Mill chairman explains pricing pool timeline, responds to rumors)

While there are no suggestions as to how the mill could keep from mixing loads, not everyone’s milling quality was terrible, agrees a veteran, east Arkansas rice farmer. “Everyone I’ve talked to said some of their rice didn’t mill well. But half, or more, milled okay. I even had some rice I got a milling premium on. Not all the milling was bad…

“Jerking farmers into the seasonal pool — not knowing what price you’ll get, or when — could be the straw that breaks the camel’s back in a lot of cases.”

According to the fine print of the mill’s membership documents, “they can (terminate the pool),” admits Graves. “But this is really going to hurt young farmers who have only been working fields for a year, or two. They’re trying to pay off initial loans, get in a financially solid situation and get their feet on the ground. This will hurt them badly.”

Indeed, the pool termination puts a spotlight on the financial tightrope too many vulnerable producers are perched on.

'A problem I didn't need'

One of Producers’ young farmer members (who, like other unnamed sources in the story, is reluctant to be named: “I still have to do business in this area and I don’t want to burn bridges,” says one) claims “We’re going to find a way through this. But this is a problem I didn’t need.

“It’s very, very difficult to get established in farming. Most young farmers use FSA services to borrow money. Unless your daddy left you with 2,000 acres and a bunch of money — and that isn’t the case with me and the farmers I run with — this is going to affect you.”

Working with the FSA’s guaranteed program means “you have to pay out before you start another year,” says another young farmer. “Normally, I’d never put my rice in the pool and have always sold it out — by next February I have to have it all paid out.

“My best friend had a bunch of rice at Producers. He hadn’t sold any and was holding it in the expectation that the price would rise. The (termination) nailed him.”

Recently, he says, “we were looking at $5.40 per bushel. After drying and everything else, I got (about half that). The next advance, or two, will pay me out.”

But that leaves no money for the winter. “I’ve got a family to provide for and I’m back to working this winter, trying to pay the bills.

If I could have sold my rice at $5-plus, I’d have had some extra money to live on through the winter until the next crop. I’m now in a serious crunch.”

None of the young farmer’s neighbors put their rice in the seasonal pool willingly, he says. “Maybe someone, somewhere, did. But everyone I know was holding their rice because it would take more than the first advance to pay the bills.”

Graves wonders how bankers are looking at the situation. Some growers “can’t pay out and it isn’t due to anything they did wrong. What’s the bank going to do? Roll the note again?”

Inventory loan

The first young farmer says his lender will likely suggest “an inventory loan — ‘You’ll get this much out of the pool. We’ll loan you money against that to get you even.’ But, man, you’ve still got to borrow money on something you already own. And think about all the interest you’ve got to pay back.”

He says his banker “is furious about this. He had several farmers, like me, on FSA guarantees. (2009) was horrible for a lot of farmers. He says a lot of customers have to pay out this year or they’ll be done in farming.”

The pool termination has led to scrambling for money in order to cover expected shortfalls. It even reaches to farmers involved in lawsuits against Bayer that stem from trace amounts of the company’s GM traits getting into the rice supply a few years ago. Thousands of farmer plaintiff cases are yet to be resolved.

(For more, see GM rice lawsuits)

“One of the (plaintiff) lawyers has told us he’s getting three or four calls a day from farmers wanting to know if Bayer has settled yet or if the case” had progressed, says Graves. “These farmers know they’ve got poor milling rice, aren’t going to get a good price for it and they’re looking for another source of funds.

“Next spring, unless they have deep pockets or can survive the low prices the bad-milling rice brings, farmers are going to have fewer options because of this.”

Graves predicts the next Producers meeting with co-op members “will be uncomfortable.”

A farmer who has only a few years in the profession says marketing is not something his generation shies away from. “My father and his buddies just put their rice in the (seasonal) pool and didn’t worry about marketing the crop. They left marketing up to Riceland and Producers.

“Well, my generation says, ‘Nope. We want control. We can do the marketing. We’re not going to just let you give us the average price because we can get a better price.’ And that’s the truth.”

When you sign up for a marketing pool, “you get to decide what price to take and when to take it. The grain is either in storage with the mill, or you’re storing it yourself. That’s why many farmers put up bins — so they have more control. Either way, signing up for the pool is a commitment to deliver it,” says Greg Yielding, executive director of the Arkansas Rice Growers Association. “This is no different than if a producer has agreed to deliver grain and then, later, telling the mill, ‘I found a higher price. I’m not going to honor our commitment.’

“It’s true that, overall, the state’s rice crop was poor. But that isn’t the case all over. I hear from farmers in the northern third that didn’t have the heat farmers in mid- and south Arkansas had. Some of them have good milling yields … and they’re still going to suffer because of this.”

The situation is one of “fairness” says Yielding. “Farmers know the crop was poor and understand receiving a discount. But they were under the impression all parties were contractually bound.”