Several dark rumors and timeline questions have followed in the wake of the Oct. 26 termination of the pricing pool at Producers’ Rice Mill.
Having placed the co-op members’ rice in a seasonal pool, the Stuttgart, Ark.-based mill’s leadership now faces a backlash of anger borne of frustration as farmers try to meet financial obligations. There is no doubt they will have a tougher time doing so now.
For more, see Farmers react to Producer Rice Mill pricing pool termination)
Late Tuesday afternoon, Delta Farm Press spoke with Gary Sebree, chairman of mill’s board. Sebree set no ground rules and answered all questions put to him. Among his comments:
Did any of the board profit from the knowledge that the pool termination was coming?
“I did know the (Oct. 26) meeting was going to take place because I’m chairman of the board. Keith (Glover, mill president and CEO) and I talked last Monday (prior to the Tuesday board meeting when the termination action was taken) about calling a meeting.
(For more with Glover, see Producers Rice Mill CEO: crop quality forces pool termination )
“To preface this, (the termination) wasn’t a knee-jerk reaction. A few weeks ago, Keith and I had been talking about the milling quality and peck damage. He was uneasy about what was happening in the mill and sent me some information on how the milling was…
“He called me on Monday (Oct. 25), wanting to know if I could come (with Jerry Hoskyn, the mill board’s vice-chairman) to the office and visit. Kent Lockwood, our chief financial officer, was also there. We got together about 2:00 on Monday afternoon and Keith laid out, more or less,” the factors outlined in the letter sent to farmer members explaining the termination. “After that, my mind was made up real quick that we needed a board meeting.”
(For full text of the letter, see letter )
On timing the meeting…
“One thing we decided was to hold it after the Chicago Board of Trade closed.
“The way our pricing pool is set up, you can only market rice while the CBOT is open for trade. The reason for that is we try to take a true hedge. A farmer can tell you, ‘I will sell,’ but until we confirm on the board that we can cover however many contracts he wants to sell, it isn’t (finalized). The sale is contingent on being able to cover it on the Chicago board.
“Keith and I also discussed how we’d get the board members to the meeting. Normally, you send out a notice saying a special meeting (has been called). We all decided the meeting would be held the next day (Tuesday) after CBOT closed. Second, he’d tell the board we had an issue to deal with that would be explained when they came.
“So, the board didn’t know what the meeting was about until they showed up. Obviously, (Hoskyn and) I knew but the rest didn’t. And in the motion (to terminate the pool), we noted that the pool was officially closed at 3:20 that afternoon.”
On the chance for profiting from early knowledge…
“There was no chance for any board member — other than myself and Jerry Hoskyn — to know in advance and take a position. I can tell you, and it can be documented, that I had all my rice in that pricing pool and hadn’t sold any of it. All of my rice has been transferred to the seasonal pool, the same as everyone else’s.
“I asked the board how many of them had rice in the pricing pool. I don’t remember if it was all of them — but a good number held their hands up. I asked how many had sold any rice and only one or two members had.
“I assure you, to my knowledge, that no board member took unfair advantage of this situation.”
Among other options considered…
“We could have set the basis so high that it would have protected the mill. I don’t think anybody would have been any happier with that than (the pool termination). As a matter of fact, I think that would have been more detrimental — now, (members) are in a (seasonal) pool that has done well in the past and there’s no reason to think it won’t this year.
On acknowledging potential financial pitfalls…
“It was a very, very tough decision for us. One of the main reasons is we know — we knew and understood — that there were farmers counting on being able to sell their rice before the first of the year. We knew that there was a possibility it would put some of them in a worse situation than what they were already in.
“I talked to lending officers at several banks trying to explain what had taken place. I encouraged them to work with (farmer members) if they were in a worse condition. I got a good response that they’d try to do that.
“But it was hard” to terminate the pool “because we knew it would put pressure on people.
“One thing, though: it isn’t like (co-op members) won’t get any more for their rice…
“There will be more (coming) for their rice. We don’t know where the (seasonal) pool will be. But … for the last 21 years, (the mill’s seasonal pool price) has beat the national average.
On the pricing pool’s history and use…
“I use the pricing pool some. Mainly, I use it to make sure the pool is functioning as it’s supposed to.
“We didn’t have a pricing pool until 1991. When I became chairman at PRM, I sent out a questionnaire to all members asking if there was anything the mill wasn’t doing they’d like to see done. The most frequent response was ‘a greater market for rice.’
“When the mill was first organized in the 1940s, everything was in a pool. That’s what the (founders) wanted.
“As the mill grew and changed in the 1970s we bought a facility in Wynne, Ark. Most of the members that came in had farm storage. So, they were used to dealing with markets (in a different way).
“Then, in the 1980s, we acquired nine Pioneer facilities. Most of those farmers had grain bins. …
“So, members wanted an opportunity to market their own rice. I thought it was important to provide that.
“It wasn’t an easy process figuring out how to set it up. One key was we had to put on a true hedge. We got liquid enough in the early 1990s to where we could do that.”
2010 “has just been an unusual year that has, technically, prevented us from putting on a true hedge. From the standpoint of borrowing, meeting our banking covenants and taking care of member business and protecting their equity, we absolutely didn’t have a choice” on the pool termination.
Sold to make room
Some wonder if y’all oversold at $4, or thereabouts, and were trying to make up for it — the pool termination was a response to that, to keep you afloat. Can you address that?
“The answer is an emphatic ‘no.’
“I talked to a farmer in Louisiana who had heard the same rumor.
“Something did happen that might have given that rumor some legs. We did sell some rough rice early to make room for the 2010 crop. We thought we’d get 70 million bushels and had no way to handle that much. We were renting storage and doing what we could.
“So, we did sell rough rice during harvest. That part of the rumor is true — but it was done to make room. And the price, at the time, wasn’t great.
“That said, it had nothing to do with the decision to close the pool.”
Some farmers claim their milling quality wasn’t bad while their neighbor’s was. There’s no reason to doubt them. They say it isn’t fair to co-mingle the poor rice with their good and both get hurt. Is there any way to prevent that?
“Each member is paid based on his crop’s quality and milling — not based on what his neighbor does. Even if the rice is co-mingled, he’s paid that way.
“The problem is, even the rice that looked good this year isn’t up to snuff. That doesn’t mean all the rice has been put in a ‘bad bin’ or it’ll all be bad.
“As for co-mingling, I’d be willing to listen if anyone can explain how to prevent that when taking in 60 million to 70 million bushels. It would take a lot of little, small bins and I’m not sure we could do that.
“Bottom-line: you’re paid based on your milling quality, what yours milled, what your grade is. You aren’t paid based on your neighbor’s crop.”
On mill benefits in a tough year…
“I want to comment on the quality of this rice. Independent buyers have a tendency to shy away from junk. Junk isn’t going to find a good market.
“But we don’t have the option of turning down rice that’s really bad. We take it all. And that’s a good thing that we do for our members. We’re going to find a home for their rice.
“In our case, we’re trying to get the most for every bit, for every farmer.”