On Tuesday afternoon, rice farmers who sell to Producers Rice Mill were informed that the co-op’s 2010 pricing pool was being terminated. They were told this season’s rice would be shifted to the Stuttgart, Ark.-based mill’s seasonal pool.

Expressing “deep regret” at making the move, a letter sent to growers said the mill’s hand had been forced by “historically low milling yields and extraordinarily high peck damage of the 2010 rice crop. These unprecedented quality problems combined with the rising volatility of the Chicago rough rice futures (which reflect a significantly higher quality than the average 2010 rice crop), are the main reasons for the Board’s decision.”

For more, see  Letter

For more on the 2010 U.S. rice crop, see Heat, drought cut U.S. rice yields

On Friday morning, Keith Glover, president and CEO of Producers Rice Mill, spoke with Delta Farm Press about the situation. Among his comments:

On weather and sampling…

“It’s been well-documented that this crop has been very disappointing because of the hottest summer on record here in the Mid-South. Not only were field yields down but the milling quality of this crop is the worst we can ever remember – and we have people here that have worked in the rice business for over 50 years.

“That’s what led up to the (pool termination).

“We typically receive 75 to 80 percent of our rice within a 60-day period. Being a co-op, to try and determine a grade and milling yield to compensate our farmers, we use a 162-gram miller.”

It’s also worth noting “that when you use the small (162-gram) test miller, the milling degree isn’t as hard as what the export and domestic milled rice market dictates. Nowadays, the customers insist on what’s known as a ‘hard mill.’

“Most years, the milling yield you get on the 162-gram sample and what is realized in our rice mill, are really close. There may be a slight difference but the early numbers are very reflective of what you’ll end up with. This year, there’s a big gap because of the quality of the crop.

“This year, typically, the head rice yield (whole kernel) is turning out to be three to four pounds lower than what the little test lab came up with. The total rice number is coming up two or three pounds lower.”

On peck damage and parboiling needs…

“Another factor: this year, we’ve seen the worst peck damage caused by stink bugs that we’ve ever seen.

“Approximately a third of our rice is parboiled. The little bug bite blemishes are magnified when we parboil. Our outturns and yields are down tremendously – about 20 percent compared to our norm.

“The milling yield and grades assigned to our members’ rice were not being realized in the mill.

“Looking at the grades, the peck and parboil problems, we started worrying about our pricing pool, which is based on Chicago Board Of Trade prices. Should we price based on the inflated milling yields and grades? Well, if we can’t get that rice through the mill, we would be setting ourselves up for a tremendous financial hit.”

On using a 162-gram miller versus a 1,000-gram miller…

“When you take a sample to USDA for a milling yield analysis, a 1,000-gram miller is used. That means there’s more rice and the milling machine is much heavier. A lot of people are now waking up to the fact that there can be a big difference between a sample being run on a 162-gram miller versus a 1,000-gram miller on the poorer milling rice.

“This morning, I was at our rough rice lab, and we checked a sample we’d first run in mid-September. There’s been (six weeks) for the rice to temper. Back in September, using the 162 miller, that sample was a 52/66 (52 percent whole kernel head rice yield and 66 percent total rice). Today, re-run on a 1,000-gram miller, that sample was a 45/63.

“You can’t make that up in the mill.”

Why not use a 1,000-gram miller for all your rice?

“The problem is to process a 1,000-gram sample takes four to five times more time and effort. Realistically, if all our rice samples had to be processed on a 1,000-gram miller, we’d still be working with rice that was cut in September.”

How long has the board been thinking about making this move? When did you get alarmed enough to begin considering it?

“The rice milled in September doesn’t usually mill as well because it hasn’t had time to temper. Given time, harvested and dried-down rice tends to harden. Typically, once it’s tempered, outturns go up. 

“We were hoping that would come into play this season. But a month after harvest we weren’t seeing that. In fact, the numbers were going the other way.

“In the parboil plant we always get rice that has peck damage. But most years, once we’re out of harvest, we’re able to sample the rice by each load. If it has a high peck damage number, the load is sent to the regular mill. If it has low peck damage, it’s sent for parboil. That keeps things flowing, and no one notices there is any peck damage even though we’re dealing with it.

“This year, peck damage is so high – three to four times the norm – and so widespread that we’re unable to find enough low-peck rice to take care of parboil needs. We’ve been hit hard with peck damage.”

Are you hearing other mills are experiencing the same trends?

“I haven’t talked to other mills. But I’ve visited with merchandisers and others in the industry who have also seen the big difference between rice milled using the 162-gram miller versus the USDA’s 1,000-gram miller.

“I’ll say this: if you’ve got a mill that’s advanced, or paid, farmers based on a 162-gram miller – and they have to mill to a hard degree – you’re in for a surprise on the lower milling rice.

“Same is true for a merchandiser. If they buy rice on a 162-gram miller basis, and they have to ship it out while providing a USDA milling yield certificate, they’re in for a big surprise on the lower milling rice.”

On plans to reinstitute the pricing pool…

“Keep in mind, in 1991, we were the first rice co-op to institute a pricing pool. In 20 years, we’ve never had to do anything like this. The only reason we had to do it this time was the quality of the crop being so poor.

“We view this as a one-year phenomenon because of the condition of the crop. For 2011, we intend to re-establish the pricing pool.

“This is just an extraordinary situation and can have such a financial impact that we felt the need to address it up front rather than putting our head in the sand and wait until the end of the year.”

On the seasonal pool, where rice from the pricing pool has been placed…

“Seasonal pools are the traditional way that rice co-ops have marketed rice. Farmers would deliver their rice, the co-ops milled it and whatever was produced was sold. By the end of the year, the co-ops would settle up with the growers.

“That’s what we’re going back to. This crop is such a mystery and question mark that we’re putting it in the seasonal pool.

“At this point, it’s hard to say how things will come out as far as a price. But our track record shows that for the last 21 years we’ve beat the national average. I don’t think anyone in the industry can match our track record.”

Summing up…

“So, that’s why we took the emergency action. We looked at it every way imaginable. In the end, we had no choice and (terminating the pricing pool) was the only option.

“Farmers had nothing to do with this crop’s quality – they did everything they could considering the conditions. And millers had nothing to with it, either. The poor crop was caused by the extreme weather.”