Introduction

Identity-preserved (IP) grains are frequently referred to as 
specialty, high value, premium or niche market grains.  They are 
produced with a specific end use in mind -- perhaps human food, a 
specific kind of animal feed, cosmetics, pharmaceuticals or 
industrial use.

Commodity grains are those which are marketed in mass according to 
USDA grading standards. Whereas commodity corn might be produced 
and used by livestock feeder and ethanol producer alike, IP corn 
targeted for use in livestock feeds will be worth more to feeders 
than to ethanol producers.

Premium prices rather than physical appearance will provide the 
impetus to maintain specialty grain's purity and identity separate 
from commodity grains. They are not valued as commodities but as a 
bundle of qualities or basic components.  Increases in amino acid 
content or specific types of oil will impact revenue per acre -- 
perhaps as much as yield has in the past. 

Identity preserved grain production is not new in agriculture.  
Traditional identity preserved grain distinctions have been food 
vs. feed grain, or grain vs. seed production, or organic vs. non-
organic.  Because most grain is feed grain, only a small proportion
of grain production has needed to have its identity preserved.  
Only organic or food grade grain required physical separation and 
delivery to a specific location where other grain of similar 
traits was stored.  Premiums have been paid for the additional 
risk and management associated with growing identity preserved 
crops.

End user characteristics.  The objective of IP grains is the 
production and delivery of grain possessing the desired traits. 
Grains need to be segregated, or have their identity preserved, 
because of these physical or chemical characteristics. Important 
physical characteristics include size or color of seed or hilum.  
Chemical characteristics of protein, oil or sugar content may be 
the trait of major concern in many markets.  In some cases, oil 
quality (fatty acid profile, oleic vs linoleic oil) is the 
characteristic sought by end users. 

Examples of identity preserved grains.

Corn:  high oil, endosperm/food grade, white, high amylose, waxy, 
nutritionally dense (low phytase, high lysine or methionine).

Soybeans:  High oleic, high sucrose, low saturate, STS soybean, 
high protein, lipoxygenase-free varieties, natto varieties.

IP and genetically modified grains.  IP does not mean genetically 
modified.  IP grains have specific character qualities (physical 
or chemical) that are needed by certain users (food and feed 
industries, industrial and pharmaceuticals) to meet a specific 
need.  Critical grain characteristics vary depending on the 
intended end use.

Genetically modified grains have had their performance modified 
by placing genes from one seed that carries desirable traits into 
another.  The genetically modified plant may have a gene implanted 
in it that enhances either its production process (drought 
resistance, chemical or insect tolerance) or its end use 
characteristics (quantity and quality of oil, amino acids or 
enzymes, etc).  These modifications can be of benefit to either 
grain producers or grain users.  IP is concerned only with 
benefitting end users.

Overlap of IP and genetically modified occurs only to the extent 
that some IP contracts may specify that non-genetically modified 
plants be used (e.g., organic contracts) or that a genetically 
modified plant must be used because it is the only way to obtain 
the desired bundle of qualities.  But the two are not synonymous. 

Critical Concerns of Identity Preserved Production

From a whole farm approach, identity preserved grain production 
will require a thorough rethinking of the production process.  
Appropriate varieties, expected yields, altered production risk 
and other factors will be agronomically important.  From an 
economic viewpoint two factors are critical to understand:  
quality and relationship.  IP grains require a higher standard of 
quality that the producer must be able to deliver.  IP grains 
require that a relationship exist between the producer and the 
end user.  The relationship may be formalized in contract as is 
frequently the case with food grade grain production or it may be 
informal as may be the case where a farmer grows a grain for a 
neighbor who feeds hogs.

Contractual Production

Producing IP grain without a contract exposes the producer to the 
possibility of not having a premium market available for the grain 
produced.  Specialty grain grown without a contract can normally 
be sold in the commodity market but then does not reward the 
producer for additional expenses and management associated with 
production.

Contract relationships.  Contracts imply relationships.  Because 
contracts create relationships between producers, brokers and 
users, the importance of networks will increase.  Buyers are 
building a network of farmers who have proven they can deliver 
high quality, identity preserved grain.  Farmers seeking contracts 
will find that relationships open the door for opportunities.  
Longer term commitments between buyers and producers aid in 
insuring a consistent quality of necessary grain.

Producers typically grow IP grains under contract agreements with 
two types of markets.  Most common is the production for a grain 
company that has developed or identified specialty markets.  The 
elevator serves as a broker by securing a quantity of grain for 
delivery to someone needing that quantity and quality.  Other 
producers actually contract with an end user company such as a 
feed manufacturer or livestock producer.  In this case, the 
middleman broker is not used and the farmer is able to capture all 
of the benefit for the additional work of growing and marketing 
the grain.

Leasing arrangements can influence contractual production of 
specialty grains.  The contract specifications may require certain 
land management practices of which the landowner needs to be aware. 
The landowner must also agree to let harvested grain go under the 
contract, essentially limiting some marketing options.

Contract specifications.  Contract specifications are written to 
insure the quality of the grain delivered to the purchaser.  
Depending on the end use, contracts can be extensive, defining 
many of the production, harvest and storage activities, or loose, 
dealing more with pricing and only the most critical production 
practices.

Some IP grains are based on production activities.  For example, 
organic grain standards currently under consideration by the USDA 
stipulate that food labeled organic must be produced on land which 
has had no chemical inputs (whether fertilizer or pesticide) for a 
specified number of years, no genetically modified organisms 
(seeds) and no municipal waste. 

Contracts to market IP grains usually specify the planting of a 
limited number of varieties, typically available from several 
seed companies.  This list narrows the choice of seeds that the 
farmer can use but the farmer is still responsible for choosing 
the seed best suited for his growing environment and management 
abilities. Planting an inappropriate variety simply to obtain a 
contract may reduce yield sufficiently to erode all price benefits 
of IP grains.  In addition to acceptable varieties, contracts 
generally specify the delivery date and location, grading 
standards, and pricing mechanisms. IP grain contracts specify the 
number of acres to be grown and stipulate that all production from 
those acres be delivered.  Some contracts may specify what 
chemicals can be used and when they can be applied. Additional 
contract terms call for independent third party record keeping, 
field inspections and lab testing services.  Some contracts 
provide a grower certification page where the grower keeps 
extensive records of all activities performed on a field and after 
harvest.  Many contracts give the contractor the right to enter 
into and inspect the fields where specialty grains are being grown.

Higher prices (premiums) paid for IP grains are intended to 
compensate growers for the added management required and any 
reduced yield resulting from production of varieties having 
particular traits. 

Contract types.  The most stringent contract type is called a 
bailment contract.  In a bailment contract both parties agree that 
the company underwriting the contract solely owns the seed, 
growing crops, grain, tissues or molecular components and the 
harvested crop.  The farmer is granted the right to plant the 
proprietary seed to produce the grain but receives no other rights 
typically granted when buying seed.  Unused seed is returned, 
liens on the growing crop are forbidden, and all harvested grain 
must be delivered to the supplier of the seed.

The two major types of contracts written for IP grains are buyers 
call and harvest delivery.  Harvest delivery contracts specify that 
the producer is to deliver the grain at or very near to the harvest 
date.  Buyers call contracts specify that the grower is to store 
the grain for a certain period of time.  The contract specifies 
the expected delivery date but has provisions for the grower to 
hold it a longer time should the buyer not want it delivered at 
the specified time. 

Pricing and grower compensation.  Occasionally the contract will 
establish the final cost of the delivered grain but typically it 
specifies a premium schedule over market price for grain delivered.  
This leaves many of the marketing decisions to the grower.  The 
grower has the ability to sell a futures contract or purchase a 
put option on the expected production.  The premium paid by the 
contractor is in addition to any price the farmer is able to 
establish for the crop. 

Pricing mechanisms vary depending on the intended end use of the 
grain.  Some IP grains receive a set premium if they meet a 
minimum standard.  White corn and STS soybeans are such contracts.  
As long as a sufficiently pure product is provided, the premium is 
paid.  Other contracts have a sliding premium schedule.  As the 
quality of the desired end product increases so does the premium.  
High oil corn uses a sliding premium schedule where corn with more 
than 6% oil receives an increasing premium for each 0.1% increase 
in oil.  Discounts can also be applied for grain that does not 
meet all of the quality standards.

The buyers call contracts generally have a higher premium than 
harvest delivery contracts because they are more convenient to the 
buyer. The higher premium is intended to compensate the grower for 
the cost of storing the grain until the later delivery date.  If 
the grower has to store the grain beyond the contract delivery 
date, a grain storage fee is paid for each additional day of 
storage.  Many contracts specify 0.1¢ per bushel per day 
(approximately 3¢ per month) for storing grain beyond the agreed 
upon delivery date.   

Quality

Because the idea behind IP grains is to deliver a grain of a 
specified quality, the farmer must have the managerial ability to 
produce grain in a way that creates and preserves quality.  Many 
quality enhancing (from the viewpoint of the end user) production 
activities are specified in the contract; others are left to the 
discretion of the farmer.  

IP by definition preserves identity.  In addition to the grain 
qualities being preserved, the identity of the farmer producing 
the grain will also be easier to preserve.  Farmers with the 
ability to produce and deliver quality grains will have greater 
opportunities to enter into specialty grain production than those 
with previous quality problems.

Production quality. Quality control of specialty grains occurs 
continuously along the production process.  Contracts specify that 
the receipts for seed and chemicals be provided to the contractor 
to insure that the conditions of variety and chemical use were 
followed. 

Cross-pollination from nearby field crops can compromise the 
purity of the harvested specialty crop.  Methods used to maintain 
purity include growing specialty crops in fields isolated or 
upwind of prevailing winds from other fields growing the same crop, 
separating and selling as commodity grain the grain harvested from 
end rows.  Scouting before harvest, especially around the edges of 
fields, can help to identify the extent of cross pollination. 

Harvest quality.  Growers of specialty crops often receive 
specific harvest instructions in an effort to maintain the 
processing quality of the crop.  Soybeans must be harvested in 
such a way as to prevent splits and moisture/dust on the bean.  
Because soybeans contaminated with corn do not meet contract 
specifications, growers must eliminate any corn standing in the 
field before harvest.  Harvesting weedy patches separately helps 
prevent staining the seed coat. 

Waiting later in the day than normal to begin harvest (e.g., until 
the dew has burned off) may be important to maintain the 
cleanliness and glossiness of the seed.  Such waiting increases 
yield risk.  Some soybean contracts require that growers do not 
begin harvest until the soybeans are at or below 13% moisture. 

Other harvest precautions to maintain harvest purity include:

Running the combine long enough to thoroughly empty the hopper and 
legs of other varieties.  (Even after doing this some contracts 
may specify that a certain distance be harvested and sold as 
commodity grain to further insure a clean auger and bin in the 
combine.)  

Physically cleaning out the hopper and auger before beginning with 
the specialty harvest. 

Carefully cleaning trucks and storage bins.

Storage.  Two major concerns with storing specialty grains are 
maintaining the identity/purity of the grain and preserving its 
quality.  Though most IP growers are not required to have special 
storage facilities, modern facilities can aid IP grain production.

When planning the number and size of bins necessary to store 
IP grain, use the same procedure you would use to determine how to 
store entirely different crops -- such as corn and soybeans.  A 
variety of large and small bins provides flexibility.

Any link in the storage system where a significant amount of grain 
can remain after cleanout is a potential problem requiring 
attention.  Poorly designed augers, dump pits and other transfer 
points are common causes of contaminated grain.  When designing a 
grain handling system for identity preserved grain, minimize 
transfer points and install cleanout panels to allow easy access 
to "lost" grain.

Special handling equipment such as bucket elevators and conveyors 
may help minimize cross- contamination of ordinary grain with high 
value grain, but they also require proper cleanout procedures.  
Large volume augers operated at slow speed can minimize damage to 
grain.

Thoroughly cleaning bins between seasons minimizes the risk of 
quality deterioration from storage molds and insects. 
	Depending on the end use of the grain, storage may be strictly 
regulated.  When growing high oil corn, the main concern is getting 
the grain to the processor within the contract specifications of 
breaks, foreign matter, etc.  However, if growing food grade crops, 
especially soybeans, the storage requirements can be very great.

Storage requirements can include:

Use aeration.

Don't use insecticide in the storage bin.

Make sure there is no mold at the top or along the sides of the 
bin when unloading the bin. 

Vacuum off any mold prior to unloading. 

Leave any beans stuck to the wall or floor to prevent contamination 
of the good beans.  

Leave beans smelling of mold or "sour beans." 

Label the bins with the specific crop being stored and the date it 
was filled.

It is a good idea to keep a record of where the crop was grown, 
what inputs were used and where it is stored.

Delivered grain quality.  Upon delivery of the grain, visual and 
laboratory testing of the grain may be conducted to grade and 
insure the quality of the grain.  Quality standards for IP grains 
are typically defined more stringently than for commodity grains. 
Premiums will be based on the purity and quality of the grain at 
delivery. 

Commercial storage costs about 3¢ per bushel per month.  Elevators 
that store grain for that price assume all of the risk of the 
grain quality deteriorating.  Farmers with buyers call contracts 
assume the risk of the grain losing quality.  Because quality is 
the key element in identity preserved grains, the farmer needs to 
be confident that he can maintain the quality for that storage 
price. 

Potential Problems

Nutriline Soybeans reports from 70% to 93% of their 1997 soybean 
contracted acres was actually acceptable for food grade soybeans.  
Usually a grain not meeting the standards necessary for IP status 
are commingled with commodity grains and priced as such.  However, 
a situation could exist where not meeting the standards could have 
more adverse results.  For example, failing to meet contract 
specifications when producing a non-yellow soybean may limit 
markets because purchasers of commodity grade soybeans are 
generally interested in yellow color beans.

Another concern is the technology of specified hybrids.  High oil 
corn production often uses Top Cross (r) technology which can have 
pollination problems in certain situations.  Decreased yields from 
pollination can offset the premiums gained. 

[ AgEBB ] - [ Farm Management ]