151 



NGTC Statement on 1993 Crop Quality Issues 

 September 28, 1993 

 Page 3 



As companies considered whether to keep their doors open, each had to decide about the 

 relative value of vomitoxin-free wheat compared to various levels of vomitoxin-contaminated 

 wheat in the absence of a final decision from FDA on permissible vomitoxin limits. Most grain 

 merchants offered significant premiums for vomitoxin-free wheat and lower or no premiums for 

 vomitoxin-contaminated wheat. 



Premiums and discounts based on quality are not a subjective exercise in the grain marketing 

 business. Positioned between producers and end-users, local grain elevators must post their bids 

 based on bids from end-users. As long as some end-user was vwlling to post a bid for 

 vomitoxin-contaminated wheat it gave a basis for the local grain elevator to post a bid to the 

 fanner. 



Some have accused the grain industry of gouging farmers who wanted to sell vomitoxin- 

 contaminated grain. In a business marked by sharp competition, such an accusation has no 

 basis in reality. North Dakota is a good example. In 1991, there were 300 firms operating at 

 over 500 locations. The largest firm has 30 locations. There were 222 single-station firms. 

 This kind of competition simply does not allow for profiteering. Wheat growers vnll sell to the 

 buyer with the smallest discount. A grain buyer with a discount over the prevailing market level 

 will not be able to buy much wheat. 



Until two weeks ago, the industry was up in the air with respect to the FDA stance on vomi- 

 toxin. Please understand that we are not being critical of the FDA, but we hope this Subcom- 

 mittee understands the critical nature of FDA decisions. While the issue was under review by 

 FDA, no purchaser knew for sure if the grain they were purchasing was going to be worth one 

 penny. When a purchaser takes a risk like that he must demand a risk premium. 



The situation has become more orderly since the new FDA guidelines were published. End-users 

 are now bener able to make decisions basis the new FDA guidelines. AGP's feed company, for 

 example, made the decision to purchase no wheat mids over 5 parts per million of vomitoxin. 

 This translates to around 1 ppm in whole wheat. Other users are making similar decisions. 



The Market and Vomitoxin 



While there have been discoimts for vomitoxin-contaminated wheat, the market is also paying 

 historically high premiums for wheat with low amounts of vomitoxin. As the attached charts 

 indicate, millin g quality wheat with 2 ppm or less of vomitoxin is conunanding an incredibly 

 high price. In fact, you have to go back more than a decade to find similar premiums. 



The flip side is that many producers do not have wheat with less than 2 ppm of vomitoxin, so 

 the current high premiums are irrelevant to them. 



Many farmers ended up with a broad array of quality problems, including low test weights, poor 

 falling numbers, damaged kernels, and scab (which is a precursor to vomitoxin and counted as 

 damage). All of these quality components help determine the actual price paid to the farmer -- 



