Industrial Harvest


A Field Trip to the Fields by sarah kavage

This past week, I spent a couple of days out in Indiana visiting my miller, grain broker, and the elevator that sold me the grain.  Mock me if you will, coastal snobs, but there is nothing like the midwest countryside in June.  It’s humble and breathtaking at the same time, and they’ve got some especially pretty country up there in Northeast Indiana.

First stop was Greenfield Mills, located in Howe, Indiana – about a 2 1/2 hour drive from Chicago.  For four generations, Greenfield Mills has been owned and operated by a single family, the Rinkels.  They manufacture New Rinkel flour with “green power” technology that has been around for, oh, 75 years or so – water from a mill pond and a dam on the Fawn River powers the generator.  Mills of this size used to be common – there used to be 10 mills on the Fawn River alone, and over 260 in Indiana.  Now there are only about 260 small mills in the entire country.  The Rinkels (Dave, Mary, Amanda and James) were wonderful and accomodating and let me poke around the mill and take pictures to my heart’s content, the results of which can be seen here.  My Industrial Harvest brand flour looked pretty great to my untrained eye, but it pleased me to no end when I later sat down with someone who knows about such things and she said “this is just what I hoped it would look like!”

Next stop:  Mitchel Enterprises, of Bluffton IN.  Leon arranged the purchase of the wheat.  He gently corrected me when I called him a broker – in the business, a broker is a middleman who does not touch the actual stuff.  Leon is more appropriately known as a “jobber,” a different breed of middleman (another term none of these folks like, but what seems to be a necessary element in this business) that buys and sells the actual grain and by-products of grain.   This, in commodity speak, is known as the “cash” market, although if I had to carry around enough actual cash to pay for all this stuff I would have needed a briefcase (there have been multiple instances of sticker shock on this trip, first at the Rinkels’ and then at Leon’s).  Leon and his nephew Jan buy, sell and transport grain and grain by-products – they deal a lot with waste products that accumulate during the industrial food production process.  Often these can be used as feed or bedding for animals (here’s where I am torn between a distaste for industrial meat production and a respect for resourcefulness).

And finally, at the end of a very long, hot day in the car, I made it to the elevator where the wheat I bought came from:  Lehman Feed Mill in Berne, Indiana.  Jeff Lehman, the owner, looked no less hot and worn out than I did but still took a break from his running about to talk to me about their business, and let me wander around in the 90 degree heat as long as I liked (which was not very long) to take pictures (seen here).  He and Leon both do some hedging on the Board of Trade, especially to cover large transactions, but preferred to stay in the cash market whenever possible.  Jeff told me that trading has been more volatile overnight the last few years, so he will often place trades before the close of business or on Fridays, especially during the harvest when he’s shelling out a lot of cash as farmers bring in their crops.  Jeff says he tries get farmers to focus on quality rather than yields, but that can be tough.  The higher quality grain is kept separate so that it can go to customers like me, who will pay a premium for it.  Occasionally, a larger elevator will buy Lehman’s high quality grain to blend, so that their lower quality grain will meet a deliverable standard (be prepared to read more, much more about grain quality in upcoming posts).

To sum up:  Three family businesses, two very large checks, and two straight days of talking, taking pictures and asking questions.  All of which were expected, but then there were also some surprise adventures that happened on this field trip.  During a dip in a local lake I was entertained by the arrival of three buggyloads of beer-drinking, hip hop listening Amish teenagers obviously on rumspringa. Way tanner and in better shape than the other group of redneck “English” teens at the lake, they entered the bathroom in traditional garb, and came out looking like California surfers.  The next day, before heading back to Chicago I stopped at a diner for dinner.  As I ate, the buzz began about a big storm heading out our way.  By the time I’d finished, all the other customers had run out to hole up in their basements.  The restaurant staff and I gathered about the Weather Channel and gawked; the restaurant owner closed down the kitchen early and sent most everyone home and I waited out the storm with the owner, a waitress, a busboy and three cups of coffee.  Folks were calling with weather updates, at least two of which included tornado sightings.  We were on the edge of our seats – did you know the cooler is the safest place to be in case of a tornado hitting a restaurant?

Finally, at around 11 pm it appeared to be safe to travel on, so I rode the caffeine high all the way back to Chicago.  And just when I thought I was home free, I somehow got turned around the wrong way getting on to Lake Shore Drive and got pulled over doing an illegal u-turn right in front of a cop car.  Frazzled, I explained to the cop that I’d had to wait out the storm, wasn’t really from Chicago, got kind of lost, tired, etc. etc. – and at that point, the cop says, “what’s that in your backseat? ”  (did I mention that I’d filled the trunk and backseat of the rental car with 700 pounds of wheat and flour? It’s great for gas mileage.)  Anyway, so I reply:  “It’s wheat.”
“What?”
“Wheat.”
“What for?”
“It’s kind of a research project.”  (at this point, any mention of art seemed unnecessary information).
And with that, the cop turned around and went back to his car with my drivers’ license.  After about 10 minutes of me literally and figuratively sweating it out he came back with his partner.  Partner (female):  “Can I look in your backseat?”  To which I consented:  “It’s 50 pound bags of wheat.  Do you want me to open them up?”  They poked and prodded at them for a few seconds, and then the (male) cop says in an authoritative tone “It’s wheat.”  I get a mercifully short lecture, no ticket, and am told to be careful getting home.



My Futures by sarah kavage

Well, yesterday morning I became the proud owner of a July Chicago Board of Trade wheat futures contract (the 1000-bushel “mini” contract) – so perhaps it’s time to start telling the story of how all the pieces of this project will connect. 

A futures contract is, in essence, an agreement to buy a certain quantity (in my case, 1000 bushels) of a certain grain (wheat) by a certain date in the future (July).  Buying a futures contract is one thing, but actually following it through to delivery is pretty rare – out of the millions of bushels of wheat that are traded as futures contracts on the Board of Trade, only a very few end in the exchange of actual grain.  So, futures contract delivery is a specialized and complicated transaction, and most commodities brokers don’t deal with it very often, if ever (within the commodities brokerage world, there are folks that specialize in deliveries of futures contracts).   With help from Joanna, some of her co-workers, and a contact at the Board of Trade, I found out a few months ago that to actually deliver on a mini-wheat contract (1000 bushels), I’d need to have 5 mini contracts, or 5000 bushels.  That’s not only too rich for my blood, but 1000 bushels is going to be tough enough to deal with, thanks. 

So, we (they, really I can’t take any credit for this), devised an alternate approach.  Basically, I’m going to be using my futures contract to hedge, or manage risk – exactly the same way a baker or miller would use it.  The contract I bought today will basically lock in my price – any increase in price between now and then will make me money on the futures contract, offseting the higher price for the wheat on the “cash” market.  Instead of letting the contract expire and taking delivery, I’ll settle the contract shortly before its expiration date and then, in a separate transaction, go pick up the grain at an elevator.  I’ll be getting the wheat from the only grain elevator in Chicago that is certified for CBOT deliveries, a 12.3 million bushel behemoth on the Illinois River, now owned by Nidera.

My brokers Jim and Steven at Commercial Grain, Inc. (out of Arkansas, of all places) have been great to work with and super helpful and patient explaining how our relationship works and what my hedging strategy should be.  The lower I can get “in” to the market, the better covered I’ll be in the case of price increases between now and when I pick up the grain.  I was advised that $5.00 / bushel is probably a good point to jump in (and that’s basically what I’ve budgeted for), that although prices are on the upswing they aren’t expected to swing too wildly before we close out the contract, and that I should watch the weather reports and the upcoming USDA crop report to make sure (full disclosure, for those who might be inclined to nitpick my brokers’ advice:  my notes on this conversation are not that great, so it’s my translation, not the actual advice, that would be the issue – if there is an issue.  Do I sound like a lawyer yet?). 

So there were a few quiet days in which I filled out the requisite forms and pretended to understand the significance of the daily grain market reports these guys were sending me.  Then, there was that inexplicable insane swing in the markets last week, which I missed the day it happened.  The next day when I talked to Steven he was like “What?? You don’t know??” like there had been a nuclear explosion or something, although I’d probably miss that too because I’m apparently living under a rock out on the edge of the continent here… 

Anyway, we played it cool for another day or two, and then Monday morning, just as I was reading the grain market report saying prices seemed to be headed up and up above $5 for the foreseeable future, I got the call from Steven that the trigger had been pulled – he’d jumped on it first thing in the morning while prices were still low, and I was in at $4.99 3/4!