Equal Verse Equitable
Oct 18, 2017
By Devin Schierling, TMA Sales and Marketing Manager
It is the responsibility of the country elevator system to provide a fair price for the quality of grain delivered to that location. Fair is a matter of perception in almost all situations. I like to view fair from an equal versus equitable standpoint when looking at our business. Two events which really trigger conversations about equal versus equitable are differential grain pricing and grain discounts.
Differential grain pricing is a function TMA uses to determine the cash value of grain at different locations. The value is determined by the futures price and subtracting freight and margin to the best market for that location. Other factors affecting price in an area can be quality and competition. Ultimately, the process is to give each producer who sells grain at that location an equitable value for the grain they are selling. Many companies across our state have multiple locations and provide the same grain price for producers from all sites. Paying the same price at all locations and basing the price paid off an average is very equal to all producers receiving payment. Under this system, producers who deliver to a location closer to the ultimate market are subsidizing those producers who deliver to a location further away. Neither method is right or wrong. TMA has decided on equitable versus equal.
A hot topic of discussion this harvest season has been Aflatoxin. Although we often talk specifically about one specific issue, the real discussion is about the grain grading and discounting procedures at our elevators. When grain is delivered to our elevators, the grain is inspected for quality concerns and discounted similarly to how our buyers are discounting TMA. A common misconception is through blending or selling to the right market that these discounts can be avoided and they should not be charged. It is true; blending allows an elevator the opportunity to minimize discounts. We need to keep in mind blending comes at an expense versus producers who deliver grain without discounts. Same can be said for grain which is sold to a particular market to avoid a discount factor as this may not be the market the location is bidding from. The discount is necessary to make up for the lower price at the market TMA is forced to sell to. Discounts make the purchasing of grain equitable to all producers. A pricing structure of equal verse equitable would encourage the delivery of poorer quality grain or penalize those who haul grain meeting specifications of the highest quality.