Riceland's Bell talks commodity certs

One of the latter was the day he had to try to explain the 1972 Grain Embargo to reporters during his tenure as undersecretary of agriculture to Secretary Earl Butz in the Nixon administration.

Bell, president and CEO of Riceland Foods, had an easier time of it when he returned to the Auditorium last week to discuss how the Stuttgart, Ark.-based cooperative uses commodity certificates.

Legislation introduced by Sens. Charles Grassley of Iowa and Byron Dorgan of North Dakota would require that commodity certificates count toward a farmer’s limitation on marketing loan gains. Bell appeared before the federally appointed Commission on the Application of Payment Limits for Agriculture to make his case against the proposal.

He noted that Riceland received $130.8 million of marketing loan benefits from the USDA in 2002-03 that was passed directly to the 6,036 farmer-members who participated in Riceland's seasonal marketing pools. The average benefit of $21,670 per member is far below the $75,000 limit provided in the 2002 farm bill.

“Riceland purchased commodity certificates from the CCC to repay all non-recourse loans obtained for participants in the cooperative’s 2002-03 seasonal rice marketing pools,” he said. “This was done for the purpose of administrative efficiency, since use of certificates reduces recordkeeping requirements.”

The producer-owned cooperative, which was formed in 1921, has been making use of the U.S. Government’s commodity loan programs almost since the time that rice became eligible for Commodity Credit Corp. non-recourse loans in 1941.

“I view the cooperative’s ability to place commodities under loan and redeem them on behalf of its members to be fundamental to the successful operations of our system of pool marketing,” he said. “It is pool marketing that distinguishes our cooperative from most other U.S. grain marketing cooperatives, particularly those in the Corn Belt.”

Nearly 90 percent of the rice and 35 to 40 percent of the soybeans and wheat delivered to Riceland is marketed through seasonal marketing pools, Bell noted.

“Seasonal pool marketing, coupled with orderly marketing, is especially attractive to rice growers since orderly marketing offers a method of spreading price risks, as well as quality risks,” he said.

“The Chicago Board of Trade has a rough rice futures contract. However, it is limited to long grain rice, and the volume traded is small compared to the size of the national rice crop. There is not adequate liquidity in Chicago to allow Riceland to use it for hedging operations for all of its seasonal pool rice.”

Riceland was one of the first cooperatives to invest in rice mills and similar facilities to provide value-added marketing of packaged commodities for its members. In recent years, Riceland has also sought to provide more orderly marketing of those crops.

“Orderly marketing fits well with value-added marketing since products can be sold as they are processed,” said Bell. “The objective of orderly marketing is to attain a better-than-average price for pool patrons. Patrons may not receive the year’s highest price, but they never receive the year’s lowest price.”

In the case of wheat, cotton and rice, world prices are determined elsewhere because the United States does not dominate world trade in these crops. “Without the marketing loan, U.S. farmers would not be competitive in world trade,” he said. “Experiences during the past two decades have illustrated this fact.”

Riceland, along with the cotton industry and others in the rice industry, was an early advocate of the marketing loan program, which was included for cotton and rice in the Food Security Act of 1985.

The program was designed to make and keep cotton and rice competitive in world markets by permitting eligible producers to repay CCC non-recourse loans at the lesser of the loan rate or the world market price for that commodity. It has since been extended to wheat, corn and soybeans.

Commodity certificates, which first were used in the 1980s to redeem commodities from the CCC loan, have not been well understood by the public.

“There is a perception by some people that the certificate program is permitting many producers to avoid payment limits,” Bell noted. He referred Commission members to a General Accounting Office September 2001 study, which concluded that:

-- Commodity certificates did not substantially add to program payments.

-- Certificate gains were generally used to reduce the administrative burden for cooperatives rather than to avoid payment limits.

Bell said Riceland’s obtaining and redeeming non-recourse loans through cooperative pooling reduces paperwork for Farm Service Agency county offices. “Riceland uses only one county office for all of its CCC commodity operations. Operations for all states we have members in – Arkansas, Missouri, Louisiana, Mississippi and Texas – go through the county FSA office in Arkansas where our headquarters is located.”

The cooperative’s staff does much of the preparatory work for obtaining and redeeming loans. County FSA employees enter the cooperative’s data into the CCC system to record the loan. Aggregate presentations made by the cooperative replace 6,036 presentations by pool members.

“If each grower had to process loans individually, workloads and paperwork at FSA offices would increase considerably,” said Bell. “Growers benefit by having the cooperative handle loan processing on their behalf since they are not required to spend excessive time in county FSA offices.”

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