COVER STORY: Fault or fate? Sunflower farmers stunned by high-oleic contract tests
HARVEY, N.D. -- Daniel Held and Shawn McKinven have a problem, and they wonder how many others do, too. The Harvey, N.D., farmers are acquaintances and live about 12 miles apart. Both grew sub-stantial amounts of high-oleic sunflowers in 2008, ju...
HARVEY, N.D. -- Daniel Held and Shawn McKinven have a problem, and they wonder how many others do, too.
The Harvey, N.D., farmers are acquaintances and live about 12 miles apart. Both grew sub-stantial amounts of high-oleic sunflowers in 2008, just as they'd done for several years be-fore. They contracted the flowers last winter and priced in April and May at the then-whopping price of 29 to 30 cents a pound.
All seemed well until the fall, when they delivered their sunflowers.
A quick refractometer test at the elevator indicated their loads made the grade. But later, Technology Crops International Inc., the company with which they contracted, conducted a fatty acid profile test that showed the seeds had failed to meet the standard of 85 percent oleic.
That meant the delivered seed's value plummeted to the price of mid-oleic, or NuSun, flowers at the time of delivery -- about 15 cents a pound.
Some of the samples were retested, but most came out the same way.
That's just the way the contract reads, TCI officials say. If the crop quality didn't perform for a few growers, they say those growers perhaps should check with their seed companies. Most of this year's crop didn't have a quality issue.
Now Held and McKinven -- with five- and six-figure shortages from the tens of thousands of dollars they could have expected under the contract -- are pondering legal action.
Three generations each
Held and McKinven are both third-generation farmers.
McKinven, who stopped just short of an aeronautics studies degree at the University of North Dakota, returned home in 1994 to farm with his father, Richard, who retired two years ago.
Dan Held is a part-time farmer. He and his older brother, Jerome, farm together. Dan graduated from high school in 1976 and helped on the farm. In 1978, he took a full-time local job with the North Dakota Department of Transportation running equipment in the winter, patching roads in the summer. Later, he became a supervisor.
In the 1980s, Dan started acquiring some land of hs own. Together, the Held brothers farm some 3,500 acres. They raise sunflower (oils and confections), corn, barley, wheat, canola, some winter wheat and some durum wheat.
"We've raised sunflowers since the 1980s -- pretty much every year," Dan Held says. "Oil-seeds, birdfood. Confections."
Held has raised high-oleics for different companies.
About five years ago, he started with TCI and stuck with them.
"I was always treated well by them until this," he says. "That's why I stayed with them, 'cause I've had no trouble with them."
Held typically grows 200 to 400 acres of high-oleics. In 2008, he had 225 acres on his own and another 180 acres with his brother -- the most he's ever grown.
He says he's worked to follow the rules of the contracts. He has to keep high-oleics sepa-rated by a quarter-mile from other fields.
"You're supposed to keep them pure, not supposed to mix them up. When you harvest, you finish one field and you don't jump back and forth. Some years, I store them until June to get an extra storage incentive. Some people keep them over the winter," he says.
According to the contract, TCI pays a base price, and then the farmer has until the follow-ing December to set their pricing. TCI pays on up to 2,000 pounds of production per acre and then has a first right of first refusal on anything more than that.
Last year's deal was a $2 per hundredweight premium over the Archer Daniels Midland plant's NuSun price in Enderlin, N.D., on the date the farmer priced it. Both Held and McKinven signed contracts in the winter and priced them in the spring. The seed contracts are based on 40 percent oil content, so a 43 percent oil crop offer a two-for-one premium. A 43 percent crop would offer a 6 percent oil premium.
Held's 2008 flowers were planted about May 21 and harvested about the last week in Octo-ber.
"We finished up before Election Day -- got 'em all out," he says. "We had really good yields on some of it," he says. "We had two or three fields that went 1,800 pounds per acre, with nearly 43 percent oil. Some weighed 33 or 32 pounds. Some years you don't get 30 pounds, so they were good flowers."
He'd raised Pioneer 64H41 seeds, a high-oleic variety, and some Seeds 2000 varieties.
"I've been raising the Pioneer for five years with them -- good disease tolerance, weighs good, good oil," he says.
But this year, there were problems.
Tests and more tests
About two weeks before harvest, McKinven remembers receiving a letter from TCI, reiter-ating the terms of the contract, that they'd need 85 percent oleic to make the grade.
"My dad, as soon as he read that, said he thought TCI was trying to get out of the contract," McKinven says. "So I called TCI in North Carolina and told them I was concerned they were going to try to get out of the contract.
"They said as long as I grew one of the varieties they told me to -- and I didn't commingle the varieties -- I should bring it in. I would make it," McKinven says. "They told us that they figured with the price being higher, some people might try to mix in" sunflowers that were not high-oleic.
Feeling reassured, McKinven spent Nov. 1 to 20 delivering flowers to an elevator in Pin-gree,?N.D. -- 35 loads. The elevator stores seeds for TCI, and they're later hauled to Ender-lin, to be processed on a toll arrangement.
About two days after his last load was hauled in, McKinven got the bad news that his loads weren't making the grade. His loads came in at an average of 83.5 percent oleic.
Similarly for Held, the Pingree elevator ran a quick refractometer test and scored his sun-flowers at high-oleic.
The TCI contract calls this a "preliminary non-binding analysis" at the time of delivery. A "final, independent laboratory analysis will be made, which may take 90 days from date of delivery," the contract says. Final payment is based on that, not the preliminary test at time of delivery.
Held unloaded his sunflowers and they were binned according to moisture.
"Nothing was said about a fatty acid test," Held recalls.
Samples were taken to Fargo, N.D., to determine the dockage and then sent to BioDiagnos-tics Inc. in River Falls, Wis., to conduct a fatty acid profile test. The test is called FAME (fatty acid methyl ester). It provides a fatty acid profile, kind of like a fingerprint. The fatty acids are extracted from harvested cells and analyzed using automated gas liquid chroma-tography.
"All the other years, we were told that they sampled one out of 15 loads," Held says. "This year, they decided to sample every load."
Held delivered nine semi-loads in all. One of them came in at 84.9 percent oleic, and the rest were lower -- 81 percent, 83.5 percent or 84 percent, Held says.
"We did retest, and two of them made it, but seven didn't," Held says.
In the first week in January, Held told TCI he would not be delivering the other five loads that he had under contract.
"I have five semi-loads in my bin that are supposed to go in, but I've told them they're not getting them until they get this settled.
"If they ain't worth anything, I might as well leave them on the farm. I'm not going to spend over $1 per hundredweight in freight to have them turn around and give me 12 cents a pound."
Specialty crop specialist
Darrell Hanscomb, TCI production director from Winston Salem, N.C., is an agronomist by training. He has been in the ag industry for 24 years and has been with TCI for a year and a half. He has been in his current post since Nov. 1.
TCI is a specialist in contracting specialty crops. The company is privately owned. It spe-cializes in identity-preserved crops, growing, processing and supplying specialty oilseed products from 12 crops. The company has 3,500 growers worldwide, Hanscomb says.
"A large percentage of our production is contracted in the U.S. and high-oleic sunflower are a significant portion of our business," he says. "North Dakota is very important for sev-eral of our crops, but high-oleic crops are the most prevalent in North Dakota."
High-oleic sunflower oil has premium markets for various cooking applications, including nondairy creamers and high-end cooking oils.
TCI has several hundred growers in North Dakota.
"This is strictly a quality issue," Hanscomb says of the dispute over high-oleic content. "We're keeping with the conditions of our contracts. Each grower signed a contact and knew the terms of the contract when they signed it.
"All those being delivered have been tested and only a small fraction of the loads deliv-ered have experienced quality issues. It is very unfortunate that a couple of specific growers feel grieved, bearing in mind that some of their delivered product was out of spec." He says no grower experienced all of their loads suffering deductions.
He declines to discuss the frequency of testing this year vs. previous years, but every load was tested this year, partly because of the decline in prices toward harvest -- "and to main-tain our quality."
Most high-oleic seed producers typically have concentrations in the 87 percent to 90 per-cent range, exceeding the 85 percent standard, he says.
"TCI has done everything possible to assist growers affected, including that all samples were tested and were certified by a third party, independent laboratory. We have retested all the samples affected, giving the grower the benefit of the higher result. We have even lowered our quality specifications from 85 percent oleic to 84.5 percent oleic for this year," he says.
Hanscomb says he's working with all affected growers to conduct a "full agronomic audit" in an attempt to "learn why this happened."
"We have recommended the grower contact his seed dealer, and we have notified all seed companies involved," he says.
Seed companies are aware of how their particular varieties have performed, and none have offered any explanation.
The audit will be informational only for future years, he says.
"Out of all of our growers only a very small percent have experienced quality issues with some of their loads being delivered. And it appears the quality issue pertains to how the crop was grown, the variety grown, or the segregation of the crop during the growing season or after harvest," he says.
Hanscomb says the company is confident its identity-preserved program, called "Crop As-sured 365," is "a value-added asset, which meets the needs of our customers." He says "growers in general" were very pleased with the 2008 harvest and the price they received.
"By maintaining a strong quality program, it has allowed us to launch a very attractive set of high-oleic contracts for 2009," he says.
He says if TCI doesn't manage its product, customers will look elsewhere for their seeds -- possibly South America.
A $180,000 difference
McKinven had his loads retested, and three out of 35 were recalculated to make the grade. Figuring he's short more than $180,000,
McKinven called the Bismarck, N.D., law firm of Sarah Vogel, a former North Dakota agri-culture commissioner. Derrick Braaten, in the firm, is studying the size and scope of the issue. He's spoken on the matter with farmers from North Dakota, South Dakota and Minne-sota.
The day after Held's tests came back, TCI promptly sent a payment check out to him. He didn't cash it. With legal help from Braaten, he's working on a letter that would state that he is cashing a check as partial payment, pending further investigation.
"The difference is about $7,000 per semi-load," Held says, noting that amounts to $35,000 for the five loads that were rejected and purchased at the lower level.
He's inquired about getting his seeds back, but that's out of the question. The seeds are commingled. TCI acknowledges that 25 to 30 loads go into a single bin, regardless of the acid levels that are determined later.
"I asked, 'How are you guys distinguishing the difference? You're paying 30 cents a pound for one and 15 for another, and they're in the same bin. When you crush them they're all in the same bin,'" he says. "They said, 'We're going to use them for what we intended to use them for.'"
Held had samples drawn and sent to the Wisconsin lab and also to SGS Mid-West Seed Service of Brookings, S.D. The SGS tests appeared higher than the TCI results.
Held says seed companies represent their seed as high-oleic, but don't guarantee a par-ticular content.
He says the whole thing blind-sided him.
"Always in the fall, in November, I've hauled sunflowers in and never gotten deducted in five years in dealing with them -- never," he says. "Either they've always tested right or they've never tested them. I'm thinking they've never tested them."
As for the future, he wonders if the change should include more gradual penalties for lev-els just below the 85 percent standard, he says.
"It shouldn't be all or nothing," he says.
For his part, McKinven says the 2008 TCI contract is "going to hurt." He may need more bridge financing than he'd planned for 2009 farming, until the problem is solved.
"It's money I thought I was going to have," he says.
Held says one TCI source told him that more than 50 farmers involved in the case had dis-putes. Hanscomb declines to confirm that number, but says only the number is "small."
Hanscomb was on hand Jan. 28 to talk with farmers at the KMOT Ag Expo in Minot. TCI announced 2009 contract specifications in meetings Jan. 26 and 27 in Minot and Jamestown, N.D. About 120 attended.
In 2009, the TCI contracts will have the same quality specifications as last year, he says. This year, the contract will be based on the current NuSun bid, plus a $3 per hundredweight premium. Another contract option contract allows the grower to base up to 25 percent of the crop on the Chicago Board of Trade soybean futures. The rest is based on NuSun, plus the $2 premium. Unlike last year, the 2009 contracts are limited to Mycogen varieties.