Buying bulk grain is different from buying a packaged product as the quality of the grain can impact both the price and even the quantity of the product you are buying.  For example, as the elevator wants to pay for grain, not water, the gross weight of the grain will typically be reduced by the amount of moisture in the grain.  

In addition, some facilities will deduct a standard percentage of the weight, (often referred to as ‘dockage’) as part of the cost of handling the grain. Alternatively, dockage maybe based on foreign materials in the grain sample, such as dirt or insects. 

Discounts can also be positive, as you may wish to pay premiums for grain that is of a particularly high quality, or is delivered to the elevator at a particular point in time. 

The costs (or unit deductions), are determined by the factor values.  The unit deduction might be more for particularly wet grain, or the premium maybe higher for a higher protein percentage.

Grain accounting software such as Agrosoft and AgExceed can allow you to correctly record and discount your grain, is essential not only for pricing grain, but for tracking grain quality and proper elevator bin management.  Grain merchandising contracts may use custom discount tables, which allow the elevators to discount grain according to a previously agreed upon rate schedule.   CTRM (Commodity Trade Risk Management Software) that support these features are essential for blockchain food traceability and proper grain blending, as well as feed manufacturing and feed blending.  

Probing Questions  

When sampling, you may wish to take one or many samples.  For example, with rail cars we support the ability to take a single composite sample that you apply to all cars, or take a sample for each rail car. 

Discount Types

Agrosoft and AgExceed gives grain elevators the ability to create user defined grade/discount tables that allow them to record a number of different types of discounts, including

• Percentage of Unit Discounts – reductions in the quantity of grain paid for, typically used for factors such as water or foreign materials. 
• Price Per Unit (Cents Per Unit) Discounts – A reduction per unit price, such as cents per bushel, typically taken for non-weight related quality factors such as broken kernels or heat damage.
• Percentage of Price Discounts – A reduction in the percentage of the per unit price, typically used for non weight related grading factors such as percentage of protein. 
• Basis Price Adjustments – In addition, Agrosoft also allows you to adjust the basis price for factors such as delivery location or protein percentage, using an adjustment schedule predefined on the contract.

Calculated Weights and Tiering

We allow you to setup discounts for different calculated weight basis.  The calculated weight basis is the weight that is used to compute the discount or premium.  There are three calculated weight basis values:

Gross Unloaded Weight:  The weight when the grain is unloaded.  Typically this is the weight of the truck or rail car with the grain less the weight of the truck or rail car itself.  

Gross Unloaded Weight After Dock / Shrink:  The weight after the initial unit discounts are taken for dockage, moisture, or shrink.  For example, you may take off the standard 1% dockage less the weight of any water before you even begin looking for other foreign materials.

Adjusted Net Weight:  The weight of the grain after all unit discounts are taken.  

Note that these are taken in sequence.  If the grain is 15% water, you will reduce the weight of the grain from 1000 bushels to 850 bushels.  At that point, you may take off discounts for other unit discount factors such as dirt, but the 1% discount would be on the remaining 850 bushels (8.5 bushels) rather than the original gross unloaded weight, which would have resulted in a 10-bushel deduction, thus recognizing the weight you have already reduced for moisture.

We also allow you to define user defined tiers, which enables you to take them in sequence, with up to 99 tiers.  For example, assume you had a gross unloaded weight of 1,000 bushels:

Tier 1:  10% reduction of (1000 * .10) = 100 bushels
Tier 2:   10% reduction of (1000 – 100) * .10 = 90 bushels
Tier 3:  1% reduction of 810 * .01 = 8.1 bushels

Your total adjusted net weight in this example would be (1000 – 100 – 90 – 8.1 = 801.9 bushels.  

This is a simple example, but as you can imagine the math can get quite complex.  We document the math in the system, so not only can you see the answer, you can see how the computations are done.   Math is always easier when you’re not the one doing it!

GSS Additional Discounting Features

• Ability to setup an unlimited number of table aliases.  These allow you to print different names on contracts, if the person you are doing business with uses a different name for your discount table. 
• Ability to setup an expiration date for a discount table.  The table will not be available for use on new orders after the expiration date.  
• Freezing grade/discount tables after they have been used on an order, so that monetary values will not be impacted by editing the original table.  You can “alter” the table by using our import functionality to make a clone of the table, and then deactivating the old table for new loads in favor of the new, improved grade/discount table. 
• Ability to specify which discount factors are required and which is optional.  
• Also have the ability to setup multiple discounts for a single factor.  For example, if you setup Moisture as a discount factor, you may wish to take a percentage of unit discount as well as a drying charge, based on the factor value.  In Agrosoft, we enable you take two different types of discounts when entering a single factor. 
• In AgExceed, the ability to specify delivery sheet minimums and maximums, so that grain that does not meet a certain minimum quality is not included in the discount calculations.  
• Ability to specify which discounts print on the order and which do not print.  This is useful for statistical factors which you wish to track, but which do not impact the price and should not be included on the settlement.  For example, with Canola, you may wish to track PUFA (polyunsaturated fatty acids) which wouldn’t necessarily impact the price but which is important in the canola crush process.   
• Ability to setup automatic grading, so that grades are automatically computed based on the discount factors. 
• Ability to copy factors from other discount tables
• Support for Total Defects, where numerous factors can be added together and graded as if they were a single factor.
• Ability to vary discounts by apply type.  For example, you might not charge drying if the grain is purchased, as opposed to being placed into storage.
• Ability to import one discount table to another.

In conclusion, there are many ways to discount grain, some which reduce quantity, and others that reduce price.  Still others can offer premiums for quality.  Regardless of your grade / discount method or strategy, Grossman Software Solutions has a solution for you. 

Mary Marquardt, Mike McGeever, and Kurt Triebe will be brokenhearted to leave the subzero February temperatures in Chicago to celebrate the coming of spring at the March NGFA in California. Please stop by Booth #111 for a look at our Agrosoft customer Portal, free M&Ms, and tips about how to use your computer monitor to give yourself a fabulous January tan.

What is Costing Costing You?

The answer is everything.  Agricultural accounting software that will allow you to understand the true costs of your sales is the key to developing strategies for growing your business in a profitable, sustainable way.  While this may sound easy, it’s not, particularly in the agriculture industry, which presents a unique set of challenges.  How do you develop an accurate margin when the costs of your ingredients are fluctuating or are fundamentally unknowable, sometimes even after you’ve manufactured and sold the product?

My Accounting Professor Made It Sound Easy

In principle, it sounds easy.  You purchase inventory as an asset, and when you sell it you move the cost of the asset to the cost of goods sold.  The difference between your sales price and your purchase price is your gross sales margin.  Adding in your other costs (salaries, facility costs, overhead) enables you to compute the profitability of each sale, and manage your business. 

This approach works well for products with a readily known purchase cost, such as buying and selling a rake through your farm supply division.  But grain accounting is far more complex, as you are also managing merchandising contracts, risk hedging, and terminal storage. Grain can be bought using unpriced contracts, where the final futures or basis price may not be known for weeks or even months after the purchase has occurred.  Accounting rules also allow you to revalue products that are bought and sold in commodity markets, so the corn you bought last month can (and should) be revalued in you inventory at your current market price.  Indeed, accounting for commodity inventory is much more analogous to accounting for negotiable securities like stocks, which are revalued with an unrecognized gain or loss every month.

If you are buying and selling commodities such as corn or wheat, it is valid to price them after the purchase and revalue them as market conditions change, typically at the end of a financial period.  However, the problem becomes more complex when you use the product internally to manufacture other products.  What is the value of the corn that you have purchased but which you haven’t paid for (and for which you don’t have a price) when that corn has been used to manufacture cornflakes?).  Revaluing it (and possibly recognizing a gain in the value) doesn’t seem like a viable solution, as if you are doing feed blending sucking corn out of cornflakes and putting it back on the cob is a process beyond the scope of most grain processing facilities. 

OPTION ONE:  WHAT’S MINE IS MINE

One solution is to separate the risk of fluctuating commodity pricing from the manufacturing of your product.  This can be accomplished by running the commodity procurement traders and the feed/manufacturing facilities as separate cost centers.  Unpriced (or priced) grain can be transferred from the grain elevator to the feed/manufacturing division at the current standard cost, typically derived from the current market price.  The advantage of this approach is that you segregate out the gains/losses due to good (or bad) commodity trade risk management in the grain division, without passing the gains or losses onto the feed division.  So if you managed to purchase corn at $3 a bushel, and when the corn was actually transferred to the feed manufacturing division it was worth $7 a bushel, then that gain would be recognized by the traders rather than the feed division, with the grain elevator software tracking the difference.  

Note that some companies allow the feed division to buy grain externally if they can find another price, or allow the grain division to sell their grain to a competitor if they can get a better price.  Although this might seem non-intuitive, the goal of this approach is to create market efficiencies that drive better purchase decisions. 

OPTION TWO:  MARKET  TILL YOU MAKE IT

Segregating purchasing and manufacturing works for businesses that run their purchasing and processing functions as separate divisions, however, there are times when it makes more sense to have a single bottom line.  For example, if you are running a livestock company, or a feed manufacturing company, and purchasing grain is merely an adjunct to your core business, then your goal may be to reflect all costs in your finished product as accurately as possible, rather than to create a separate cost center for grain.

We recently completed a new module that allows us to accumulate costs – including the costs for unpriced grain – into your final inventory cost, even if the product used for manufacturing is still unpriced.  This enables you to seamlessly accumulate your commodity purchase costs into the finished products costs for your feed blending or fertilizer blending.  The procedure works as follows:

1)  You run your grain purchasing system as a periodic inventory system.  You record inventory purchase costs only when the grain is priced.

2)  At the end of the period (weekly, or monthly) you bring the unpriced inventory to market.  If the inventory has been used in manufacturing, then you move that cost into your finished goods inventory or cost of goods sold.  Otherwise, you keep the cost as part of your raw materials inventory. 

3)  You would reverse out the “to market” entries, and repriced any unpriced grain at the end of the next period, until the grain is actually priced.

4)  You also have the option of folding other expenses (such as your risk hedging or other commodity risk management costs) into your market price.

CONCLUSION

Computing margins for finished products that use unpriced inventory creates a unique set of challenges.  Agrosoft agtech software allows you to transfer unpriced costs using a fixed market price or standard cost, or adjust the unknown cost until the purchase is complete and the price can be fixed.  There is no right answer, and the choice may well depend on whether you are a grain business with a feed blending division or a livestock/feed manufacturing company with a grain division.  Whatever your situation, our dedicated team of professionals is here to develop the perfect solution for you.

Mike McGeever and Mary Marquardt discovering a new way of giving while visiting the National Grain and Feed Association Country Elevator Conference. As Agrosoft provides grain elevator software, terminal software, retail ag and fertilizer software that feeds the world, Mary used the giving machine at Union Station in Kansas City to buy a nutritious meal for someone in need. Mike chose school supplies, and he used to chew on his erasers in school.

When he isn't delivering presents to good boys and girls around the world, Santa works as a software developer and business analyst at Grossman Software Solutions. Santa and his hard-working elves make sure that the world is fed by providing the ERP software companies need to run their grain elevators, feed mills, crop inputs businesses, country stores, and terminals. 

A MERRY CHRISTMAS to all!

(Note: If you want to learn more, please call us after December 25th, as Santa is quite busy until then.)

Thank you, Kansas City, for your fabulous hospitality at the National Grain & Feed Association Country Elevator Conference.  The convention was a great opportunity for us to show off new features in Agrosoft's grain accounting software, including soybean crush and canola crush, our customer grain portal, and our tracking module for grouping and computing the profitability of shipping trains, trucks, and vessels.  

When merchandising grain, it is not uncommon to set up a purchase and sale where you ship directly from the buyer to the seller without ever taking physical possession of the grain.  Sometimes called a direct order, or a back-to-back, or a scalp transaction, these transactions allow traders to earn money by facilitating the transfer of grain and by arranging the freight. 

Most systems accomplish directs by creating a separate purchase and sale transaction, and then linking them together.  This requires the same information to be stored on two sets of transactions and can lead to headaches when the data isn’t kept in synchronization.  As the old data processing  joke goes:

Parallel files, aren’t.

In Agrosoft, we avoid this problem by recording the purchase and sale as a single transaction, thus eliminating the need for dual data entry and the possibility of parallel transactions getting out of synchronization. 

This is our screen for entering director orders.  In this example, we are purchasing/selling a truck of grain.  Note that we record both the origin (shipment) of the grain, as well as the destination (receipt) of the grain on the same screen.   Since this information is recorded in one place, recording the receipt of the grain on this screen marks the transactions as received on both the purchase and sales sides.

In the example above, we only record one truck's shipment.  But the grid structure allows us to set up many loads on a single order if we dare to. 

We have separate tabs that allow you to record the sales pricing:

As well as the purchase pricing:

One key advantage of this approach is you are not setting up separate transactions with duplicate information, and when you record the shipment (or receipt) of the grain you record it in only one place.  Similarly, you can record your freight information in a single place, and not waste time rekeying the freight across two transactions.

Although the direct is a separate transaction the sale can be invoiced before the purchase is recorded as complete, or visa-versa.   So you can invoice grain even though the purchase is still unpriced.

Yet another advantage of this is inventory management.  Systems that require you to set up separate purchases and sales will typically require you to set up a dummy “direct” location, to avoid recording the physical receipt of inventory that you never have.   In Agrosoft, you can record the direct at the location responsible for establishing the direct, without ever impacting physical inventory.

Setting up a dummy “direct” location can also create costing problems.  If you have several directs being shipped & received at the same time, the costs of the inventory can become intermingled,  which distorts the margin on each individual sale.  With Agrosoft, there is no dummy location, and you can easily compare the purchase price to the sales price on every transaction. 

Conclusion

Why do transactions twice when you can do them once, correctly, without errors, and without kludges or workarounds for “hiding” the fact that you aren’t receiving physical inventory?  Agrosoft allows you to record directs as directs, once, and with the correct margins and inventory.