With plans for pasta plant likely beneficiary Desert durum wheat producers in Arizona and Southern California have put on hold their plans to build a pasta-making plant. Instead, they are pooling their resources in a shipping and marketing operation they hope will lead to that pasta-making operation.
"We're kind of in a holding mode right now on the pasta plant," says Queen Creek, Ariz., durum producer Steve Sossaman, who is the cooperative board vice chairman and finance committee chairman. "If the opportunity comes around with a pasta manufacturer, we'll be ready."
However, more than 100 durum growers are signed up and ready to market their 2001 desert durum crop going into the ground now through a new facility at a siding called Webb north of Glendale, Ariz.
The Desert Durum Wheat Growers Co-op was incorporated in April and an operations plan was finalized in early October.
"In Arizona we've got to plug ourselves into the global market. We cannot stay where we are today and stay in business," says Sossaman, Some 134 grower-members signed up to market their grain through the new cooperative at the initial meetings held in six locations in Arizona and the Imperial and Palo Verde valleys of California.
The idea is simple; globally market desert durum without middlemen. Sossaman believe that is the one "sure method" of improving prices that are always marginal at best.
Initially Sossaman and the other cooperative's organizers wanted to cut out several middlemen with the pasta mill. A consultant hired to look at the situation said it was a good idea.
"We pursued that...to build a turnkey pasta plant in the Southwest," Sossaman says. Government grants were won for a feasibility study, but after looking for financing and examining potential facilities such as the former Borden plant in Tolleson, Ariz., they discovered that the pasta market was flat and local production facilities were outdated. Last year, Sossaman and co-op president Noah Hiscox of Coolidge, Ariz. lead a small contingent on a fact-finding trip to Italy and France. They were looking for pasta buyers but found something else.
"They were real interested in buying the grain," Sossaman says. "We came back with a nice perspective."
Thus was born the idea of simply selling the grain, postponing the mill idea until later. They found unused grain storage space in Arizona and located businesses that were interested in sourcing Arizona durum.
Midwestern grain buyer Coast Grain and Burlington Northern Santa Fe Railroad (BNSF) were looking for grain business in Arizona. BNSF had a railhead in Webb, north of Glendale, that could be expanded. The two companies have formed an agreement with the co-op.
Corn-wheat exchange "We will handle all our grain through this and another facility in California," Sossaman says. The companies will also construct a 15-ton corn milling plant in Webb so that trains can bring in corn for the Arizona feed market and back haul wheat grown in Arizona. "They will subsidize our transportation so we can get wheat to the rail siding facility."
Working with consultant Mike Cole of MEC Consulting of Chandler, the co-op hopes to enact "ditchbank-to-table" marketing, Sossaman says.
Another partner will be World Wide Wheat, seed breeders and sellers, which has an office in Phoenix. The company not only offered to provide co-op members exclusive use of new durum varieties, but also offered planting seed contracts for wheat seed in South America. Seed sales will become another profit center for the co-op.
"They would be exclusive varieties for our buyers," Sossaman says. The co-op has an exclusive licensing agreement with World Wide Wheat that will give members excellent desert varieties. They also will be in on the research and breeding of future varieties.
Those exclusive varieties were made available in time for fall planting this season.
Desert Durum Wheat Growers' costs to set up the Webb grain facility will be $800,000, but the railroad will rebate that to the co-op over time. The total cost of the grain handling facility to the co-op will be $6.9 million, half of which will come from members' equity in the co-op and half from outside financing.
The grain receiving and storage facilities will cost $4.7 million. Land improvement will cost $800,000. One million dollars will provide working capital and a cushion for contingencies. Financial and legal costs will run about $250,000, and seed licensing and permits will cost $150,000.
About half of the total will be raised from co-op members by selling 2.5 million equity units at $1.50 each. Sossaman says that borrowing the rest of the money will be a snap.
"If we have 50 percent equity, we can go to the bank, no problem." Sossaman says financing must be in place shortly to get the Webb plant built by May 2001.
The plant, on 160 acres of land, will consist of a rapid-load grain handling system that will empty a car in five minutes. There will be one million bushels of storage capacity. And there will be grain cleaning equipment that will clean at the speed of full load-out. A 54-car train can be turned around in 15 hours, bringing in corn and taking out wheat.
A second handling site is currently being sought in southeastern California. Construction of the Webb facility begins in December.
Sossaman says through the cooperative, producers will get better prices for their durum wheat, especially during good pasta price years. In bad years members can cut back acreage, growing just enough to pay co-op expenses.
The 134 members have already committed to 2.3 million equity units. Members account for approximately 38,000 acres of production, or over 2.5 million hundredweight of grain (an equity unit equals a hundredweight of grain)-enough to fill more than 1,000 rail cars.
"This year that was a third of the state's production," Sossaman says. The group is organized as a 521 closed co-op. Membership units guarantee the right to deliver grain, but it also carries a responsibility. "It's also an obligation to deliver."
Co-op flexibility But the co-op will be flexible, in that members can pool acres and production can be transferred between willing members. It has to be that way because of land leasing arrangements. If leased acreage is lost, equity units can be sold to other members. Members are also free to grow excess grain and sell it elsewhere.
Sossaman says the co-op pricing to members will be determined by contracts made with grain buyers. Much like the Calcot cotton marketing system, there will be an initial payment to members within 10 days of delivery, plus any premiums for quality or dryness. A small portion of the money will be kept for operating capital for "a reasonable time frame."
"Retains will be kept to a minimum, because we don't have a lot of operating expenses," says Sossaman, noting that the co-op plans to have only a marketing employee and a manager who will be Mike Cole. "The goal of this board is always to pay out so they can at least break even or make money at the time they sell that crop."
Because the members signed up for the co-op are dedicated, long-time durum wheat growers, Sossaman expects quality to be high and premiums to be attainable. He says prices are already looking good for the 2001 crop, too.
Unless entire new markets are opened by the co-op, Arizona acreage will probably not increase substantially because of the organization, Sossaman says. If new markets are opened, co-op guidelines allow for 500,000 new equity units to be sold with first choice going to members, though new members may be allowed.
Sossaman says it was discontent with existing Arizona grain buyers that led to the formation of the co-op. Many members felt that they were getting "middle prices for premium quality." He says that the natural dryness of Arizona grain alone should have allowed for a 4 to 5 percent premium, but that didn't happen. The co-op will fight for those percentages.
"Farmers didn't feel like they got a fair shake," Sossaman points out, and they had nowhere else to go. Hence, the formation of the co-op.
Sossaman says it will be easier to attract a pasta manufacturer as a partner once the handling facility is built and the first crop made.
Other co-op board members besides Hiscox and Sossaman include David Sharp of Wellton/Mohawk, secretary; Greg Wuertz of Casa Grande, treasurer; Claude Brown of La Palma, Paul Ollerton of Maricopa/Stanfield, Mark Osterkamp of Imperial Valley and Scott Riggins of Florence, Ariz.