GuideFarm Business
Selling grain into formal markets: grading, contracts and getting paid
Silos, millers, processors and commodity exchanges pay on quality and on paper. Here is how grain grading works, what buyers check, how contracts and price deductions work, and how to prepare so you get the price you expect.
Selling grain to a trader at the farm gate is quick and simple, but the price is often low and the quality is rarely rewarded. Formal markets, such as grain silos and co-operatives, large millers, animal feed makers, food processors, warehouse receipt systems and commodity exchanges, generally pay more reliably and reward good quality. In return, they grade every load, deduct for defects and expect you to meet the terms of a contract. Understanding how that works is the key to getting paid what you expect.
Formal market channels
- Silo owners and co-operatives that buy grain or store it for you.
- Millers and feed manufacturers that buy directly, often with contracts.
- Warehouse receipt systems, available in several African countries, where you deposit graded grain in a certified warehouse and receive a receipt you can sell or borrow against.
- Commodity exchanges, such as those operating in South Africa and Ethiopia, and in several other countries, where standard grades are traded.
- Contract farming and off-take agreements with processors, often including inputs on credit.
- Institutional buyers such as schools, relief agencies and national food reserves, with their own quality standards.
How grading works
Grain is sorted into grades defined by national or regional standards, and the grade determines the price. When your load arrives, a sample is taken, usually with a probe from several points, and tested. The main factors checked for maize, and similar ones for wheat, sorghum and beans, are:
| Factor | What it means |
|---|---|
| Moisture content | Too wet and grain will heat and rot in storage; buyers deduct or refuse. Limits are typically in the region of 12.5 to 14 percent for maize, depending on the standard. |
| Foreign matter | Stones, soil, stalks, cob pieces and other material that is not grain. |
| Defective kernels | Broken, insect-damaged, discoloured, shrivelled, diseased or mouldy kernels. |
| Other grain or other colour | For example yellow kernels in white maize, or other crop seeds. |
| Insects | Live insects can lead to rejection or a fumigation charge. |
| Mycotoxins | Aflatoxin and other toxins produced by moulds. Many buyers test and reject loads above strict limits, because these toxins are dangerous to people and livestock. |
| Test weight or hectolitre mass | For some grains, a measure of density that reflects how well the grain filled. |
Deductions: how the price becomes your price
The headline price is usually for a specific grade delivered to a specific place. What you receive is that price minus several deductions:
- Moisture: wet grain is paid on a reduced mass, and there may be a drying charge.
- Cleaning: a charge for removing foreign matter, plus the mass removed.
- Downgrading: a lower grade earns a lower price.
- Handling, storage, grading and admin fees.
- Transport, if the price is at the buyer's gate and you deliver.
- Levies that apply in some countries and value chains.
Compare offers on the net price at your farm, not the headline price. A higher price far away can be worth less than a lower one nearby.
Contracts
A written contract protects both sides. Before signing, make sure you understand:
- The quantity, and what happens if you deliver less because of drought or pests.
- The grade and the standard, and the price adjustments for other grades.
- The delivery period and place, and who pays for transport.
- The price: fixed now, linked to a market price later, or set by a formula.
- When and how you will be paid, and whether there is any advance.
- Any inputs or credit supplied, and how they are recovered from your payment.
- How disputes about grading are resolved; you should be able to ask for a re-test or keep a sealed sample.
Do not commit all of your expected crop on a forward contract before it is harvested. A common approach is to contract only part of the lower end of your expected production, so that a poor season does not leave you unable to deliver.
Preparing grain for a better grade
- Harvest at the right moisture, or dry grain properly before delivery.
- Keep grain off bare soil during drying; use tarpaulins or clean drying floors.
- Sort out mouldy, rotten and insect-damaged cobs or grain before shelling or delivery. This is the most effective way to reduce aflatoxin.
- Clean and sieve grain to remove stones, dust and chaff.
- Keep varieties and colours separate.
- Store in clean bags or bins, protected from insects, rodents and rain.
- Take and keep your own sample from each load.
Working together
Many formal buyers want truckloads, not a few bags. Smallholders who bulk their grain through a farmer group or co-operative can meet minimum quantities, share transport costs, negotiate better prices and get access to storage and warehouse receipts. A group also shares the effort of learning standards and contracts.
Key points
- Formal markets pay on grade; learn the standard your buyer uses.
- Moisture, foreign matter, defects and mycotoxins are the main grading factors.
- Compare offers on the net price at the farm after all deductions.
- Read contracts carefully and do not over-commit before harvest.
- Drying, sorting and cleaning pay back in grade and price.
This guide gives general information. Conditions differ from farm to farm, so confirm recommendations with your local extension officer, agronomist or veterinarian, and always follow the registered product label.