Distillery Practice—Grain Purchasing

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A very unique mimeographed manuscript crossed my desk that was penned by a Seagram employee, likely in the late 1930’s or early 1940’s, but before the famous 1943 Seagram text called “Fundamentals of Distillery Practice” written by Herman F. Willkie and Joseph A. Prochaska. I’m not aware of any informally published manuscript like this having been found by the distilling field. It came to me from an individual who wanted to contribute to the education of the new generation of distillers.

The manuscript is a bit scattershot and not exactly in any kind of order and contains a ton of information from the era not seen in the 1943 text. This was likely intended as an internal training document. These were the kinds of jobs where once you were in, you were in for life so they took education seriously.

Grain purchasing is possibly the most interesting section of the text so far. We see unique insights into the thought process of what grains were used which are extremely relevant today as new American distillers challenge received wisdom and pursue terroir as an objective. We need to consider that present day affluence gives us more leeway to operate these days. Today, even bottom shelf products exist as straight whiskies while in those days aged straight whiskies would probably only be expensive fine spirits and commodity stuff would always be an econo-blend. Consumers today probably are drinking half as much and twice as well and that changes what you can do as far as grain selection and the frequent practice of abandoning spent grains instead of producing a valuable byproduct (small new American producers).

Origin is mentioned frequently, but it is going to be a little different than you think. I had learned it that the old practical distillers of this era simply purchased the cheapest grain on the market while the more scientific distillers like Seagram simply bought on price relative to starch content; end of story. Everything presented here seems to be a little bit more complicated with freight routes being important to decision making (and thus ultimately final costs). The source of incoming grain is dependent on the destination of byproduct spent grains to keep everything viable. The author describes a situation where they cannot deal locally because of the nature of efficient freight and size of the operation. We think of grains too often simply as abstract commodities that can be shipped anywhere with near equal expense, but that isn’t so for such large freight masses. It becomes very expensive to have empty cars riding around as local traffic.

Another important Seagram text on grain for the distiller is:

Robert T. Willkie and Rolland S. Mather. Distillers grain manual, Louisville, Ky. : Joseph E Seagram, 1942.

Grain Purchasing

The purchase of grain for a distillery involves more selective buying than the purchase of grain for most industrial uses. The procurement division should be guided not only by the grades promulgated by the United States Department of Agriculture but should also be concerned with price, origin, starch content, and bacterial count.

In the case of malt there are no United States grades, but it is essential to take into consideration all the factors ordinarily used by the United States Department of Agriculture in determining grades, the items mentioned above, and, in addition, the size and growth of the grain, Lintner value, and moisture content.

The purchasing division should look forward not only to the yield and quality of whiskey and spirits to be produce, but also to the dried grain that will result. That is, quality should come first, yield next, and finally the quality and yield of the dried grain should be considered. When we say dried grain, we do not mean to exclude the byproducts produced by some distillers, such as syrup, feeds, and grain oil. It therefore becomes a problem for the purchasing division to keep in mind the relationship between all of these products. Origin in particular is an important factor on transit earnings when dried grain is being shipped by rail.

As far as the production division of a distillery is concerned, the whiskey is a liability; that is, it appears on the cost statement as a debit, or so many cents per proof gallon; and no matter how efficient a distillery may be or what yields they obtains there is always a debit remaining until the sales division has disposed of it.  However, dried grain and the products that may be diverted from stillage are a production asset. At the time of writing, dried grains are worth in bulk at the distillery approximately one cent a pound, with fifty cent corn. This reduces the cost of corn by one third, if the receipts are credited to the cost of distillery operations. The price received for dried grain ordinarily depends upon protein and fat content, and the net receipts depend upon transit earnings. Therefore, everything else being equal, it is important to obtain grain with the protein and fat content that will enable the operator of the dried grain department to meet guarantees ordinarily requested of 28% protein and 8% fat.

[I wonder if this end product requirement has been factored into present day new grain choices.]

A. Price

The price of whiskey depends upon the cost of grain, conversion and capital costs, and the credit obtained for the byproduct. The cost of grain depends upon market conditions; that is, corn in particular is always based on the Chicago market. However, the Chicago market itself is based upon contract, grades, and the price at the distillery. This price may vary somewhat depending upon the premium or overage, commonly called the deliveries. Normally, it should be the current market plus the freight rate, plus elevator charges and quality differentials. Actual deliveries very considerably within a range of a few cents depending upon cash receipts and qualities within the grade. A skilled buyer can always make considerable savings by selecting that which is most suitable for distillery purposes.

There is considerable disagreement between different distillers as to whether a distiller should hedge requirements by buying futures when the grain is right, or by buying cash as needed. As far as the cost of operation is concerned, there is little difference. Those who buy futures must of course pay for the commission and those who do not buy futures must pay the commission indirectly as all grain dealers, if not given options, cover themselves against future deliveries by buying futures.

The arguments in favor of buying futures are that if you know what your corn is going to cost you for some period ahead you can determine your mashing schedule with a greater degree of certainty and can forecast your cost into the future. Therefore, if a distiller determines that sixty cents is a good price for corn, they can cover against requirements with operation on that basis. On the other hand, if they are not covered when corn goes out of proportion to any reasonable cost figure that they can use, they may have their mashing schedule arrested at an inopportune time. The disadvantages of buying futures are that undue emphasis is placed on profits and loss, which are not a part of the distilling industry; And you can not in truth hedge as does the flour miller because whiskey is not sold against futures, but only produced.

If the distillery buys futures, the options are purchased by various brokers through the Chicago Board of Trade and the accounts are carried on a margin which varies from three to ten cents a bushel. They all should be against months at which they best can be used. When the time comes to buy mashing grain, futures are turned over to the cash grain company as part of the purchase price. This transaction is as follows:

The purchasing division makes an arrangement from a mashing gran bill to purchase a specific number of bushels of grain, corn or rye, at a base over the price of the option. The price varies with the amount of corn or rye available in terminal and country elevators as well as the surplus on farms. It has been as high as thirty five cents and as low as three cents. However, the usual base varies within three or four cents for corn.

Due to quality, all rye must be bought on samples. Premiums for distillers’ rye are generally ten to fifteen cents above the freight differential between the distillery and Chicago. Malt is not traded in the exchange. It is customary to buy malt from producers over a long period of time; that is, in October or November many distillers cover for their malt requirement for the ensuing year. It is sometimes possible to obtain certain concessions as to freight deliveries, etc. but for the most part malt prices are firm and price competition is meager if not non-existant.

B. Origin

Origin is of importance in that crops in certain territories do have the characteristics desired more than grain from other districts. However, if the qualities can be obtained from another district the origin in itself has no basis, especially when it is taken into consideration that by passing through elevators grain from various sections quite often is mixed. It is the freight consideration which makes geographical location important.

When grain and certain other commodities are shipped by rail there are economic considerations; custom and political pressure have brought into being certain rates called milling in transit. Such rates are applicable only from the west to the east. This despite the fact that general movement of empty freight cars is from an easterly to westerly direction. Under such a rate, it is advantageous for a distiller or other convertor of grains to buy at some distance. Under this rate, a distiller located in Indiana can buy grain in Illinois and “earn” approximately $2.00 or upward on transit per ton, if they move their dried grains on toward the diary and feed-mixing districts in the east. That is, they apply a certain percentage, perhaps 25%, of the bill of lading obtained on the current cost of shipment of the dried grain by rail, it being assumed that the dried grain originated at the place where the corn originated. Therefore, it is distinctly to the advantage of the distiller to buy grain that originates in a general westerly direction from the distillery and not in the immediate vicinity.

Suppose a carload of grain is shipped from a country elevator “A” to a terminal elevator “B” and thence to a distillery “C” where it is processed; the resultant byproduct is then shipped on to “D” by the distillery. It is assumed that the travel is generally from west to east as indicated on the diagram below.

When the distiller receives the grain, their bill of lading shows at the top all of the data pertinent to the shipment from B to C. Moreover, in the body of this bill of lading is given the corresponding data for the original shipment A to B, made previous to the distiller’s transaction. Now when the latter wishes to move their by-product from C to D they determines the cost of shipment of the original grain from A to D, enjoying a reduced rate, and from this subtracts the sum of the amounts already paid from A and B and from B to C. To the difference between these two principal shipping costs (AD-AC) they apply the percent of dried grain recovered from the initial shipment of grain as set forth by the transportation company and pays that amount to ship their processed material from C to D.

If they did not enjoy transit privileges, it would cost them considerably more to ship their dried grains due to the fact that they would have to pay what is termed “local rate” instead of the through or transit rate. This brings out the importance of “origin” in purchasing.

C. Starch content

Starch is, of course, the ingredient of grain which is turned into alcohol, and consequently the higher the percentage of starch in the corn the more valuable it is to the distiller. Certain commission houses dealing in grain for distillers add high starch corn. The claim is even made that commission houses handle both feeding grains and distillers’ grains, and separate them, shipping to the distillers that which has the higher starch content. The analysis so far indicates that little success has been attained in this differentiation. The greatest difference in starch depends upon crop year and perhaps the origin. Therefore, it may pay a distiller to buy “new” corn very early in the crop year or to try to obtain “old” corn well into the new crop year because one crop has a higher starch content.

D. Bacterial count

Bacterial count is a measure of deterioration of the grain and is an indication of potential infection of the fermentation. Undesirable bacteria may cause bad fermentation or affect the flavoring and quality of the whiskey and spirits.

E. Size and growth of grain (barley malt)

Distillers’ malt should be small kerneled to insure the maximum number of barley germs per bushel. It is the germ in which originates the enzymes for conversion.

F. Lintner value (barley malt)

The Lintner value is an index to the converting power of the malted barley. Our specifications call for an index of 175, dry basis. Grain with less is rejected. A higher value is desirable.

G. Moisture content (barley malt)

Malted barley is shipped with a moisture content of about 5%. Like other grains, it gains moisture during shipment, but barley malt is more sensitive than the other grains and spoils readily when the moisture content is much above 7%. Therefore, we specify 6% which gives a reasonable margin between the shipping point and the danger line.

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