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Once again we are with Mike, the general manager of our mythical multistation grain cooperative located somewhere in the Western Corn Belt. Today, Mike is discussing the company’s P&L with his accountant and the conversation is not going well. Nevertheless, Mike’s temporary misfortune sheds some much-needed light on how discounts can rob you of profits and productivity, and FEED & GRAIN examines ways to minimize the impact discounts have on your bottom line.

Mike sits fuming in his office, looking at the bottom line of the monthly P&L. He hasn’t looked at the details but his anger is building.

“What happened last month, Alan?” says Mike to Alan, the company accountant. “These corn and soybean numbers are terrible — I can’t imagine what caused the losses. I know the basis weakened and we should show a small loss on our company-owned inventory, and on some forward contracts, but we had already estimated that for the bank. This is much bigger!”

Alan takes a deep breath; “I think you’ll find most of the answers on page three Mike, most of the problem is in discounts.”

“No way,” Mike replies, “not possible”; but slowly he turns the pages one at a time looking at each category. Sure enough, though, there it is. “How could we possibly take that much in discounts?” he ponders aloud.

“I wondered the same thing, Mike, so we looked through our settlements to verify discounts,” Alan notes. “I started with corn because we shipped over 1.5 million bushels last month and a lot of the cars that went to the ethanol plant graded 16% moisture or slightly over.

“The ethanol plant discounts 9¢ per bushel for 16.1-16.5% plus 2% shrink. On $6 corn the shrink alone costs 12¢. We took a 21¢ hit on all those wet bushels. But there’s worse news,” he says sheepishly. “I discovered that a lot of the soybeans shipped out of the Greentown elevator tested just over 13% on moisture and were discounted 1 ½% of contract price.