Market Demand and Production Cost Estimates for Specialty Small Grains in Kentucky

Jordan Shockley, Leigh Maynard, and Dave Van Sanford

Across Kentucky, we have seen an increase in the local food movement, where consumers prefer to eat food and consume beverages which are grown, farmed, or produced locally.  The local food movement is evident from the recent boom seen in the craft food and beverage market.  Furthermore, the staple spirit of Kentucky, bourbon, has seen a rapid expansion in production and new distilleries entering the market.  As such, producers of craft foods and beverages targeting the local food movement often desire locally sourced inputs.  Specialty small grains (e.g., cereal rye, hard red winter wheat, and malting barley) are a vital input into products like artisan bread, craft beer, and bourbon.  Therefore, there are potential opportunities for Kentucky farmers to supply various specialty small grains to support the expansion in these markets. 

Unfortunately, farmers are hesitant to enter specialty grain production without known and proven markets.  On the other hand, food and beverage entrepreneurs are hindered in their development of regional or specialty small grain products due to lack of supply from farmers.  Therefore, we set out to help bridge the gap of information in the specialty small grain value chain.  The objectives of this research are twofold:

1. Asses the market demand in Kentucky for locally sourced specialty small grains (hard red winter wheat, cereal rye, and malting barley) by millers, bakers, maltsters, and brewers.

2. Develop enterprise budgets up through delivery to end-user for hard red winter wheat, cereal rye, and malting barley.

The goal of objective one was to identify critical success factors for specialty small grain markets to flourish in Kentucky.  To accomplish this goal, we conducted stakeholder interviews with end-users of specialty small grains.  These end-users included millers, maltsters, bakers, brewers, and distillers.  Overall, we formally interviewed ten end-users (17 interview participants) representing at least one from each of the categories previously mentioned.  Each interview was in-person and lasted from 1-1.5 hours.  We followed a semi-structured protocol that asked questions regarding the past, present, and future opportunities for specialty small grains grown in Kentucky (See Appendix 1 for interview protocol and sample questions).  From these interviews, five themes arose:

1. DEMAND: The strongest demand is from bakers and distillers, however emerging enterprises in both milling and malting will demand more specialty small grains soon,

   • Kentucky’s first malt house is expected to go online by barley harvest next year in Harrison County, Kentucky.  Currently, the closest malt house to Kentucky producers is Riverbend Malt House in Asheville, NC.

2. QUALITY: Grain quality traits must be met and are more stringent and less flexible than commodity grains,

   • Grain quality standards begin with USDA No. 1 Grade standards with additional specifications for brewers and distillers.

   • Quality labs for testing malt for brewers and distillers are out of state.

   • If quality is not met, a new, lower-priced market must be identified (e.g., animal feed).

3. STORAGE: On-farm storage will be required to allow for just-in-time delivery to the processor or value-adders,

   • Aggregators exist that will buy and store specialty grains (e.g., Brooks Grain in Jeffersonville, IN).

4. FLAVOR: Flavor profiles of the grains are important so variety selection will encompass more than yield and disease-resistant characteristics,

   • Variety selection will also include alcohol yield for distillers and brewers.

5. RELATIONSHIPS: All stakeholders valued both professional and interpersonal relationships with farmers and suppliers.  These relationships build a story that helps brand products and link the product back to Kentucky farms and their sustainable practices.

   • Stakeholders are willing to work with farmers to ensure fair compensation and risk-mitigation when trying new or specialty grains.

   • Stakeholders are looking to build a long-term, win/win relationship with farmers.

The other objective of this research is to understand the costs of production and profitability potential for growing specialty small grains in Kentucky.  Producing hard red winter wheat, cereal rye, and malting barley were compared to the traditional, soft red winter wheat grown in the state.  Understanding the production practice differences compared to soft red winter wheat, we can adjust our current enterprise budgets to reflect growing hard red winter wheat, cereal rye, and malting barley in a double-crop system with soybeans.  Discussions with Dr. Chad Lee, Dr. Dave Van Sanford, and Dr. Carrie Knott highlighted what we know now in the production and expected yields for specialty small grains as compared to soft red winter wheat.  First, the specialty small grains examined yield estimates are lower than that of soft red winter wheat.  With the current varieties tested in Kentucky, it can be estimated that yields for hard red winter wheat, malting barley, and cereal rye to be 70 bu/ac, 65 bu/ac, and 60 bu/ac, respectively.  In addition to specialty small grain yields, the yields on soybeans will change if following malting barley or cereal rye.  If soybeans follow malting barley, a 7% yield increase in soybeans is estimated due to earlier planting (0.5% per day soybean yield increase).  If soybeans follow cereal rye, a 7% yield decrease in soybeans is estimated due to later planting (0.5% per day soybean yield decrease). 

For production practice differences, only hard red winter wheat and cereal rye have slightly different production practices compared to soft red winter wheat that would impact costs.  Hard red winter wheat requires an extra application of nitrogen (20 lbs/ac) late in the season.  Cereal rye has half the seeding rate requirement and a lower nitrogen rate than soft red winter wheat.  All of the specialty small grains are estimated to have a higher seed cost than soft red winter wheat.  A seed price per 50 lb. bag of hard red winter wheat, malting barley, and cereal rye are estimated at $34/bag, $30.50/bag, and $36.50/bag, respectively.  For the remaining year, pricing data will be collected, and the enterprise budgets will be finalized.     

This grant was also leveraged to receive a Southern SARE Research and Education Grant to continue the breeding efforts of specialty small grains and to understand and improve on the specialty small grain value chain in Kentucky.  As part of this grant, we hosted the inaugural Southeastern Grain Gathering on September 15-16 in Lexington, KY (see pictures below courtesy of Sarah Canton).  This event brought together over 150 farmers, millers, bakers, chefs, researchers, maltsters, brewers, distillers, and consumers to build a community and conversation around specialty small grain value chains in the region.  This event made possible by all of the event sponsors, participating staff and students throughout UK CAFÉ, and many local farmers and chefs. This event was the first step at building our local value chains by providing networking opportunities and linking key stakeholders along the value chain.  Hands-on baking demonstrations and classes, value chain panel discussions, and great food and beverages highlighted the two-day gathering.  Hopefully, this event was the start of fostering those interpersonal relationships identified by this grant that are critical success factors for specialty small grain markets to flourish in Kentucky. 

View full report (PDF) updated December 2019