North Dakota's Mill and Elevator reported a $12 million loss during July, August and September, which its manager said was the largest quarterly loss in the 86-year history of the state-owned mill.

Vance Taylor, the mill's general manager, blamed the loss on large price swings for hard red spring wheat last spring, along with turbulence in the futures markets - which the mill has used to limit its financial risks - and a decline in flour demand.

In its last budget year, which ended June 30, the mill lost $821,607. It was the flour mill's first annual loss since 1994.

William Wilson, a North Dakota State University economics professor, told the state Industrial Commission on Monday that grain market volatility is likely to continue for three to five years. Wilson has been hired to advise the mill on possible changes to its risk management policies, and his report is expected next month.

The mill was whipsawed by rapidly rising prices for hard red spring wheat, which it uses to make bakery flour, and an unexpected decline in flour demand, Wilson said. Some of the mill's customers, put off by higher flour prices, switched to suppliers that used less expensive winter wheat for milling.

The mill was among a large group of food companies that were slammed by a confluence of extreme events in the grain market, the NDSU professor said. General Mills Inc. reported hedging losses of $111 million and ConAgra Foods Inc. reported losses of $33 million, he said.

Gov. John Hoeven, Attorney General Wayne Stenehjem and Agriculture Commissioner Roger Johnson make up the Industrial Commission, which is the board of directors for the mill and the state-owned Bank of North Dakota.

The commission asked Monday for a more detailed report on the mill's business decisions and their effects on its finances. Johnson said he did not believe the loss resulted from inept management.

"It was not something unique to the mill. It was a market failure that is now pretty well known, and is becoming pretty dramatically documented," Johnson said. "The real question is, now that you've figured that out, what are the series of recommendations that we need to consider to avoid finding ourselves back in this situation again?"

Wilson and Taylor said a "short squeeze" in the futures markets, prompted last spring by shortages and rising prices for hard red spring wheat, worsened the mill's losses. Strategies the mill normally follows in the futures markets ended up limiting only about 37 percent of its risk, Wilson said.

In February, the Industrial Commission gave Taylor permission to buy hard red spring wheat from Canada if U.S. supplies ran out. The commission reversed itself in March after Taylor said domestic supplies were sufficient.

Taylor said the futures contracts that have caused the mill's financial woes have worked themselves through its books.

"As of today, the costs incurred with those losses are behind us," he said. "Going forward, I expect our results to improve substantially … We do expect the mill to bounce back. It's still a strong company."