Home Crop Monitoring Buying out your grain contracts? Some considerations to keep in mind

Buying out your grain contracts? Some considerations to keep in mind

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Should you farm throughout the southern prairies, sadly, you might be no stranger to the dearth of moisture in 2021.

Excessive market costs initially of the yr induced many to eradicate some threat on their farm by locking in some grain for the tip of the season. Nonetheless, Mom Nature took its toll, and an absence of crop has turn into a daunting actuality.

Yield estimates are coming in, and lots of farmers are confronted with a really actual potential of not having the ability to make their grain contracts. What subsequent?

Colin Penner, farm administration teacher on the College of Manitoba, who additionally farms in southern Manitoba, says step one is preserving your grain purchaser in the know.

“Let them know what’s going on. In some instances there’s a few hoops you’ve got to jump through, but for the most part it’s ‘I don’t have enough grain, how can I move forward from here,’ and at that point the grain company will typically say they will let you out of the contract,” says Penner. “In a year like this, where we see grain prices continue to rise, typically you will have to pay the spread in between what you contracted the price at, and the new price.”

In a powerful market yr, administration charges on prime of filling the value hole could be hefty, relying on the elevator, and what their scenario seems like too.

“For a number of grain companies, they don’t want to be looked at as brokers. So they don’t want people to say ‘yeah, I’m going to sell you this much grain,’ and then the market rises and they buy out of the contract. They don’t want to do that. So in my perspective anyways, the admin fees try to deter some of that,” he says. “So I’ve heard as much as $30/tonne for some administration fees, other companies it’s $10/tonne, and it’s just sort of that reminder that they aren’t brokers. If you want to hedge your grain, go get a trading account, sort of idea.”

What you’re able to do (and never do) in fact is dependent upon the grain firm, and your relationship with them. Nonetheless, as Penner notes, some corporations will provide the flexibility to roll over your contract, and fulfill it in the next yr, by taking a small deferral hit. An alternative choice generally  is to ship a special commodity to attain the promised tonnage.

“I think grain companies are willing to work with people. It sucks for everyone all around,” explains Penner. “It’s expensive for the farmer to buy out, and the grain companies have committed to sales, too. It’s great when we see $20 plus canola, but its tough and it’s frustrating to have to buy out of this for everyone. At the end of the day, you are dealing with a human being on the other end of the line, and it doesn’t help to shout and scream and say ‘I’m never dealing here again.’ Work with the person at the other end of the line. They recognize that it sucks, too.”

Penner’s lesson in hindsight, or  wish-he’d-done-it-differently second? Once you do get one thing figured out with the grain firm, get it down in writing to eradicate any misunderstandings on both finish.

“Have your phone call with the guy and then just shoot him an email saying ‘This is what I understood, can you confirm this,’ and then you at least have it in writing. That’s key,” he emphasizes.

Examine out the complete dialog with Penner and RealAgriculture’s Kara Oosterhuis, under:

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