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Pre-season contracts and changed plans

If you’ve changed seeding plans due to spring weather, check your contract obligations

So far, 2018 is setting up to be a year of extremes and challenges. There’s been record snow pack in the mountains and a drawn-out winter with excessive snow across the Prairies. Overland flooding across wide areas of the Prairies came during one of the latest springs in years. On April 21, I was in Lethbridge and saw snow in the fields and water sitting everywhere. Not a tractor in the field.

Seeding in southern Alberta will be about four weeks behind normal. Producers across the Prairies are facing the same delays and this is causing a lot of anxiety and uncertainty. Every day producers sit on the sidelines waiting to get in the field is a lost day in the growing season. Delays force many to rethink their seeding plans, which throws everything into a bit of chaos.

When seeding plans are made months ahead and seed and fertilizer are bought or even applied in advance, changing plans can be difficult, but a delayed spring may force the need to change to earlier-maturing crops, to ensure you can harvest before a fall frost impacts quality.

Having to change seeding plans also brings extra risk and expense if you have to buy new seed or change fertility plans. When you’re forced to plant a different crop this year, you could mess with your crop rotations for next year and beyond.

The decision to change your seeding plan can have multiple ripple effects to other aspects of your farm business as well. A delayed spring brings risks from a marketing perspective for those who have pre-priced grains for fall delivery.

How much will a change to your plans for seeded acres change the risk you face with your pre-priced contracts? What if you end up not seeding any of a crop that you have pre-priced?

What about the alternative crop you are going to seed? Should you pre-price some of that crop if prices are good?

Managing contracts after change

Your focus will no doubt be on getting the seed in the ground, but if you have to make seeding changes and you have pre-priced contracts, you need to review your contracts and take action. Markets can move quickly, increasing your risk every day you don’t address this issue.

Every time you change a seeding plan there could be implications if you have pre-priced contracts, so keep that in mind and talk to your marketing advisor or grain company rep and let them know what is happening. See what advice they may have for you and find out what your obligations are on the contracts. Once you’ve done that, here are some questions to ask yourself:

  • Part of building a marketing plan is including contingency plans to manage risk for situations such as a change in seeded acres. If you were 20 per cent pre-priced based on your original seeded acre plan and then only seed half those acres, are you comfortable with now being 40 per cent pre-priced on your remaining acres?
  • Where are the current markets, compared to when you pre-priced?
  • Can you reduce your pre-priced contract with little or no cost?
  • Can you buy out some of your pre-priced contract, or look at using options (if available) to cover your risk and keep the contract in place?

Do a review, make a decision and get back to the business at hand of getting it in the ground. But don’t forget about it.

If there is an Act of God in the contract you should be OK, but that is usually only for crops such as malt barley and pulse crops.

If you want to buy back some or all of the contract what extra fees if any are involved to do that?

If the price of your contract is favorable compared to current prices but you don’t think you will be able to deliver all the tonnes can you have someone fill the contract for you or not?

Make a plan and manage your risks as they change so that you are not faced with an unexpected and or unpleasant surprise come contract delivery time.

No doubt everyone will be pushing hard and running long hours to get seeding done as quick as possible so please work safe and stay aware.

About the author

Columnist

Brian Wittal has 30 years of grain industry experience and currently offers market planning and marketing advice to farmers through his company Pro Com Marketing Ltd.

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