If Brian Wittal was designing the perfect delivery contract, farmers would have firm delivery guarantees
Is it just me, or was there more marketing information and update seminars than usual this past winter? I think there has been. I know I have attended more than usual and have been called on to talk at more than I have in the past couple of years.
There have been courses and seminars being offered by the federal and provincial governments, grain companies, and private or independent market consulting companies.
This is a sign of the ever changing world of grain marketing that is evolving in Western Canada.
Last fall I signed up for the CWB’s email update — something I would advise everyone to do if you have anything to do with marketing grain. The CWB will automatically send you an email update whenever there is something of interest or relevance to marketing grain through the CWB. It is another source of free information.
I just received an email from the CWB announcing the lineup of contracts it will offer for the upcoming 2013-14 crop year. This was included in the email. “Two types of pools are offered, each with three different pooling periods. The annual pool, early delivery pool and winter pool will operate similarly to the 2012-13 programs.
“In addition, CWB’s innovative futures choice pooling program has expanded to include the futures choice annual pool, futures choice early delivery pool and futures choice winter pool. The futures choice pools now include canola and more wheat classes. A production contract for two-row malting barley will also be available.”
You can find more information about these options on the CWB website, or call the CWB if you have questions.
Grain company offerings
All other grain companies have information on their own websites about the different contracts they offer. Some are more complex than others but that complexity may offer you better value or more security.
This is good news for all grain farmers as it means more pricing options available for you to choose from. But it also means more homework and research to try to understand what each of these contracts offers you for pricing flexibility and what risks may be involved.
Since the removal of the monopoly powers from the Canadian Wheat Board last year we have seen myriad companies come out with their versions of grain marketing contracts to offer to farmers.
Each company has a little different version of what a production contract or a cash or deferred or a futures and or options contract looks like. You need to decipher which ones will work the best for your farm business.
No doubt these contracts are going to continue to change and evolve as grain companies and farmers adjust to this new marketing environment and get more knowledgeable as to how the markets and the various contracts can work for them.
Guaranteed delivery dates
I have been trying to come up with the perfect grain marketing contract from the farmers’ perspective and then from the grain companies’ perspective to see if there is some common ground where we can have the best for both sides, because buyers need sellers and visa versa!
So what would be on farmers’ wish list for the perfect grain marketing contract?
Number one on the list would be a guaranteed delivery period that you can rely on, so you can make plans to deliver your grain and get your money before bills are due and don’t get charged interest.
Grain companies normally offer a standard 30-day delivery period on most contracts. Some grains will differ, for example with malt barley you may get a three-month delivery window. But in the contract the company has the right to delay, flex or change the delivery period at their discretion.
These 30- or 90-day timelines can be worked with as far as managing cash flow, as long as you are able to deliver within those timelines. What happens if your delivery period is pushed back another 30 days due to congestion in the system? You still have bills to pay and now you are going to be short the cash to pay them on time so you will probably end up paying interest charges.
This is where it would be nice to have something in the contract whereby if your delivery period is extended beyond the original contract period that the company would pay you a storage fee based on industry rates for every day beyond the contract period, or advance you a percentage (50 to 75 per cent) of the value of the grains contracted, so you can pay your bills on time without incurring a penalty. This is about managing your cash flow to meet your obligations so that you aren’t paying unnecessary charges.
I can appreciate the fact that the delay to your delivery period may not be the grain company’s fault directly. It could be due to an issue with the rail roads or vessels at port. The reality is that you committed to sell and deliver grain to them in that specified period so why can’t they make an effort to help you (their customer) by having a storage payment or partial payment clause in the contract so that if your delivery is delayed you get some kind of compensation for the inconvenience it is going to create for you?
Some companies do offer a storage payment with some of their contracts but it is not common with all companies or in most contracts.
I understand that this would mean the companies are paying out monies in advance of receiving the grain which could change their cash flow situation a little but they are a lot bigger than the individual farmer so I think they can manage and adjust a little easier.
Plus now the pressure is on them to get your grain into their facility sooner than later, so as to stop paying any further storage charges and or get the grain that they’ve already partially paid for.
Maybe a clause like this would help to improve overall delivery performance within the grain handling system. What do you think?
We’ll continue down this road of trying to build the producers perfect grain marketing contract in the next issue. †