Choose a buyer carefully when selling your grain

You’ve kept your crop safe from insects and disease. Now keep it safe from the risk of not payment default

There is plenty of risk to producing a crop, particularly one of high yield and quality. However, production risk is only one of the risks of grain farming. There are also legal, personal, storage and marketing risks.

In marketing your crop, you may follow all the steps — know your costs per unit of production, anticipate your cash flow needs, follow the markets, know your pricing and delivery alternatives, set target prices for various time periods using your breakeven price as reference, enter into sales commitments as opportunities arise and follow through with deliveries. Then, after meeting those delivery commitments, what is the risk of not being paid? Over the years, several grain buyers have become insolvent, and many producers who delivered to those buyers were not paid in full.

The law

The Canada Grain Act is administered by the Canada Grain Commission. This Act requires individuals and companies who buy and sell grain or operate a grain elevator to be licensed, and empowers the CGC to exempt companies from licensing under certain circumstances. As a condition of licensing, grain dealers must post financial security to cover any liabilities to producers. Licensees must file a monthly statement of their operating account with the Commission to enable confirmation that adequate bonding is in place. If a licensee goes bankrupt, producers who have not been paid can make claims against this security. Although there is no guarantee that the security will cover 100 per cent of producers’ losses, the losses are likely to be much less than if the buyer in default was not licensed.

Generally, anyone who deals in or handles grain grown in Western Canada must be licensed by the Canadian Grain Commission. There are four classes of licences.

  • A “grain dealer” is a person who for reward, on their own behalf or on behalf of another person, deals in or handles western grain.
  • A “primary elevator” is an elevator principally used for receiving grain directly from producers for either or both storage and forwarding.
  • A “process elevator” is an elevator principally used for receiving and storing grain for direct manufacture or processing into other products.
  • A “terminal elevator” is an elevator whose principal uses are receiving grain from another elevator and cleaning, storing and treating grain before it is moved forward.

When a producer sells grain to a CGC-licensed individual or company and receives a cash purchase ticket or cheque (including deferred payments), they are covered for the lesser of either 30 days from the date it is issued, or for 90 days after the grain delivery date. A producer must seek payment for their grain and attempt to cash cheques within those 90 days following delivery to be eligible to make a compensation claim. A producer who receives a post-dated cheque is covered for 30 days maximum, regardless of the date of the cheque. Holding a deferred payment longer than 30 days nullifies CGC protection. Farmers experiencing any delay in being paid for a crop sale should contact the CGC immediately. When a licensed company refuses to pay a producer for grain or delays payment, or the financial institution denies payment on their cash purchase ticket or cheque, the producer has 30 days to notify the CGC in writing.

Unlicensed buyers

There are three categories of grain buyers that don’t have to be licensed:

  1. Those that have been granted a licensing exemption by the CGC.
  2. Those whose business is outside the jurisdiction of the Canada Grain Act. Examples are “end users” such as cattle feedlots and hog production farms.
  3. Those that are in violation of the Canada Grain Act.

Again, not all buyers require a license. Animal feeding operations do not need a CGC license because they consume the grain in their business. Feedmills and seed cleaning plants are also exempt if they do not buy and sell grain on their own behalf. Cash grain brokers who just act as matching agents and do not take physical or legal possession of grain do not have to be licensed. There are also some buyers known as resellers that, although they take legal possession of the grain and are responsible for paying the seller, are not licensed because they do not operate grain handling facilities and do not use Canada Grain Act grade names for the products they deal with.

Farmers who deal with unlicensed individuals or companies do so at their own risk. If producers choose to deliver their grain to an individual or company that does not have a Canadian Grain Commission license, none of the protections of the Canada Grain Act apply. Should an unlicensed buyer fail to pay in full, the farmer is not eligible for compensation except through the legal process, usually as an unsecured creditor. In negotiating a sale and before signing a contract, it is good business to check the Canadian Grain Commission website (www.grainscanada.gc.ca) or phone the CGC at 1-800-853-6705 to check whether or not that buyer is licensed.

After spending the time, effort and money to grow a saleable product, it is important to choose your buyers carefully. Price should not be the only criteria on which to base a sale decision. Reputation and financial stability are also important. Particularly if not licensed, references should be checked to determine that buyer’s payment record. When selling grain, be sure to retain representative samples of the product delivered and obtain valid grain receipts and purchase tickets. A scale ticket is not enough. Also, consider metering out your sales, ensuring that payment has indeed cleared before shipping more. Business caution can go far in preventing marketing difficulties.

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