Growing a special crop under contract may be a good option for your farm. But first, consider these seven factors
So you have finished your harvest, or are just about to. Time for a well-earned breather. Done? Good. Because the seed reps are already out and about to get you thinking about next year.
This year you’ll find many reps are recommending specialty canola under contract with one buyer. These programs usually offer premiums, and can be a really good option. But they’re not the best choice for every farmer. Signing a contract with one buyer means you’re effectively conceding the ability to adapt to changing market conditions later on. Is the premium on offer worth it?
Here are seven factors to consider.
1. Movement factors
Many specialty programs take away a farmer’s ability to choose when to move his or her harvest. This can be a liability depending on your cash flow situation. In recent years movement has been faster due to high demand. But if you’re looking to move your crop early in the fall it’s important to inquire about a buyer’s typical movement rates.
2. Freight costs
Contracts differ in how they work the cost of freight into the agreement. Some buyers will pick up the crop on the farm. Others require delivery to elevator or crush facility points. If you’re expected to pay the freight on any delivery required, how much will this eat into the premium you’re offered? Here again, crunching the numbers is crucial.
3. Acts of God
Ideally, all specialty programs would include an Act of God clause. Not all of them do, but some will insert one upon request. Either way, it’s important to be aware of any risk involved with growing a specialty variety for one buyer.
4. Production limits
Some contracts set a limit on the number of output per acre the buyer is obligated to purchase. Often the buyer will be prepared to purchase grain produced above the production limit, but not at the premium offered in the contract. Be sure to research whether production limits will be set, and consider whether any surplus production can be sold elsewhere, and for how much.
5. Production specifications
Research the quality specifications outlined in the contract. With specialty contracts, there is often a minimum oil content the variety may have to demonstrate in order for it to be accepted. Failure to make the grade can result in discounting or outright rejection. Many growers forget to consider this when assessing the risk involved with a given contract.
6. Yield Potential
With grain prices at historic highs, analyzing the agronomics of each variety has never been so important to your bottom line. This is why a specialty variety’s yield potential must be considered before committing to it.
The premium offered on a specialty crop can easily be swallowed up by even a slightly lower yield. At today’s high commodity prices, a two bushel per acre yield penalty can mean a $30 per acre loss when compared to commodity canola. Will the premium offered make up for any yield penalty? It’s very important to crunch the numbers before committing.
7. Performance Predictability
If the variety in question is an unfamiliar one, and particularly if the variety is new, find out as much about the variety as you can. Whatever you learn, it might be a good idea to start out with a small production contract. Bigger commitments can always be made the following year if you like the performance and reliability of the variety.
So is a specialty program right for your operation? Specialty canola programs can be a great way to capture some additional premium, but they also tie your hands when it comes to true market freedom — having the ability to adapt to changing market conditions is harder to do when you’re already committed to only one competitor. Each situation is going to be different and each farm will have different reasons for choosing one way or the other. Careful consideration of the above factors before signing a contract is crucial. Ask your seed reps lots of questions, and make sure your calculator is close at hand while weighing your options. †