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The fine print on grain contracts

Lee Hart talks to seven Prairie grain farmers about their experiences 
with grain contracts

Grain contracts: they appear to be a necessary part of doing business for most western Canadian farmers, but how many actually read them?

The Canadian Canola Growers Association* has published a handy and informative booklet called, “A Practical Guide to Navigate Grain Contracts.” It is a quick and easy, 21-page read which covers many of the points farmers should consider or be aware of when dealing with grain contracts.

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With that booklet in mind, a good question to ask producers for The Farmer Panel in this issue is, “Do you read your grain contract?” Answers vary from “yes,” to “no” to “only part of it.” Whether there is a contract or not, most farmer say it is still important to have a good working relationship with their local grain company. If some problem does arise, usually it can be sorted out without dragging the legally binding details of the contract into the discussion, but not always.

As one Manitoba producer pointed out, if it ever got to a point where he had to challenge a contract, the grain company has way more lawyers than he can ever afford.

Here is what farmers contacted for this issue of Grainews had to say about grain contracts.

Eric Fridfinnson, Arborg, Man.

Eric Fridfinnson says he feels he has a “pretty good idea” of what’s in a grain contract but doesn’t necessarily read them all.

Fridfinnson who farms with family members near Arborg, north of Winnipeg, Man., says he usually reads the first contract offered by a grain company, but doesn’t necessarily read subsequent ones, assuming the contract is pretty much the same.

“Well it probably isn’t great business, but I don’t read them all,” says Fridfinnson, “However I do feel I have a pretty good idea of what’s in the contract. They actually can be pretty scary documents when you look at all the eventualities that a contract covers, and a producer assumes a lot of liability and responsibility.”

He says while it is important to have a reasonable understanding of the contract, he also doesn’t want to feel he needs to go over every clause with a fine-tooth comb. “If you feel there is a need to study every contract to that degree, you might be working with the wrong company,” he says.

Fridfinnson says he has dealt with some surprises and disappointments and it usually revolves around delivery issues. The contract specifies an October delivery, for example, and here it is March, he hasn’t been able to deliver and the crop is still in the bin. “That can be pretty disappointing,” he says.

At the same time, in his experience, he finds most companies do their best to find a solution to delivery delays and “do what they can to live up to the spirit of the contract.”

Fridfinnson says he usually finds little problem in signing contracts for canola or flax sales, but he is a bit leery about signing wheat contracts.

“Depending on the year and the market situation, your wheat almost becomes the flavour of the month,” says Fridfinnson. “They may want your wheat but depending on the market the grain company is supplying, if you don’t have exactly what they are looking for in terms of grade and quality specifications, your crop may be discounted or not wanted at all. You think you have it sold and then find out it isn’t. And that can vary from year to year.”

He’s also a bit concerned about forward pricing too much crop, noting it is useful to have an Act of God clause in a contract. “If you forward price and then are unable to deliver that can become very expensive and usually at a time when you don’t have much money.”

Kelly Kabernick, Sanford, Man.

Kelly Kabernick says this is more of a people business, so he pays more attention to people than he does a contract.

“Quite frankly I don’t usually read the contracts,” says Kabernick, who farms just south of Winnipeg. “I deal with people. And I have told the grain companies whether I read or understand the contract or not the fact is when push comes to shove they have more lawyers than I do.

“So I really rely on the verbal contract. We reach an agreement and I expect them to do what they say they are going to do, and I will do what I say I am going to do.”

That doesn’t mean he hasn’t run into a few surprises over the years. Sometimes there will be a grade issue, which isn’t really his fault, but it was just a fact of the growing season or weather.

“The surprises I really don’t like are things like the changes in freight rate,” he says. “The rate goes up and that changes the contract and of course the farmer makes less money. And they can point out that that change is covered in the contract, but again I go back to my point I’m doing what I say I am going to do, and I expect them to do the same.”

Kabernick says he finds that in dealing with a reputable grain company there is usually an opportunity to discuss any concerns and disputes “and come to a reasonable agreement.”

Dallas Leduc, Glentworth, Sask.

Dallas Leduc admits he doesn’t spend a lot of time reading the fine print on contracts. “I usually read the first page and that’s about as far as I get,” says Leduc who farms in southern Saskatchewan. “I am probably just very trusting.”

He says he really hasn’t run into many problems when it comes to meeting contract requirements, although price changes from year to year are frustrating. “With durum, for example, in a year when they really want your grain they are paying protein premiums, and then another year when there is lots of durum the premium incentives have changed, are lower. You feel a bit like you are being punished for producing a good crop.”

Dustin Williams, Souris, Man.

Dustin Williams says he has a general idea of what the grain contract says, but admits he could probably do a better job of reading them.

“If I am dealing with a grain company that I know and have dealt with before, I probably assume that the contract is the same and the same rules apply,” says Williams who farms near Souris in southwest Manitoba. “If I am dealing with a new company then I do spend more time reviewing the contract.”

Pointing out that he is beginning to sound like an old farmer, Williams says there has been a change with grain companies in more recent times. “Grain companies today are probably a bit more sticky when it comes to enforcing the contract,” he says. “In the old days if there was a problem you could probably work out something, but that’s becoming more difficult.

“I’ve actually had to buy out contracts in the past couple years if I didn’t have the quantity of grain specified in the contract. That clause was always in the contract but it was sort of just there, now they follow through on it.”

He also says there is much less leeway when it comes to grade and quality issues. “Again, in the old days, the elevator might take in grain that was a bit off grade and then if they were putting together a 100-car train they would blend it off to make the grade they wanted and there’d be no penalty,” he says. “Now if you bring in something that doesn’t make the grade you are penalized for it. They might still blend it off to make up that train, but the farmer pays the off grade penalty or takes the discount.”

Kris Mayerle, Tisdale, Sask.

Kris Mayerle says he doesn’t read all contracts. If it is for a commodity going to the same company he will assume the same terms apply as in the last contract.

Sometimes there can be delivery issues, but he is careful not to complain too loudly. “A couple years ago, for example, there was a backlog in the system and we weren’t able to deliver grain,” he says. “But I didn’t want to complain too much because I had the grain contracted for a good price and I didn’t want them to cancel the contract and then I’d be faced with selling the grain at the new price which was lower. So we just held on to it and waited it out.”

Mayerle says he usually finds his grain company is willing to work with him. He has run into situations where he can’t fill his contract and the company has found grain from other farmers to fill that contract, so Mayerle didn’t face any buyout. Similarly, at different times he has been able to supply a commodity that helped someone else fill their contract.

“The contracts are there and you should know the terms, but I think it is important to have a good relationship with the grain company to be able to work through any problems.”

Franck Groeneweg, Edgeley, Sask.

Franck Groeneweg, who operates Green Atlantic Farms, along with his family at Edgeley, northeast of Regina, says he probably should be more diligent about reading the contract than he is.

“A contract could be 20 pages long trying to cover all the loopholes, but really a handshake and common sense should still work,” he says. “The important thing is still the relationship between the grain company and the producer.”

Groeneweg says it can be frustrating when delivery dates are delayed. “I agree on a delivery date and I just don’t pick that out of the thin air,” he says. “That’s when I want to sell grain to meet cash flow needs. It is frustrating, but at the same time I have to realize if there is no room or no movement in the system, there is just no room.”

Charles Schmidt, Chinook, Alta.

Charles Schmidt, says in dealing with the same companies, he feels he has a good understanding of the grain contract and assumes there are no new conditions.

“Depending on the company, I read the contract once, but when it comes to next year I may just peruse it quickly before I sign it, assuming there are no major changes,” says Schmidt, who farms in east-central Alberta.

He deals with different companies as he sells and hauls grain off his farm. “I prefer to deal with local companies in Oyen because then I can comfortably deliver three loads a day,” says Schmidt. “I have delivered to companies further west at Trochu, but with that distance I can only make one load per day so if I am dealing in Trochu I need to be seeing an extra 30 to 35 cents per bushel to make the extra trucking worthwhile.”

Schmidt says he really hasn’t run into many surprises in dealing with grain contracts. He is careful not to over commit on delivery. “In this country because weather is so variable I don’t like to make too many guarantees,” he says. “I will sign a contract for five bushels per acre of production because I am pretty sure I will get that, but I am careful not to commit to 10 bushels per acre, because you never know. And I like to have at least a small contract with a company, because at least then I have my foot in the door. Depending on the year, if I didn’t have that five bushel contract I might not be able to sell my grain to that company, so it helps to keep the door open.”

 

*An earlier version of this article stated incorrectly that this publication was published by the Canola Council of Canada. Grainews regrets the error.

About the author

Field Editor

Lee Hart

Lee Hart is editor of Cattleman’s Corner based in Calgary.

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