Sometimes the fine print doesn’t cover
it.
Producers have lots of stories about how
grain buyers don’t live up to contract
obligations. This often has to do with
not taking delivery within the specified
timeframe. Buyers, in turn, can tell
stories about certain producers that
reneged on contracts.
The standard advice is to read contracts
thoroughly and to get advice on any
parts you don’t understand. While some
contracts are a page or two and
straightforward, others go on and on
with legalese that’s so thick you need a
lawyer if you really want to interpret
it all.
Here’s a personal case where getting
legal advice probably wouldn’t have
helped.
I signed a contract well before seeding
to grow a specialty oil canola. A number
of grain companies contract this canola,
each with its own provisions. In this
case, there was a $45 a tonne premium,
plus a $15 a tonne premium because the
variety is considered non-GMO.
With the production going directly to
the crushing plant, the price was FOB
the farm, which is another perk. And I
could lock in the basis (the company’s
deduction from the futures price) on 30
bushels per acre without any production
risk.
I had to buy the seed from the grain
company. All the production was to be
delivered to the company. The canola had
to meet purity specifications. All
pretty standard stuff.
As harvest approached, I gave my contact
at the company a call.
“I’m wondering if now might be a good
time to lock in a basis on that
contracted specialty canola. What’s your
basis at?”
“We’re at $39 under,” was the reply.
“You’re $39 a tonne under the November?”
I asked incredulously. “That’s about $20
higher than what I understand the basis
to be.”
“Oh, our basis on regular canola is $19,
but there is a different basis on this
specialty canola. You have to remember
that the price is FOB the farm.”
I was flabbergasted. This wasn’t how the
deal was explained to me and nowhere in
the contract did it talk about the
company’s ability to set a “special”
basis.
“If I’d known you could just arbitrarily
set the basis to recapture a bunch of
the premium, I’d have never grown this
canola,” I complained.
My contact at the company took my
complaints to his superiors, but to no
avail. He understood my position and he
sympathized. Further up the chain of
command, there wasn’t any sympathy.
Of course the loss of $15 or $20 a tonne
has to be put into perspective. The
futures price can move that much in a
day. But the principle really irks me.
On a small production of just 200
tonnes, even if a person was litigious,
it wouldn’t make sense to call a lawyer.
Imagine the legal fees. Imagine trying
to explain basis and futures to a judge.
“We’ve changed the contract for 2014, so
everything will be clearer,” I was
assured.
No matter. I won’t be interested.
In fairness, the canola has all been
delivered. It met the specs and the
cheque has been issued.
But I’m left pondering how this
“misunderstanding” could have been
avoided. Studying the contract more
thoroughly wouldn’t have helped. I doubt
that a lawyer viewing the contract would
have asked the right questions either.
I’ve had generally good experiences
contracting various crops with various
companies through the years. I’ll be
more wary in the future.
Kevin Hursh is an agricultural
journalist, consultant and farmer. He
can be reached by e-mail at
kevin@hursh.ca.
it.
Producers have lots of stories about how
grain buyers don’t live up to contract
obligations. This often has to do with
not taking delivery within the specified
timeframe. Buyers, in turn, can tell
stories about certain producers that
reneged on contracts.
The standard advice is to read contracts
thoroughly and to get advice on any
parts you don’t understand. While some
contracts are a page or two and
straightforward, others go on and on
with legalese that’s so thick you need a
lawyer if you really want to interpret
it all.
Here’s a personal case where getting
legal advice probably wouldn’t have
helped.
I signed a contract well before seeding
to grow a specialty oil canola. A number
of grain companies contract this canola,
each with its own provisions. In this
case, there was a $45 a tonne premium,
plus a $15 a tonne premium because the
variety is considered non-GMO.
With the production going directly to
the crushing plant, the price was FOB
the farm, which is another perk. And I
could lock in the basis (the company’s
deduction from the futures price) on 30
bushels per acre without any production
risk.
I had to buy the seed from the grain
company. All the production was to be
delivered to the company. The canola had
to meet purity specifications. All
pretty standard stuff.
As harvest approached, I gave my contact
at the company a call.
“I’m wondering if now might be a good
time to lock in a basis on that
contracted specialty canola. What’s your
basis at?”
“We’re at $39 under,” was the reply.
“You’re $39 a tonne under the November?”
I asked incredulously. “That’s about $20
higher than what I understand the basis
to be.”
“Oh, our basis on regular canola is $19,
but there is a different basis on this
specialty canola. You have to remember
that the price is FOB the farm.”
I was flabbergasted. This wasn’t how the
deal was explained to me and nowhere in
the contract did it talk about the
company’s ability to set a “special”
basis.
“If I’d known you could just arbitrarily
set the basis to recapture a bunch of
the premium, I’d have never grown this
canola,” I complained.
My contact at the company took my
complaints to his superiors, but to no
avail. He understood my position and he
sympathized. Further up the chain of
command, there wasn’t any sympathy.
Of course the loss of $15 or $20 a tonne
has to be put into perspective. The
futures price can move that much in a
day. But the principle really irks me.
On a small production of just 200
tonnes, even if a person was litigious,
it wouldn’t make sense to call a lawyer.
Imagine the legal fees. Imagine trying
to explain basis and futures to a judge.
“We’ve changed the contract for 2014, so
everything will be clearer,” I was
assured.
No matter. I won’t be interested.
In fairness, the canola has all been
delivered. It met the specs and the
cheque has been issued.
But I’m left pondering how this
“misunderstanding” could have been
avoided. Studying the contract more
thoroughly wouldn’t have helped. I doubt
that a lawyer viewing the contract would
have asked the right questions either.
I’ve had generally good experiences
contracting various crops with various
companies through the years. I’ll be
more wary in the future.
Kevin Hursh is an agricultural
journalist, consultant and farmer. He
can be reached by e-mail at
kevin@hursh.ca.