Contracting Considerations For Growers

EDMONTON - Mar 22/22 - SNS -- Some grain and oilseed growers are reluctant to pre sell parts of this year's anticipated harvest for fear they will need to buy their way out of contracts at what are considered historically high new crop prices.

Neil Blue, provincial crops market analyst with Alberta Agriculture, Forestry and Rural Economic Development, wryly notes, "Once bitten, twice shy" adding it is "understandable following last year's drought-reduced crop.”

Before signing, he argues growers need to think about whether there are any outstanding contracted volumes of crops from prior years. If so, those may need to be dealt with, either through a buyout or deliveries, with those deliveries possibly from 2022 crop production.

Producers must then consider what crops are in the seeding plan for 2022. Plans may already be set by crop rotations, but other factors may influence seeding decisions. Some could be availability of high quality seed, residual herbicide, disease or insect concerns, high fertilizer and fuel prices, crop insurance coverage levels, and available contracting opportunities for individual crops.

“Regarding crop contracting opportunities for 2022, of course the net farm-gate price should also be considered," Blue said. "Delivery costs could increase this year, even if you truck your own crops.

"If possible, obtain a blank contract from a prospective buyer before signing it, read it, understand it, and consider all the 'what-ifs'. Then clarify any questions that you may have about the contract before signing the contract. Some buyers offer contracts with an Act of God clause that will provide protection in case of a crop shortfall. Perhaps some buyers will consider adding such a clause in a contract at a discounted price."

Blue points out few crops remain that have a futures or options market. Availability of those price risk management tools are still available for Alberta’s major crops of canola, oats and wheat, although the oats and wheat contracts trade in U.S. dollars.

“Such contracts can provide pricing protection without the commitment of delivery, enabling producers to still shop around for the 'best' buyer of the physical crop.”