Crop Contracts: Your Rights and Responsibilities! (PCN Winter 2017) JAN 4 2017 | Consumers and Producers | Pulse Crop News
This article appeared in the Winter 2017 issue of Pulse Crop News.
Neil Blue, P.Ag., Alberta Agriculture & Forestry
In the modern era of grain marketing, contracting prior to delivery has become the norm. Several types of contracts exist, and the most common type is the deferred delivery contract (DDC). A DDC is an agreement by a producer to deliver grain to a buyer by a certain date. The contract usually specifies price, quantity, quality or grade, the delivery location and date, and sometimes the transportation method. A contract commits both parties to certain rights and responsibilities.
A DDC specifies a base grade and a contract price, but not all contracts include a price schedule for delivered grades above or below that base grade. Producing a different grade than specified in the contract may or may not remove the delivery commitment. The producer should completely understand how the final grade will be determined, and what implications a grade differential would have on product deliverability and price. Base grades differ between grain buyers, so when comparing contract prices, know the grade to which that price relates.
As a producer, you have the responsibility to deliver only crops that are acceptable for the class of crop that you have contracted. You must also be aware of maximum residue levels for your crops, use recommended post-application harvest intervals and completely avoid using certain products in association with some crops, whether in-crop or storage-related. This is critical not only to your contract, but to maintain the quality standards for our markets.
The contract should indicate the delivery period for the product. Check the contract for implications of delivery delay by the seller. Delayed acceptance has been a more common concern with crop sale contracts. Most contracts are written by the buyer, so provide wide coverage for delayed acceptance. However, some contracts provide for storage or interest payable to the producer if delivery is delayed by the buyer past a certain date.
A delivery shortfall may result in a buyout penalty. The penalty is usually equal to the shortfall volume multiplied by the price that the buyer would have to pay to replace the product. A buyer may be able to apply some discretion in assessing that penalty. Some contracts may include an “Act of God” clause to release you from all or part of the delivery commitment when a factor beyond your control negatively affects your ability to deliver. Some contracts may be filled by another producer, which provides a backup plan in case of a production or grade shortfall on your part.
At the time of delivery you, as a producer, have the right to ask to observe the grade and dockage assessment of your crop. If there is a grading disagreement, a producer can exercise their right to have a sample sent to the Canadian Grain Commission. This right is guaranteed under the Canada Grain Act and is referred to as Subject to Inspector’s Grade and Dockage. It can be used for any grain regulated by the Canadian Grain Commission delivered to a licensed primary elevator. With this service, the elevator operator sends a representative sample to the Canadian Grain Commission where an inspector completes a binding assessment of the sample for grade, dockage, moisture content and, for wheat, protein content.
As a producer, you should understand your crop marketing rights and responsibilities. You should read and understand a contract before signing it. Have the buyer’s representative explain the contract to you in detail, considering all the “what ifs?” Doing so will go far in avoiding difficulties that can arise from the time of contract signing to settlement.