This is not the year for farmers to blindly trust buyers with their
grain, says a southern Alberta grain broker.
When delivering grain, ask to see proof that the company is financially
viable.
“If you pull a load in today, there’s no guarantee in this business
that this guy’s going to be in business two weeks or a month from now
when you try to chase down a cheque,” said Doug Chambers of Grainplace
in Calgary.
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“Everyone’s marketing a very high value crop this year. The load that
goes down the road is a high percentage of their total crop. You don’t
want to deliver it and get nothing for it.”
Chambers knows of seven grain buyers that have failed since January,
only two of which were licensed and bonded.
Any farmer who delivered grain to the unbonded companies and wasn’t
paid when the companies went bankrupt probably won’t get much money for
their grain, Chambers said.
Those farmers who delivered to bonded companies may receive only 40-50
cents on the dollar, because the bonds were not sufficient to cover the
companies’ obligations.
Chambers said farmers should ask to see recent financial statements of
companies they are thinking of selling to. That’s probably not
necessary or possible with the biggest line grain elevator companies,
but with smaller and less known companies farmers should demand proof
that the companies can cover their obligations.
That could mean asking the companies to fax its balance sheet or
current credit report, Chambers said.
A legitimate buyer will not be offended by such a request, but a
refusal to provide the information should be a red flag, Chambers said.
“Thank him for his time and sell your grain to somebody else.”
Farmers should be especially careful about entrusting their grain to
companies that are not directly using the grain themselves. If they are
financially weak, they can be suddenly pushed into crisis if their
buyers are unable to pay them.
“If any of them go under, you may have a problem,” Chambers said.
Some companies have gotten into trouble by making sales to buyers, but
not contracting grain with producers. That’s a problem when prices rise.
“They bet on the wrong side of the market,” he said.
Some special crops companies have suffered because they were locked
into delivery contracts with buyers, but the forward contracts they
made with growers couldn’t be enforced because drought had triggered
“act of God” clauses, which are not as common in other parts of the
grain industry, Chambers said.
That forced some companies to search for replacement supplies that they
had to buy at high prices, even though they had locked themselves into
contracts with low sales prices.
“If you do that with a few hundred thousand pounds, it gets painful.”
Farmers may feel they are being rude in demanding to look at companies’
financial statements, but they shouldn’t, Chambers said.
If you deliver $40,000 of grain to a buyer who is paying you now or
later with a cheque, you are giving that company $40,000 in credit.
You have the right to know the creditworthiness of those with whom you
do business.
“The bank wouldn’t lend you $100,000 without checking yours,” said
Chambers.
