Unseeded acres leave many producers in marketing bind

Thousands of farmers are stuck in a marketing quagmire, trying to get out of old contracts and into new sales plans.But with many prairie farmers not knowing how much crop they are likely to have three months from now, replacing defunct marketing plans is vexing.“Every individual situation is different,” said Derek Squair, president of Agri-Trend Marketing.“We’ve been stick-handling guys through buying back contracts, buying back basis, repositioning them.”Many farmers hedge their upcoming season’s production by signing cash contracts with buyers or by selling futures contracts to lock in a price. It is a risk-reducing strategy so long as a producer doesn’t forward price more than a quarter or a third of his production, according to hedging experts. As long as a producer gets at least that portion of his expected crop, he has physical grain to offset any position exposure.But when producers end up with little or no crop seeded and the market moves against their position, they can be on the hook for large differences between the contracted price and the buy-back price.In the current rain-soaked situation, many farmers have less acreage seeded to crops they have pre-priced than they will need to fulfill contracts. They have seen prices rally in the past three weeks, causing the potential cost of buying out contract positions to rise sharply.Some crops, such as lentils, tend to have “act of God” clauses, so producers unable to seed are likely safe from most delivery obligations. But oats do not generally have act of God clauses, leaving those growers exposed.Jon Driedger of FarmLink Marketing Solutions said many buyers are being more liberal with unwinding agreements than they would in normal circumstances.“Companies aren’t too willing to co-operate if they suspect a guy is just speculating on the stuff and thinks prices can go higher, but I think in a lot of cases now, they’re trying to be not too bad about finding a way out of these things in a fair and reasonable way,” said Driedger.“It’s a case-by-case basis.”Some companies are charging administration fees to unwind contracts for producers unable to deliver.The difference between the contracted price and the current market price varies widely, based on when the farmer signed contracts. Driedger said many of his firm’s clients are OK on the futures-based price because they signed the contracts in late 2009, when prices were higher than they were before the rain-induced rally.Squair said his company made many canola pricing contracts last fall, when prices were higher, so many are still in the money.The same applies to most oat contracts signed through the winter. Oat prices stayed stronger longer than most other crops, so most growers contracted prices that are probably close to today’s prices, even after the tremendous run-up.Farmers late to move have been the ones hurt by the sudden market shift.“The guys who didn’t jump on it missed the boat,” said Squair.But for producers signed to prices lower than today’s prices, unwinding a contract could be painful.