Some licenced grain buyers are having trouble meeting their security obligations, warns the Canadian Grain Commission.
High grain prices have bumped up liabilities and some smaller licensees have fallen behind in posting an adequate bond with the federal government agency.
Extreme volatility in grain markets increases the risk of being caught on the wrong side of the market and makes it difficult for buyers to use futures markets to hedge against such risks.
In late June, the commission sent a letter to licensees and farm groups warning of “increased transaction risk” this fall and winter.
Read Also
Agriculture ministers agree to AgriStability changes
federal government proposed several months ago to increase the compensation rate from 80 to 90 per cent and double the maximum payment from $3 million to $6 million
“We’re encouraging some caution in light of the higher prices and volatile markets that we’ve seen over the last few months,” said CGC chief commissioner Elwin Hermanson.
The agency is keeping close tabs on five or six licensees and watching a few others that are not as financially healthy as it would like. Hermanson would not release the names of the companies under scrutiny due to privacy laws.
“We do see some stress at some of the seams, so we’re trying to take some pre-emptive action to try to deal with problems that could occur.”
Those actions include asking for additional security or reduced liabilities from the companies in question. Failure to respond promptly will trigger a formal request for security with a specific deadline, followed by an order to address the shortfall.
If the licensee does not provide the additional security by the deadline its licence will be suspended, revoked or not renewed. The public would then be notified of which companies have lost their licences.
Maurice Berry, chair of Saskatchewan Pulse Growers, is pleased to hear the commission is cracking down on grain buyers.
“That’s the grain commission’s job – to make sure that farmers are protected.”
The association shares the commission’s concern about the heightened risk of buyer liabilities exceeding their posted bonds. Saskatchewan Pulse Growers published an article about managing that risk in the June issue of its PulsePoint magazine.
“With such high prices, the stakes are a lot higher than they have been in the past,” said Berry.
“Farmers need to be diligent in their dealings to make sure everything is being done as it should be.”
Producers have been stung in the past.
In 2002, growers got 51 cents on the dollar when Naber Seed & Grain Co. Ltd. went out of business, leaving 112 farmers with $960,000 in unpaid deliveries.
Two years later, the 27 producers who delivered product to Venture Seeds Ltd., got $150,000 of the $536,726 they were owed.
Some of the companies the commission is monitoring have shortfalls under $100,000, while others are “quite a bit more” than $100,000, said Hermanson.
But the onus to safeguard farmers isn’t entirely on the grain commission. Producers need to protect themselves, primarily by demanding prompt payment and putting the money directly in the bank.
“It’s surprising how many farmers take their time in cashing their cheques or defer (payment) for a period of time longer than might be wise,” said Hermanson.
The longer farmers defer payment or hang onto their cheques, the greater the risk of getting bitten.
Producers who do not cash their cheques within 90 days have no protection.
If Bill C-39, now before the House of Commons, becomes law, the security component of the Canada Grains Act will be gone. The federal government and a number of farm groups are working on alternative producer security arrangements if that happens.
