Farmers need to be extra careful with grain sales because of the credit crunch.
Good intentions from a buyer aren’t a substitute for money in the pocket.
“You don’t want to ship it, get 10 percent up front and hear, ‘we’ll get the rest to you after Christmas sometime,’ ” said Jeff Nielson, president of the Western Barley Growers Association.
“It’s just not worth it.”
Alberta Agriculture marketing expert Charlie Pearson agrees, suggesting farmers tighten up the casual lines of credit they extend to buyers.
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“Don’t get too far ahead. Maybe only go a load at a time, rather than deliver 10 B-trains at once,” said Pearson.
“You deliver a B-train, get a cheque in your hand, get it deposited, know it’s cleared, then deliver the next B-train.”
Elevator companies are partially covered by bonds with the Canadian Grain Commission, but many grain buyers fall outside that system.
Pearson and Nielson said many farmers have learned from troubles in the past few years in the cattle, hog and pulse industries that getting paid for deliveries can be a problem.
With the present credit crunch putting stress on many businesses, it is time for producers to rely on prudence to avoid big problems.
Pearson said farmers sometimes get seduced by good prices offered on the internet or by other advertising. But those prices can be the sign of a business taking too many risks.
The reliable buyer a farmer knows and trusts can be a better bet.
“Be comfortable with yourself that they’re financially stable and able to pay,” said Pearson.
“Sometimes that means not necessarily getting the best price because the best price may be not the best chance of getting paid. You have to look at who you’re dealing with.”
Pearson said many grain sales are made without cash on delivery. That can be OK with a trusted buyer, but the farmer should still pay attention.
“If the deal is you get paid in 30 days, follow up and monitor, because if it’s 31 days and you’re not paid, it’s maybe the first sign of some problems,” said Pearson.
Nielson’s organization has been developing a clearinghouse program that will allow grain buyers and sellers to avoid the risk of “counterparty risk,” which is the chance that either side won’t follow through on a deal.
In times like these, thinking about risk makes sense. After all, even if a buyer intends to live up to a deal, he can have trouble if his own credit is cut.
“You don’t know how they’re financing themselves,” said Nielson.
“Whenever you’re dealing with an independent broker or the feedlot down the road or a small, independent grain company, you need to be careful.”
