Western Canadian Wheat Growers urges producers to honour contracts but also asks handlers for flexibility in some cases
The Western Canadian Wheat Growers Association is encouraging farmers and grain companies to work together to find co-operative solutions in cases where producers don’t have enough grain to fill production contracts.
WCWGA president Gunter Jochum, who farms west of Winnipeg, said his experience in dealing with grain companies has been positive.
Grain buyers in his area have been reasonable and have shown some flexibility in cases where the amount of grain harvested by farmers has fallen short of contracted grain volumes.
Jochum urged growers to talk with their grain companies, be up front and see if a deal can be reached.
“What we’re saying to farmers is you need to talk to your grain buyers. Don’t go in there guns blazing. Go in there, have a good discussion and find out what the options are,” Jochum said.
“There’s no reason to assume that they don’t want to work with you,” he added.
“Around here at least, what we’re seeing is that they’re quite willing to work with us … for what we have. And on buybacks, they’ve been pretty good as well, so far.”
Drought conditions across much of Western Canada this year have drastically reduced yields, leaving many farmers unable to fulfill contract obligations.
In some areas, growers will have virtually no grain to deliver, Jochum said.
But there are also instances where opportunistic growers have enough grain to meet their delivery obligations but are refusing to make good on their contracts.
Instead, they are opting to pay market differential and non-delivery penalties on the expectation that cash prices for their grain will continue to move higher.
Jochum urged framers to honour their contracts if they’re in a position to do so.
Grain companies have contract obligations to meet as well and the financial interests of the entire supply chain should be taken into consideration, he said.
In cases where growers are unable to meet their contract obligations, he urged grain companies to be flexible.
According to the WCWGA, different grain companies are taking different approaches to dealing with contract shortfalls.
Most expect growers to deliver as much as they can against their contracts. Some have agreed to waive administrative fees and contract penalties on the undelivered portion.
Other grain companies are allowing farmers to roll the undelivered portion of contracts into next year, essentially giving growers an extra 12 months to deliver their contracted tonnages.
But in other cases, grain companies are applying contract penalties and administrative fees as high as $40 or $50 a tonne.
Earlier this week, grower organizations representing the more than 44,000 grain, pulse and oilseed farmers in Saskatchewan issued a news release urging the Western Grain Elevator Association and its members to work with farmers and eliminate administration fees and reduce penalties for the 2021-22 growing season.
“Many farmers’ yields across the Prairies will be well below their crop insurance coverage and they will be unable to deliver on even modest grain contracts,” the news release said.
“If grain companies are unwilling to work with farmers to find solutions, it could severely impact the economic stability of a large proportion of grain operations.”
The intent of applying administration fees to grain contracts is to deter farmers from cancelling contracts when they have the grain but want to take advantage of a higher cash price.
However, when the farmer has no grain to sell, the deterrent is ineffective, producer groups argue.
Applying financial penalties on top of drought-related losses will worsen an already difficult financial situation for many growers, they said.
“That is why the commissions, on behalf of farmers, are asking the grain companies to eliminate administrative fees for the 2021-22 crop year,” the news release said.
Jim Wickett, a grower and WCWGA member from Rosetown, Sask., said this year’s drought has put everyone in a difficult situation, growers and grain companies alike.
Some growers contracted a larger portion of their crop than usual in 2021, hoping to take advantage of historically high grain prices, he added.
For them, the prairie-wide drought couldn’t have come at a worse time, he said.
Earlier this year, the WCWGA sought professional opinions on the legality of charging administrative fees on contract buybacks.
The organization is making the information it gathered available to any grower that currently holds a WCWGA membership.
“The greatest concern seems to be the difference in administration fees between the companies, on top of the market differential,” Jochum said.
“We understand that we must cover the market differential in a buyout, but some of the companies’ additional fees are excessive.”
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