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Grain Contracts – making them work for you.

20 July 2021

Well sown, half grown is an adage often used when discussing crops but growing a good crop is only part of the job. Looking after the marketing, optimising financial returns, knowing your obligations and rights, and mitigating any hassle and potential disputes can help make a good harvest a very good harvest.

What’s in a contract?

Most buyers or merchants will have their own contract based on the current AIC Grain and Pulse No 1 contract, which is agreed in conjunction with both the NFU and NFUS and can be found here.

This should clearly list the basic or the express terms – the buyer and seller, the commodity, the tonnage, the movement period and whether it is sold ex farm or delivered to a destination. In addition, the contract will cover variety, quality specification, and payment terms. If there is anything agreed between the buyer and the seller specific to the farm- for instance, the grain must be moved by a certain date then that should also be noted.

All contracts will also include standard terms which cover insolvency, sampling and quality issues. Most merchants will also have their own terms of trade over and above this which are worth noting.  For some commodities e.g. Malting Barley there may be a list of fallbacks or deductions attached for screenings or even a scale for drying charges and weight loss.

While some grain trading will be done at very short notice, in most cases, the farmer will receive a copy of the contract. Most trades will be agreed on the phone and the verbal agreement is binding with a contract confirmation following. It is important therefore to take the time to check it and if something doesn’t look right- speak to your merchant as soon as possible.

What do you want from the deal and contract?

Apart from getting the best price, there are other things to consider when selling your grain. Knowing what you have and being realistic about it may mean a slightly lower selling price but could prevent hassle and costs being incurred further down the line. If you know your grain is perhaps light in bushel weight or the moisture content could be higher in the back half of the store – sell it accordingly. When agreeing your contract, ask that your grain goes to destinations that offer fallbacks if quality doesn’t quite meet specification rather than a destination that will reject out of specification grain.

There are other areas that you could and should make your merchant aware of. Examples include, if you need the sheds empty by a certain date so that you can take in livestock, make it part of the contract.  Likewise, if you need paid for the grain by a certain date, even if the grain is going to be moved slightly later than planned most merchants should be able to make the payment on time as if it had moved in the correct period.

Even your ability to ‘load out’ can affect your marketing – some farms may be limited to only a load or two a day or off farm work may dictate that you can only load in the mornings or evenings. Conversely, you may be capable of turning loads round very quickly and able to load at any time – this flexibility can be attractive to merchants and worth highlighting. If there is something you can’t do e.g. load out of hours then make your merchant aware of this when negotiating the deal.

While the grain contract itself may take a fairly standard format that doesn’t mean that you can’t negotiate some of the finer details to suit your own circumstances. This, however, needs to be done before the contract is finalised, there will be little scope for change after the contract has been signed.

Claims and Rejections

Sometimes things will not go to plan, despite having confidence in the quality and having had your bulk tested; you may receive that dreaded phone call that the lorry has arrived at the mill and the load doesn’t meet specification. There may be a claim or discount applied or worse – the load has been rejected. What are your rights? You could ask for a resample and retest although you may find yourself liable for any additional costs if unsuccessful.  Alternatively, you could ask for an independent analysis. This is where a sample is sent to an independent laboratory for analysis. This will either uphold the mills result and decision or show that it shouldn’t have been rejected – with costs incurred payable by the loser. This can also be used to challenge the analysis where a claim has been taken – although this case may be more relevant in commodities such as milling wheat where there can be significant fallbacks for Protein or Hagberg Falling Number.

Rejections do not help any part of the supply chain.  While to the grower there is the obvious cost implication; the ramifications are felt throughout the supply chain – hauliers have to reschedule or cancel collections from their next load- possibly from the same farm, merchants have to reschedule fixings to meet their contractual obligations and the end user may have to replace the load from elsewhere to ensure stocks are maintained or face a shortfall if they can’t.

Keep a sample of the grain being out-loaded – the contract will always be based on the sample taken by the end user however, having a sample from the load can be useful if issues arise. If a load has had a problem or the analysis is unexpected, it can be worth rechecking the rest of the heap and even slowing deliveries until quality is confirmed.

What if you can’t deliver on your contract?

A contract is a contract – and the grower will be expected to supply (not produce) the agreed tonnage and quality. Occasionally, the quantity to sell may be over-estimated or the quality may not be up to scratch. The buyer is within their rights to ‘buy in’ against the seller to fulfil the contract – while your contract is with the merchant, the likelihood will be that the grain has been allocated against a sale that the merchant will need to fulfil with or without your grain. This can be an uncomfortable situation for both parties however, if there is an issue after the contract has been agreed the best course of action is speak to your merchant at the earliest opportunity.  What happens will depend on how the market has gone in the intervening period; the merchant may be able to swap contracts around or you may even be able to do a deal using other grain to mitigate the situation.

While this has been a brief overview of grain contracts, there is one over-riding message to take away and that is – speak to your merchant if something isn’t right, whether that is in the contract terms and conditions, or you might have an issue delivering the contract. Likewise, if there are there any specific terms that apply to your situation that your merchant needs to be aware of, get in touch. This can allow all parties to work well together, with no nasty surprises and maintain a good working and trading relationship. If things do go wrong however and there is no satisfactory resolution, there is the option of arbitration. This will involve an impartial panel assessing the case with evidence to be provided by both parties. Damages will be based on the verdict and costs incurred by the losing side. This is a last resort and is uncommon with most disputes able to be resolved before this.

 

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