Crop contracts – what to do if you are short of product

Aug 25, 2021

Contracting can be a useful way for farmers to market crop production and has become generally necessary to arrange delivery to a commercial buyer.

‘A crop sale contract is a legal business agreement between a seller and buyer,' says Neil Blue, provincial crops market analyst with Alberta Agriculture and Forestry. ‘Signatories to a contract should read it carefully, consider all the “what ifs?” and clear up any uncertainties prior to signing. A producer may decide to have it first interpreted by a third party, such as a lawyer, before signing it.’

A crop purchase contract usually specifies price, quantity, quality or grade, the delivery location and date, and sometimes the transportation method. Grain companies are in the business of buying and selling crops, so when they sign a contract to purchase crop from a producer, at some point they will have a contract to sell that amount of crop and grade to a domestic or foreign buyer.

For that reason, when a producer is unable to fulfill the volume or quality of a contract, the grain company needs to either find a replacement source for that crop in shortfall or face default penalties on the contract with their buyer.

In most years, a good time to consider contracting crop to lock in price and delivery opportunity is during the growing season when prices often rally, at least temporarily, in response to weather concerns.

‘Usually, incrementally committing up to 25% of expected production prior to harvest is a safe practice, but sometimes a crop production shortfall may still arise. Weather events or conditions in some years may prevent enough crop of the contracted grade to be produced, resulting in a shortfall to fulfill the terms of the contract. In that case, the producer who signed the contract may be liable for damages,’ explains Blue.

If a producer realizes that it will not be possible to fill the terms of the contract, they should advise the crop buyer of that situation sooner rather than later. The buyer may have obligations in place for processing and selling that crop contracted by the producer, so the buyer also faces a potential loss.

If the buyer can easily replace the crop contracted with the producer at the same or lower price as the contracted amount, there may be minimal damages to a shortfall on the contract. However, if the crop price has risen from the time that the contract was signed, the producer may have to pay the price difference between the contracted price and “replacement” cost for the volume of crop in shortfall.

‘In some circumstances, a buyer may be able and willing to roll the crop contract to a subsequent production year, subject to a price adjustment. However, that is not so feasible this year with current prices high relative to those of post-harvest 2022.’

The crop buyer will want to maintain a good relationship with the producer. The most important considerations are early communication of the pending difficulty in fulfilling the contract, followed by honest, open and civil communication. Farm or field inspections by a buyer representative may be necessary. Some buyers are suggesting that the producer, after advising the buyer of a potential shortfall, wait until after harvest to deal with the contract.

‘Participants in AgriInsurance through AFSC may be eligible for a payout for a crop production shortfall below their coverage level. In addition, the Variable Price Benefit of that program may provide some additional relief if there is a crop insurance claim,’ says Blue.

A contract buyout charge will be an allowable expense for income tax purposes. A buyout cost (excluding penalties and interest) will also be an allowable expense under the AgriStability Program. There may be some relief following a contract buyout for participants in AgriStability.

Source : alberta

Video: The 15-Year Bet Behind Every New Variety!

Canada is trying to decide how much agricultural research capacity it can afford to lose. Brian Rossnagel believes the better question is whether the country can afford to rebuild it.

The longtime barley and oat breeder makes the case with a simple fact about his profession: the consequences of today’s decisions may not become visible for 10 or 15 years.

“Pick the right parents. That’s the biggest thing,” Rossnagel says. “If you pick the wrong parents, you’re not going to get anywhere—and you don’t know that until 10 years, 15 years later.”

That warning carries particular weight as Agriculture and Agri-Food Canada moves to reduce spending and streamline parts of its science operations. The department’s 2026–27 plan anticipates the loss of approximately 665 positions by 2028–29 and says some research will be reduced where capacity exists in academia or industry. AAFC says the changes will make its science operations more cost-effective over the long term.

For Canada’s seed industry, Rossnagel’s career illustrates what is at stake.

This fall, the retired University of Saskatchewan breeder will be inducted into the Canadian Agricultural Hall of Fame. During his 35-year career at the Crop Development Centre, he helped develop more than 100 barley and oat varieties, including CDC Austenson—one of Western Canada’s most widely grown feed barleys. His induction recognizes not only those varieties, but the collaboration and research system that made them possible.

Rossnagel is quick to emphasize that none of it was the work of one person.

“The first thing I thought about was all the other people who contributed to whatever success I and my program had over the years,” he says. “We know that it’s not an individual who does this. It’s a group—a team.”

That team extends well beyond the breeder whose name appears beside a variety. It includes technicians, pathologists, quality specialists, statisticians, regional testing sites, seed growers and industry partners. It also includes the breeders who came before and those who will carry the germplasm forward.

CDC Fraser barley, for example, moved through three breeding careers. Its parents came from Brian Harvey’s program. Rossnagel advanced the material after Harvey retired, and Aaron Beattie later guided it through registration and release.

That kind of handoff is normal in plant breeding. The person who makes the original cross may never see the resulting variety reach farmers.

It also explains why lost research capacity cannot simply be switched back on when budgets improve.

“If you shut it off, it’s very, very difficult—and particularly costly—to start it up again,” Rossnagel says. “If you have to start from scratch, it’s going to be at least 10 years before anybody notices whether you’re getting anything done or not.”

The concern is not simply how many experimental lines Canada can process. Modern equipment, statistical tools and genetic technologies allow today’s breeding programs to evaluate tens of thousands of lines—far more than Rossnagel could handle when he entered the field in the early 1970s.

But efficiency and automation do not generate every idea.

“If you pare back down, and instead of having six or seven individual scientists concentrating on wheat breeding, you go down and say three people could handle all this, well, that’s half the ideas gone,” he says. “Particularly if you happen to lose the three people who had the really neat and innovative ideas, boy, that’s a problem.”

It is a timely distinction for Canadian agriculture. Consolidating programs may preserve the volume of material moving through a system, at least initially. It may not preserve the diversity of thinking, regional knowledge or willingness to pursue unconventional crosses.

That regional knowledge matters because Canadian agriculture is not one uniform production environment. A variety suited to southern Alberta may face different disease, moisture and maturity pressures than one grown in Manitoba, Ontario or Atlantic Canada.

“Agriculture is applied biology,” Rossnagel says. “Biology, all around the Earth, moves from the poles to the equator. It does not move from Newfoundland to B.C. like politics do.”