Are grain companies letting farmers out of purchase contracts?

[RICHARDJ]

I think I am going to court. When I signed up they said if you have a crop failure they rip it up, today they are saying you must deliver.

[melvill]

Just this morning I had a phone call from a producer who signed two DDCs (called Purchase Contracts by the company) for barley with a grain company. He signed with two different staff on two different days but at the same location. In the first instance, the person he talked to when he signed the contract told him that if there was no crop, the company would let him out of the contract. In the second instance, he talked to the manager of the facility. The manager told him that the company didn't like to "tear up" contracts for no crop and didn't generally make it known that they do "tear up" contracts but that they would do it if there was no crop.

Now the manager is demanding that the producer buy barley (or provide an equivalent cash offset) to replace the barley that he can't provide due to drought.

I have seen both of these purchase contracts and neither specify any outcomes if the producer defaults on delivery of the product. The contracts are a single page specifying only type of grain, grade, tonnes, price and delivery period. I've asked the producer to contact the company to see if he wasn't given additional specifics on default by either party.

In this case, there seems to be a verbal contract in addition to the written one. However, who knows what the legal world will devine from this.

However, the best advice is that producers should notify the grain company as soon as they know that they can't live up to their delivery commitments. Unfortunately, that often isn't the case due to embarrassment or fear of the consequences.

[melvill]

One more thing I forgot. Take all pages of the contracts to a lawyer and ask for his/her interpretation. It never hurts to go to the grain company from a position of knowledge rather than "with hat in hand".

[TOM4CWB]

Lee,

I expect to deliver all priced contracts I signed... on the unpriced basis contracts, the situation is different.

If the Grain company takes a specific market position, (a futures offsetting position) then I have a moral and legal obligation to pay the costs incured by the grain company, that I created by my decision.

On the basis side, the basis levels have not changed signficantly from this spring, so the grain company an replace the grain I will not deliver with someones that can deliver now.

A word of Caution...

If a farmer refuses to pay reasonable compensation to grain companies who hedged and take a market position... then the likelyhood of hedging in the future with all grain companies is greatly put at risk.

The grain companies keep lists of those who have caused legal problems, and who fail to live up to their legal and moral obligations...

And why shouldn't they?

Shouldn't farmers be responsible for their actions?