Man. farm group to offer education on production contracts

Grain contracts pose a risk to farmers, but educating producers is the best way to deal with the risk, says Keystone Agricultural Producers.

Severe drought and extreme heat this summer hammered crop yields across Western Canada. As a result, hundreds of farmers didn’t produce enough canola, oats and other crops to fulfill their contracts with grain buyers. Some farmers are facing contract penalties of hundreds of thousands of dollars for failing to deliver the expected grain.

After consulting with its members and speaking to representatives of the Western Grain Elevator Association, KAP leaders decided the farm group can provide information about grain marketing and contracts.

However, individual growers must take responsibility for their production contracts and their dealings with grain buyers.

“At the end of the day, no one is forcing you to sign a contract. And producers are business owners. Everyone runs their business differently,” said Jake Ayre, KAP vice-president, during a virtual meeting of KAP members.

He said KAP has received overwhelming support for the idea of leaving producer contracts alone.

KAP members and board members discussed the contract issue for about 20 minutes during its Oct. 20 virtual meeting.

Many had a similar position to Ayre, including Les Ferris, who farms near Holland, Man.

Contracts can be risky for both parties in the deal, he said.

If a grain company had suffered losses because of a contract in 2021, farmers wouldn’t let them out of the arrangement.

“If it started raining (this summer) and the futures market collapsed, we’d be the first there (saying) we want to be paid (at) the high prices that we contracted,” Ferris said.

There’s also the reality that grain elevators have customers further up the supply chain. If they don’t deliver to maltsters, millers and oilseed crushers, they could face contract penalties and reputational damage.

“If they let us out (of contracts), then they’ve got to get those guys to let them out of the contract. They’re caught in the middle,” said Chuck Fossay, who farms near Starbuck, just west of Winnipeg.

KAP doesn’t plan to aggressively lobby for changes to grain contracts, but leaders of the organization are willing to discuss the matter, if given the opportunity.

“We are certainly going to be talking with grain companies if they ask us — are there ways to improve the contracts and make them fairer?” Fossay added.

A few KAP members have doubts about the passive approach.

That includes Paul Gregory, who farms near Fisher Branch, Man., and operates Interlake Forage Seeds.

“Growers have to sharpen a whole bunch of skills and grain marketing is huge. There has been complacency in the canola industry…. It (the 2021 drought) has caught everybody offsides,” he said. “(But) when I trade seed internationally, I follow a set of rules. If my brother sells canola on his farm, there are no rules against the grain companies. It’s all one-sided…. Hopefully we can continue this conversation. It’s across Western Canada and I think it’s a large problem.”

One complaint from some growers is the lack of consistency.

In some situations, a grain buyer will let a farmer out of a contract.

In the next situation, it won’t.

“If it’s not done consistently, people may have different expectations. Then they get caught in a year like this, when a company says we’re not doing any of that,” said David Rourke of Minto, Man. “You can’t do it one way some years and a different way another year.”

Others suggested that rules are needed to reduce the financial risk.

This year, because of the high grain prices in the spring, some growers contracted a large portion of their cereal and oilseed production.

“Perhaps the grains and oilseeds committee (at KAP) could look at having contracts with limits on the percentage of (your) crop,” said George Graham of Foxwarren.

“Not allowing farmers to price 80 percent of expected production…. There are some big, big bills out there and we need to make rules to protect ourselves.”

KAP president Bill Campbell weighed in near the end of the discussion.

He said farmers are partners in the grain trade with elevators, railways and processors. Creating new rules around grain contracts could be detrimental to the movement of grain in Western Canada and might cause more harm than good.

“I hope everybody can understand the complexity of this issue, with regards to the grain contracts,” he said.

“As an industry, we need to be aware of the long-term implications of what we ask for.”

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