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Nov 22

Malting contracts: pros and cons

Posted on Nov 22 By: Curtis Haugan

Contracts can be a great way to attempt to secure a profitable finish with a maltster Credit: AB Archives
This autumn, as crops around the province were brought to harvest, the many days and nights of hard work, worry and diligence were largely rewarded. There was, however, something else working behind the scenes for certain farmers—malt contracts.

Before a seed is even put in the ground, meetings between growers and malting companies are scheduled and contracts are put into place. These contracts outline what will hopefully come to fruition by harvest.

Malt contracts determine how much quality malt will be grown and at what price. For both parties, contracts are meant to guarantee as much certainty as possible in what can be a whirlwind growing season.

For Kevin Sich, manager of grain development for Rahr Malting, contracts are a win-win scenario for both the grower and the maltster.

“For us, it’s great because we have expectations for acreage that are met by the growers,” he said. “It benefits the grower because he knows he has a specialty crop that there is a market for.”

As Sich explained, the ball can get rolling on contracts as early as January or February when malting company representatives sit down with growers to discuss what he calls an “intent to grow” contract. Around March or April, pricing is discussed and both sides sign on the dotted line for an agreed upon price and acreage.

One way a malt contract differs from a feed contract is in the Act of God insurance, said Sich. For every producer who signs a malt-pricing contract with Rahr, there is an option to sign a contingency in the event of hail, flood or any other so-called act of God. If tragedy strikes, or if the grower, for reasons out of his or her control, fails to meet the quality standards for malt barley, the grower is still paid out under the stipulations of the contract.

It may seem like a gamble, but Sich said the main goal is to find dependable, quality growers.

“We want to be out there and to have lucrative contracts,” said Sich. “That’s our mandate. But we also want to have that security, too. So we do our part to promote these production contracts and acreage commitments.”

Rod Green, a Central Ag Marketing grain broker, echoed these sentiments. His company brokers growers with maltsters and he said a good relationship between the two is priority No. 1.

“Even though you have a relationship with your broker, it doesn’t mean you don’t have a relationship with your maltster,” said Green. “The best way for a producer to strengthen a relationship with a buyer is to honour their contract, whether this be through delivering the grain on time or just using the best storing tactics possible if the deadline for pickup is further away.”

Malting contracts are becoming more popular with barley growers.

“I’m just a beginner,” said Tom Hadway, who has been farming near Didsbury for nearly 30 years and signed his first malt contract last year.

Hadway explained that he had never put much thought into whom he sold his malt to before because it always went to the Canadian Wheat Board. However, with the end of the single desk, he now has options.

“It’s a changing landscape and I have to keep up with these young guys,” he said, adding that he likes the assurance provided by a malting contract.

“For us it’s good,” he said. “You’ve committed early, grown the malt variety, done your best and now these companies give you preference at selection time.”

Quality issues, however, complicated the malt situation this crop year.

Shawn Gorr is an ABC delegate in region three and a farmer based near Carstairs and Three Hills. Last year, he was right on the cusp of signing a pricing contract with a major maltster.

However, as he recalled, in that particular case it was against his better judgment to sign.

“Nine times out of 10 you are going to get more for malt than you are feed barley, but it just wasn’t the case this past year,” said Gorr.

Rob McCaig, executive director of the Canadian Malting Barley Technical Centre, said this year’s barley has come in lower on the necessary protein for malt classification. Because of this, and the appearance of a higher demand for feed barley, some farmers have chosen to forego the malt market in favour of feed.

“Southern Alberta has plumper malting barley,” said McCaig. “The protein is lower and unfortunately most of that is going into feed.”

Gorr speculated that because of the U.S.’s severe drought in 2011, feed prices would become inflated. When it came to sign the pricing contract, he said it just didn’t make financial sense to grow malt anymore.

For farmers who haven’t yet landed a contract in the malt business, Gorr explained there is always an element of risk and reward. Four years ago, he had his malt rejected due to high protein. Yet the bad news didn’t stop him from trying again.

“The way I see it,” said Gorr, “it’s usually worth it every time to try for a malt contract.”

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