Alberta Barley

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Nov 18

U.S. grain trading: devil is in the details

Posted on Nov 18 By: Gen Handley

Western farmers looking to sell their barley, wheat and durum to American buyers need to understand their contracts in order to manage their risk.  Credit: Jeremiah Thompson/Stock Photo
According to barley growers north and south of the border, you need to know as many contract details as possible before selling in the open market.

“Farmers are going to have to be more careful of the contracts they’re signing,” said Brian Otto, a southern Alberta barley grower and Chair of the Barley Council of Canada working group. “In this new environment, you really need to know what the specs are and what the buyer is looking for.”

As Terence Koshman sees it, the devil’s in the details.

“What you’re quoted and what you receive could be two different things if you don’t ask the right questions. In an open market, you need to know who you’re dealing with,” said Koshman, marketing and logistics manager at the Lethbridge Inland Terminal, a southern Alberta producer-owned and controlled grain handling company. “The biggest component that producers need to manage isn’t the price, it’s the risk.”

This risk is a factor that is of concern to not only Canadian farmers who may want to sell their own grain south of the border, but their counterparts in the U.S. looking north of the 49th parallel, as well.

“Of course it makes business sense to know your buyer, to have a trusted buyer,” said Kevin Bradley, a barley and canola producer located south of Del Bonita, in Montana. “You have to know who you’re dealing with.”

While Bradley could take his barley north, he chooses to sell his barley in Montana because the malt barley market is quite strong.

“I don’t go north of the border because I don’t need to,” he said. “I usually take my barley to Great Falls.”

Graham Gilchrist, an assistant farmers’ advocate at the Farmers’ Advocate Office (FAO) in Edmonton, agrees with treading cautiously when signing new contracts. The FAO ensures rural Albertans have consumer protection, rural opportunities and fair process. The FAO’s mandate also includes risk management, developing negotiation strategies, contract management and proactive pre-planning.

“It’s a buyer-beware market,” he said. “First of all, the general rule of thumb is to read the contract. No. 2 is to have cash upon sale, not cash 30 days later.”

“Rule No. 3 is to read the contract,” he re-emphasized with a small laugh. “It’s very important.”

He added that if the seller negotiates a later payment, make sure that certain precautions are taken.

“If you want to do it on some deferred sale, then take the appropriate steps to protect that—so get a storage ticket or a warehouse that says until you get cash, the grain is still yours.”

The FAO and Alberta Agriculture and Rural Development (AARD) are currently working on a publication to help grain growers sell their product to the U.S. market.

“Farmers should do their homework and make sure it pays to ship across the border,” said Charlie Pearson, a crops market analyst with AARD. “This involves making sure they know the prices they will be paid, all the costs of shipping the grain south, like trucking and brokerage fees, and compare this to price paid at the bin in the local market.”

Pearson said that farmers need to make sure to do their research before selling in the U.S.

“Farmers should make sure they have done their due diligence on their U.S. customers to make sure they will be paid in full and not have any other hassles,” said Pearson. “Similarly, they need to make sure that are fully aware of all the clauses in their contract, including quality required and payment terms.

“If there are disagreements, the Alberta farmer will be seeking resolution in the U.S. court system. They should make sure they understand all the U.S. and Canadian border rules, including Home Land Security rules and border notification.”

Echoing these words of caution, when selling barley in the U.S., Otto recommended asking for a Freight on Board (FOB) farmyard price, the amount he is paid at the bin, guaranteed in writing.

Despite the needed caution, Gilchrist said the open market is definitely a benefit to the barley and grain industries.

“The producer is now free to market where they can get the best price,” said Gilchrist. “So they can now take it to a terminal in Edmonton or they can take it down to Great Falls.”

Otto said he believes that the barley market will become more competitive, in addition to the increased selling freedom.

“What I see happening in our barley industry in Western Canada is we’re going to see prices more reflective of world barley prices, instead of a captured internal market like we had when the Canadian Wheat Board (CWB) monopoly was in place,” said Otto.

He added that what the CWB offered under the old marketing system, often influenced feed prices.

“Now farmers will have access to more reliable, transparent price signals that will allow them to make more informed business decisions about what types and how much barley they grow, depending on the global market,” he said.

For those looking for assistance on cross border grain marketing, brokers are available for hire to negotiate and safeguard complicated barley contracts.

“There’s really two options available,” said Gilchrist. “One is to hire a broker who moves product, on a regular basis, across the border—they require a brokerage fee, but these services could be worth it. The other is to move their product themselves, but then they’re totally liable for complying to the laws of the land.”

According to Otto, brokers not only help navigate contracts, they can serve as conduits to new markets.

“As a farmer, I think we’ll need to pay more attention to price signals,” he said. “We have to start looking at expanding our contacts with who’s buying barley and what they’re paying for it.

“I think we should be talking to brokers who have those contacts. Brokers are just the price of doing business.”

To help farmers on both sides of the border benefit from this new market, the Grain Growers of Canada (GGC) helped develop a website with about 10 Canadian and U.S. grain groups. These groups include the U.S. Wheat Associates, the Northern Grain and Feed Association, the Canada Grains Council and Agriculture and Agri-Food Canada.

“We had a really good collaborative group on our side and the Americans had a really good group on their side too, working on this site,” said Richard Phillips, GGC executive director. “There were a lot of conference calls and e-mails and we put all of it together. I think we created something really useful.”

To see the website and for more information on Canada–U.S. seed and grain trade, visit www.canada-usgrainandseedtrade.info.

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