Last week, on CCG Hub, we explored farmer questions around contracts and delivery terms [read article]. This week we turn to contract cancellation and defaults. Knowing how defaults are treated is particularly important in years when crop quality and quantity is uncertain, and where significant price volatility exists in the market.
What happens if I fall short in meeting the contracted quality or quantity?
Grain buyers are only obligated to buy the quality and quantity stipulated in the contract. A schedule of discounts will likely apply to the lesser quality, and a financial penalty to shortages of quantity. Your grain buyer may be in the position to discuss alternate solutions, so the sooner you speak to them the better your options may be. Farmers who find themselves in a "short situation" with a deferred delivery contract, may want to read CCGA's Hub post "What to consider when in a short situation."
How are liquidated damages calculated?
The terms and conditions of most grain contracts outline precisely how damages will be collected. The formula is normally an administration fee, plus the difference between the contract price and the replacement cost, plus any additional losses the company will incur. If your contract doesn't stipulate the process for collecting damages, ask your grain buyer how damage is assessed and consider including this in the notes to the contract.
Do contracts contain Acts of God clauses?
Act of God or Force Majeure provisions are rare in grain marketing contracts. A handful of companies do provide them, but they are generally offered at a premium or available on specialty or production contracts.
Can I get out of my contract?
Once signed, the terms and conditions of your grain contract are binding and subject to relevant provincial and federal law. Most often, the contract can't be broken without buying it out or paying the liquidated damages.
Want to learn more about grain contracts? Read CCGA's A Practical Guide to Navigate Grain Contracts. You can also call 1-866-745-2256 to request a free copy by mail. Also, read the September 2017 Issue of Canola Digest.