Steve Kell
Market Minute
The Ontario wheat harvest of 2021 has turned out to be a frustrating and perplexing experience for a great number of wheat producers as they have been forced to learn a lot about falling numbers, load rejections, and evolving discount tables. One of producers’ biggest issues is the fine print on their grain contracts.
In a “normal” year when there are very few quality issues with the Ontario crop, the lack of details in a purchase/sale agreement is not a problem. Quality parameters are often overlooked and discounts are ambiguous but in a year like 2021 it can lead to hard feelings and substantially diminished prices.
Since the start of wheat harvest this year, I have spent a lot of time reading the fine print on grain contracts from a plethora of different trading companies. One thing to understand from the very beginning is that there is a difference between grain “grades”, and grain “quality specs”. A Grade #2 CE Soft Red Wheat is a grade determination established by the Canadian Grain Commission, and has legal standing as a description of grain quality. In the case of a disagreement between a buyer and seller, samples can be sent to the Grain Commission for grade arbitration. Quality parameters such as falling number or vomitoxin levels are not a part of a CGC grade. Those additional specifications of quality are determined by individual end users and the range of acceptability quite often ranges widely between different end users.
The difference between end user quality specifications is a really significant issue for farmers in central and western Ontario who routinely deliver wheat directly into flour mills. In 2021, P&H accepts wheat with a falling number above 250 with no discounts, where Ardent Milling’s falling number discounts start at 275. If you are a farmer who has tested your wheat in the bin at home and knows that it’s around 260, it makes a really big difference whether you ship to P&H or Ardent. If you’ve sold your wheat to a third party grain broker, who makes the decision about where your wheat goes and which set of discount tables are going to be applied?
This is where reading and understanding everything that is written on a grain contract is really important. If a farmer sold “#2 CE Soft Red Wheat”, can it be discounted for falling number, when falling number is not a determinant of the grade #2 which he agreed to deliver? The answer to that question varies widely depending on exactly what other parameters are laid out in the 1 or 2 pages of “terms and conditions” which are often attached to, or on the flip-side of the purchase agreements.
There is an enormous range in terms of the specificity and details in grain contracts. P&H’s contract for example describes #2 CE Soft Red Winter Wheat with a maximum 2.0 ppm vomitoxin, minimum 250 falling number, and a maximum 10.5% protein. If you sold them wheat for 2023 crop delivery, there is no confusion in either the grade, or three main quality constituents which you agreed to deliver to them. There’s another grain trading company whose paperwork describes wheat grade as “2CE Soft Red – #2 Milling”. Now since “#2 Milling” doesn’t mean anything since different flour mills have different quality specs, there is a lot of room for an argument to break out down the road. There’s another grain company whose paperwork reads that by signing the contract you give them the right to record your telephone conversations.
Another thing to keep a careful eye on is that receiving specs and discount tables evolve as the season rolls along. At the beginning of the 2021 wheat harvest, two Hamilton terminals were receiving wheat based on visual Canadian Grain Commission grading, and then shifted to testing for falling numbers and applying discounts based on falling numbers. Then later, the size of the discount was adjusted. The reality is that those terminal operators also have a sales customer on the other side of the transaction, and that price discounts based on quality are a gateway to control the flow of off-spec material.
Probably the most collectively crazy thing which Ontario grain producers do is that we tend to sell grain picked up at the farm without nailing down exactly where it is going or precisely what the quality specifications or discount tables might be in play at the time when it gets delivered and paid for. This is a bit like if you sold a used pick-up truck and after you and the buyer agreed on the price, the buyer then said, “I’m going to take this to my mechanic and have him go over it, and then I’ll deduct whatever he says the repair costs will be when I pay you for the truck”. There’s some chance that this would work if you could both agree on which garage it was going to, and you both trusted the mechanic. But if it is entirely at the buyer’s discretion where the truck goes and who looks at it, the seller has assumed all of the risk in the transaction.
Every version of grain company computer software that I have ever worked with has the capacity to write in additional terms or comments on a grain contract as it is being entered, so regardless of whatever standard boiler plate terms and conditions already appear on your favourite grain buyer’s contract, you can ask them to address your specific concerns. You’ll want to eliminate any ambiguity regarding where the grain might be delivered, and eliminate destinations which are potentially problematic.
Find the time to read all of the fine print on any grain contracts. Don’t be shy about asking for certain things to be written in on any future grain contracts. The worst thing that can happen is that the buyer says “no”, and even then asking the question allows for a good conversation about how a quality issue would be dealt with, which at least can avoid a surprise in a later year.
“What happens if….?” Is an important question when writing up grain sales. Not asking that question in advance can prove to be really expensive.
Steve Kell is a Simcoe County crop farmer and handles grain merchandizing for Kell Grain, with elevators in Belleville and Gilford.
