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Farmers advised on
how to deal with grain contracts

Aug. 2, 2012 | 0 comments

One of the pressing problems with this year's drought is that farmers may have contracted grain for delivery at harvest and now may not have that crop to deliver because of dry and hot conditions that have destroyed their crops.

Troy Schneider, a partner in the Chilton law firm of Twohig, Rietbrock, Schneider and Halbach, advises farmers who are in that position to start communicating with their grain buyers now.

Speaking at a drought session in Waunakee organized by the Wisconsin corn and soybean growers associations and promotion boards, Schneider said that grain contracts are legally binding but that some grain buyers are willing to work with farmers because they have a long-term relationship and because they want to do business with them again.

"Many times grain buyers will work with farmers and negotiate a settlement, but it's important to start the process as soon as possible," he told the 250 farmers who gathered for the session.

There is some legal question in Wisconsin if a farmer is a "merchant" under state law for the purposes of making these grain contracts, he said.

He advised farmers to meet with some professionals - an attorney or some other trusted advisor - and then work with the cooperative or grain elevator to "mitigate your damages."

"If you can't fulfill your contract," he said, "work through those situations with your attorney. It's better than just sitting on it.

"As a farmer you do have some tools in your toolbox."

Schneider pointed out that in many cases the farmer will have a contract with a grain business they have done business with for a long time and that may make it easier to come to some kind of settlement.

Farmers may have to buy out or roll over a contract for a fee, and it will cost them money but that may be one way to handle the situation.

Though contracts are meant to be honored, both parties have a duty to "mitigate their damages," he said. "You won't get out of the contract but you may get it reduced. The issues aren't necessarily black and white."

"What does the reasonably prudent grain buyer do? That's where the room for interpretation comes in," Schneider said.

Some grain buyers may be willing to roll contracts forward into 2013 but "if everyone did that elevators would be in a tough spot."

He reminded growers that most grain elevators will have hedged the contracts or made sales into the future and will have their own obligations; they have end users who want the physical product - corn or soybeans.

Those end users may be cattle feeders, export markets or ethanol plants who need corn, not a piece of paper.


Heather Golz, a crop insurance specialist with Badgerland Financial in Janesville organized meetings for growers in Albany and Monroe to help calm fears of what might happen at harvest time.

She agreed that communication as soon as possible is the best avenue of defense in this drought year.

"Absolutely farmers should communicate with their grain buyers and with their crop insurance agents. Insurance will provide the means for farmers to fulfill their contracts."

Most elevators that have made contracts will want the physical grain delivered, she said, adding that despite drought fears, grain will be available for deliver.

"There is corn out there in many parts of the Midwest and across the country," she said, in a telephone interview. "There are parts of Illinois that look okay and parts of the Corn Belt where there is pretty good corn."

Soybeans may fare even better. "I think there are some soybeans that will make 100 bushels to the acre. Of course there are also some that will make zero and that's unfortunate."

Many farmers who made corn contracts in the spring did so at the $5.50 level. Their crop insurance payments this fall will be based on the October prices in the marketplace.

Those insurance payments will help them buy the number of bushels they will need to fulfill their contracts, she said. If they can't find grain to fill the contract, which Golz believes will be unlikely, they can use the crop insurance money to buy out the contract.

Golz said that the percentage of farmers protected by crop insurance varies from one county to another. In an earlier market penetration study, Badgerland found that some counties had 85 percent of farmers covered by crop insurance and others had 60 percent.

She noted that crop insurance isn't affected if farmers want to grow a second crop on their land in an effort to grow feed for their livestock, but it can't be insured.

"If the farmer has insurance that first crop will be insured but the second crop is uninsurable in the state of Wisconsin."

Golz noted that the government is helping farmers out with their crop insurance in light of the drought, by extending the premium deadline to Oct. 31. That means farmers basically get one more month to pay that premium and it's interest free, she said.

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