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Veteran Advisor

Here's an interesting article on trying to get out of contracts.....

Are you guys hearing about farmers trying to get out of forward contracts on deliveries? Apparently in the UK it is a real problem.

 

21:54 UK, 28th January 2011, by Agrimoney.com
Grains rally 'prompts rash' in attempts at default

Soaring grain prices are prompting a rash of attempts by UK farmers to default on sales struck earlier the season at lower levels, a trader at a leading merchant has said, terming the practice "disgusting".

The trader said he was speaking to "one or two people a day" attempting to renege on contracts struck while prices were still well below the record £204.00 ($323) a tonne at which London's near-term March futures contract closed on Thursday.

London's near-term lot fell to £96.00 ($152) a tonne in June, before news of poor Canadian and Russian crops sparked the global grains rally.

"Farmers who have sold at £150 a tonne are trying to get out of it," the trader, who spoke on condition of anonymity, told Agrimoney.com.

"It's disgusting. I thought we were better than that.

"On more than one occasion we have had to write legal letters to people explaining their position."

'Grey area' 

Threats of default had been heightened by the snowy weather which hampered pick-ups in December.

"It created a grey area. Grain was not picked up when it was meant to be," a trader at a smaller practice said, who had required legal threats to secure a delayed pick-up in the Midlands.

"I don't see how a farmer can get out of a contract if it has been properly processed, although there can be ways and means [of defaulting] in some cases.

"I can see the temptation. If you had sold 500 tonnes at £100 a tonne, that's a huge difference on what you would get today. That would be worth risking your friendship with a best mate over, let alone a dealer."

'Very hurt' 

However, a large-scale northern grower said that he had heard of more attempts to default during the last price spike, since when many merchants have tightened up dealing practices.

Many, for instance, now scan contracts as they are sent to farmers as proof of postage, besides keeping phone records.

"Several [farmers] tried it with the 2007 crop and legal action was threatened," the grower said.

Nonetheless, many farmers were "feeling very hurt" at potentially low levels they looked set to receive, even from traders' grain pools.

"I do not think there will be many good results from merchants' pools for harvest 2010. One local merchant told me they have 40% of their usual tonnage for 2011 bought at levels sub-£130 a tonne."

The average price growers would receive this year was probably about £130-140 a tonne.

"A price of £120 a tonne was a very good one for a long time."

*Have merchants fair grounds for complaint? Are sales practices fair? Are farmers right to be upset about returns? Please send comments to newsdesk@agrimoney.com, saying which sector you are from, eg farmer, merchant or buyer.

The identity of all respondents will be treated in strictest confidence. Agrimoney.com takes no legal responsibility for any reader suggestions.

______________________________________________________________

* How do we stand regarding wheat sold in September to be collected in November and paid for December 2010??

There is still 115 tonnes on farm through no fault of our own and not paid for.

Grower, southern England

* Write to the buyer and inform them, as they are now out of the contractual period for collection, you are writing to inform them they have sold the wheat away. Contractually you need to write and say that.

Trader, southern England

* It seems not uncommon for growers to attempt the "I thought I had 1,000 tonnes but it seems like it was only 800 tonnes" ruse, creaming 200 tonnes off the top to sell under the counter at current levels.

Farm intermediary, northern England

A deal is a deal, struck on the day and if you were not happy on the day you should not do the deal. Don't winge afterwards. Be thankful that prices are up.

Farm intermediary, southern England


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Frequent Contributor

Re: Here's an interesting article on trying to get out of contracts.....

JR, there were a number of folks, not far south of you, that had fwd contracted more than they produced this past year, so imagine had to work something out with the buyers.  I'm sure there's been the usual smattering of folks trying to get out of poor sales, not unlike any other time the mkt has had a big rally; but, haven't heard of a lot of that.

 

The one thing I have been hearing is that there may be several IA elevators with Accumulator Contract issues.  One inparticular is of a company that wasn't very stringent on getting contracts signed, having several very large outstanding contracts up in the air at present.  The other is a few companies not putting on the offsetting side of the trade, or doing it incorrectly, putting themselves at risk, along with some monkey business with certain merchandisers & producers.

 

I've no idea of the scope of these contracts in the mkt place, or if it could be a deja vu of 1996 HTA scale or not.  Would be interested in others opinions there.  I don't think they're terribly prevalent in the 'ol HTA belt; but, know they were pretty popular in parts of central & west central IA last year.

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Veteran Advisor

Re: Here's an interesting article on trying to get out of contracts.....

Mark I know of several guys who forward contracted way to much corn around here. Funny thing was I went to one of them and offered to buy corn so much every month and we would pay the average of the close for the third week of every month. He said no way it was going way higher and he wanted to catch the up. turned out he didn't have enough for all his contracts. he's one hurtin unit now.

Also heard that big country is offering 1000 dollars for a three year lease. He offered to pay all uip front to some. I know it was a rumor but it gets to the coffee shop and then landlords hear 333 dollar rent and suddenly every farm is worth that! 

Well I need to go gotta think up more anti ethol slogans for my bumper stickers! HE HE

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Veteran Advisor

Re: Here's an interesting article on trying to get out of contracts.....

Always annoying to deliver grain priced well below the spot market and the temptation to ignore the contract and grab the extra$ is too much for some.

I do know that in Ontario a number of years ago a court case gave the contracting elevator the decision although the farmer had claimed he had no 'contract' just a word of mouth over the phone agreement.

The court agreed with the elevator that much grain was sold over the phone by 'verble agreement' and since this was a prevalent situation in the industry then the farmer had to deliver or pay up.

Since then more elevators have been working harder at mailing paper contracts but not always making sure they are all signed.

The 2008 pricing had a couple of famers selling their 'contracted' wheat to other elevators and not filling their contracts.

Their argument was they never signed and returned the contract.

Last I heard it ws in the court system, have not heard the outcome.

Elevator operator said he hated to do it but could not let them spoil it for others

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