Canola growers in some areas are concerned about finding themselves in a short situation.
"If the weather doesn't break, there will be some farmers who will get caught with being short on their commitments, on their forward price contracts," says Rick White, general manager of the Canadian Canola Growers Association.
Attractive forward prices earlier in the year led many producers to sign forward contracts, only to have poor growing conditions result in much lower-than-expect production.
White explains producers should consider their options if they fear they could fall short on their commitment.
"Maybe you can buy yourself out of the contract. If that is very expensive, you may look to buy product from a neighbour to fulfill the remainder of your contract," he explains. He notes growers can try to roll delivery to the next crop year when more production will be available. Buying a call option can also help offset the cost of cancelling a contract.
Most importantly, White says growers should talk to their grain company as soon as possible. Some contracts include a clause making it the producer's responsibility to keep the company aware of possible contractual difficulties.
He adds the risk of being short this year will be a good reminder to growers to review the buyout clauses in contracts in future years. He also encourages farmers to educate themselves on the alternatives for mitigating the risk of being short.
In the end, some sunshine and wind may help growers avoid any short situations. "We are hoping that the weather will improve and that farmers will be able to get their production off, but we do know that there are an awful lot of late crops and crops laying in swath," says White.
~ Tuesday, September 28, 2010 ~