I don’t know about many of you, but in my opinion, the hardest part of farming is being successful at marketing each year’s crop. Being wrong by selling too early, or too late, is something all of us as farmers should have learned to deal with. Let’s face it, none of us have crystal balls, so we do the best job we can. Some years we do a better job marketing, and other years we don’t. However, unless we miss major moves in the market, the monetary ramifications are usually not severe.
But, what happens when your marketing does have severe ramifications? For example, what happens if you forward contract and a 1988 style drought comes along? Surprise! Or, a tornado or hail wipes out your crop? In other words, what rules will govern your rights and responsibilities when forward contracting grain sales?
To begin, grain contracts are generally subject to commercial law that is the same across all states. The Uniform Commercial Code (UCC) has been developed and, with some modifications, enacted by every state. Article 2 of the UCC generally will cover forward grain contracts.
The Making of a Contract
Typically, a farmer calls the elevator and places a forward sale. No written contract is entered into, so the farmer has no idea of the terms and conditions of the contract. The elevator then generally sends a letter of confirmation or a form contract to the farmer. The UCC protects the farmer by providing that these unwritten contracts are only enforceable if a writing and confirmation is sent to the farmer in a reasonable time. Once the farmer receives the writing the farmer has ten (10) days to provide written notice of the objection to the elevator of the terms of the contract. If no objection is made, then the contract language stands.
As with many legal contracts, grain contracts will contain a vast amount of language that is not easily understood by many farmers. However, it is important that a farmer read the contract so as to try and understand how different circumstances will be handled. For example, under the UCC, a seller is excused from timely delivery if performance is not possible due to unexpected circumstances. However, farmers are generally not excused for drought, floods, etc. Court cases have found that the farmer will be excused only if the contract called for the crop to be grown on a certain farm. Sometimes, contracts will include a “Force Majeure” clause, that essentially frees a party from liability or obligation when an extraordinary event or circumstance beyond the control of the parties.
Interestingly, I have reviewed grain contracts that give the elevator the ability to be excused from performance or declare a “Force Majeure”, but specifically say that the farmer cannot. How is that for fair?
Of all the terms in a grain contract, I would think that the ability of the farmer to excuse or delay performance would be most important. At the very least, there should be equal terms for both the farmer and the elevator to excuse or delay performance.