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Grain contracts

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Reid1650

Member
Long story short the man I rented my ground from (first year was 2010) told me ground was 400 acres i contracted 4000 bu at 9.33 and 2500 at 9.39. Got the ground sprayed and it was only 120 useable acres. I had already signed the contracts and sent them in. Getting ready to combine the beans and I know they wont make 60 bu/ac. I am 21 and still learning so take it easy on me ;). What are my options here? I know I cant fill all the 2500 bu contract and pretty sure I can fill the 4000 bu contract and for sure dont have enough money to buy the 2500 bu contract. What can I do? Thanks guys
 
If I understand you right, you were told and you thought that the ground was 400 acres and it turned out only 120 acres?
 
If they would make fifty you will be 500 short.

You will have to pay the difference between cash price and your contact. Or about $2.00 a bushel.

May cost you $1000 dollars to get the contact satisfied. The whole 2500 bu contract buy out would be about $5000.

Could be worse.

Hope you rented so much an acre and not lump sum for 400 acres.
 
Forgot to add what month are your contracts for? Maybe you should ride them out as I don't think beans will go much higher. Better chance of them going lower at which time you still could make some money on your contracts or at least lose less.
 
if you only have 120 usable acres out of 400, I would consider it you fault. Don't know when you contracted, but when you first plowed or planted you should have known you didn't have that many acres. Ray Charles could see that approx. 1/3 of that wasn't usable. Did you put enough seed for 400 acres there? Or did you have a lot of seed left and wandered why? What would have happened if you hadn't had it sprayed? You still wouldn't know?
 
I contracted for fall delivery. I planted after the ground was sprayed. The day it was sprayed I was picking up my seed. The gps in the sprayer is how I know it wasnt 400. There is a lot of ground in the middle of the farm that was too wet to get on before planting and once I got back there it was all wooded. The man is known for being shady, I learned this afterward. Im not renting from him again. Again I am 21 and still learning.
 
I'm afraid you have a real problem on your hands. Nearly all brokers expect the contractee to fulfill their side of the agreement. Only once in a very great while do you hear of a broker having mercy on a client.
I am trying to figure out how a big variation occurred between anticipated acres and actual acres. I always verified new acreage via FSA data and I guess this is a lesson for the future for you.
I don't know enough about your relationship with your landlord to say if you have legal recourse against him. It just seems unlikely that he would pull the wool over your eyes for the big variation in acres and expect to get away with it.
I guess I would get on the phone first to the contract broker and see if they would agree in allowing part of the contract to be fulfilled in the future (maybe with part of next year's crop). I don't expect them to budge on the agreement but you don't know until you try. Next you need to review any documentation of the dealings with the landlord and see if you misunderstood any part of the rental agreement. If there is no glaring issue in regards to your understanding of the rental arrangement then you need to talk to a lawyer about what recourse you have with the landlord. If the relationship with the landlord is worth maintaining then you need to try to have dialogue with him based on any legal advice you obtain to resolve your grain contract. If you cannot and the lawyer thinks you have a good case then you will have to have the lawyer go after him.
 
IaGary thank you for giving me a knowledgeable answer. I love farming and have built my operation and bought all my own equipment starting in high school. I am trying to build a little bit every year and I want to do this for life. I am still learning. Thank you for your help.
 
I would discuss this with an attorney since you rented for 400 acres. The owner should have known how many acres he had. Hal
PS: You probably should've said something when you found only 120 acres.
 
How on earth could the land go "from to wet" to "all wooded" that fast? If you dident know this when you rented, what were you looking at? You need to go over the land in a truck, atv horse or mule so you know what you agreeing too.
 
I have gotten my money back from the landlord and only paid him for 120 acres worth. I am not going to deal with him again and I made of mistake of not going to the FSA office to verify the acreage.
 
The ground (usable lane) was wet last fall and over winter. I didnt actually get the lease signed until about a month before planting. The land in the middle, that I couldnt get to, ended up being all wooded. I was just asking advice on the contract. I understand I went in a little blind. Take it easy
 
Did you have crop insurance?

Did you have to pay rent on all the acres or just the planted acres?

Did you apply for prevented planting if you had crop insurance?

Just trying to get you some more money.
 
No crop insurance as this was first year ground and it had no base. Never been cropped before other than corn the year before by a different guy. Only paid for the useable acres. Thank You
 
All land has a base.

If you have no crop history the county average is used.

Ask your local agent.
 
Many times grain values go down at harvest, and you woulda still been in real good shape - either buy grain from neighbors & deliver, split the difference with your neighbor of what your contract made over current prices; or talk to the coop/ buyer & work out a buyout of the contract, you sometimes gain a little cash even if you can't cover the contract.

But this year is topsy turvey, and they will really want their cheap grain, they won't easily let you out of the contract for free. Beans are expensive now, they want the cheap stuff you agreed to bring in.

I'd have talked this over with your buyer/ elevator in spring after planting, and you coulda worked it out then a lot cheaper than now. It really is best to keep communications open with these buyers, and let them know what is going on/ happening. Likely this will be a business you want to work with for many decades to come; you don't want to slam them with surprises, but let them know as soon as you do that there is a problem.

Most of the time most of these folk will work something out with you. Allow you to roll the contract into next year for a little bit of extra money from you. Or let you buy out the contract for the difference of today's prices compared to what you contracted for.

But, the sooner you talk to them, the more options they will have, and the more willing they will be to work with you.

Don't hold back & put this off. Talk to them. Sooner is better. Work with them. You will want them to like you decades from now. Being open about it, early on, let them give you options, will help you down the road.

If you wait until the last day of the contract, and don't deliver - then they will have space reserved in their storage, they will be expecting your beans so they can deliver them on to their contracts that they made, and you put them in a bad place. Then they kinda sorta enforce the wosrt parts of the contract against you.

If you'da mentioned this to them in June, they coulda planned, and would have worked with you a little easier.

Not trying to be hard on you, just - think about it from their side, and then it all comes a little clearer.

They likely will work with you & make it easy to pay out the missed bushel difference, or roll the contract into a future year for some dollars. But you hit a bad year, where this will cost you a bit, and will likely cost them a bit too.

--->Paul
 
If you are lucky the broker will agree to IA Gary's solution but sometimes the broker will expect you to solve the shortage on your own. Are all the inputs (fertilizer, seed , spray, etc.) all paid at this point? Does your agreement with your suppliers call for any debt to be paid for first from the crop proceeds? Are your supplier's names on your checks from the broker along with your own? If the broker tells you that you are fully responsible (that is they will not help you close the gap) do you have the funds to buy the difference in the contract to finish?
Again I hope you could agree just to pay the difference in the contract for contract and current cash price for the volume in question but sometimes the brokers don't go for it.
 
We had a guy come into our area several years ago and he was going to show everybody around here how easy it was to make a fortune in farming. Long story short, his farm sale was last spring. One of his downfalls was that he was doing everything by the book, which works if everything goes like the book says it will. "The book" forgot to tell about what happens when it doesn't rain at the right time. Anyway he came up many, many bushels short on his contracted wheat. The elevator let him, with a monetary penalty, deliver the rest of the wheat the following year, which he barely had enough to cover then. I don't know how much it cost him, but that may be an option for you, pay a small amount and roll your contract over to next year. BTW this guy was a stock broker!!
 
remember the adage about counting your chickens before they hatch? I don't forward sell alot,either what crop ins. will guaranteen or when I am pretty certain of getting something, theres alot of difference between 120 and 400, you may need to deliver the grain instead of paying it off in that case your screwed, or if you can buy the contract sell it somewhere else and use todays higher cash prices to get enough money to pay them off, that down on your cheeks will turn to whiskers eventually!
 
Glad to see you tryin to live out your dreams. Best of luck. Pretty well I think your gona have to buy out your contract on what you fail to bring in unless you have some stored in a bin. I know its agravating to think youll have to be out that money but like gary said it could be worse. Contracting can be a really good advantage especially if you have little or no storage. Its hard to contract and know how much to do sometimes especially on unfamiliar ground.
 
I wish you betterluck in the future. We all learn some lessons by our own mistakes. In the future you might want to learn how to use futures & options. Marketing grain is one of the hardest part of grain farming. But don't be afraid to use combinations of fwd contract, futures, & options. Remember, once you have planted a crop you become either a speculator or hedger.
 
Your dealing with the wrong broker if he won't help get the bushels to fill the contact if you agree to pay the price difference.I would never deal with a broker that is acting in the way you describe and no one else would either and he would be out of business.

Most brokers buy and sell everyday and would have no problem finging bushels if given a day or 2 to do so.
 
I can"t imagine renting 400 acres without knowing it well enough to find out later that it is only about 1/4 of that. Knowing that, why contract 60 bpa, especially without enough crop insurance to cover costs? Buyers don"t want the paper- they want the beans...that is what you agreed to deliver. Contracting 30-50% of the low side of expected yield is more realistic. After planting, you should certainly know the acreage, especially between 400 and 120.
 
I was short on contracted corn this year, yield was over 100 bu/acre below normal. Had to pay difference between contracted price and current price but no penalty. Still cost $1.20 bu for undelivered corn. No profit this year.
 
I commend you on you efforts. Tell me all about it.21 years old with a gps sprayer, impressive.
 
Well young man you are going to pay for your education in farming. We all have made mistakes. Plus we all will make different mistakes in the future.

You did not say what kind of yield you think you will get on the acres you have.
the math is as follows:
120 x 50 bpa = 6000
6500 - 6000 = 500
So you will be about 500 bushels short if you average 50 bushels per acre.
Todays market price + or - your contract price plus any shortage charges. Around here that is around 9 cents per bushel.
Cash price 10/29/2010 Northeast Iowa $11.55/bu.
The math 11.55 - 9.35 + .09 = $2.29
500 x 2.29 = $1145

So it will cost you about $1100 to buy out your shortage. Now what is your contract delivery month? IF it was Oct. then you don"t have much option. If it is Nov. or Dec. then you might get a slightly better buy out if the market cools down. Some think it will after the election and the next crop report. Either way you will not be hurt too bad.
I guess you now will know to gather more information before you rent any more ground. You need information that is independent of the land owner. I have two different farms that we rent that the sellers acre count was way off. They had let the trees crowd the fields on all sides for many years. If that is on all four sides then the acres can easily be off by 10-15%.
 
It looks like from what the posts say that this will cost you around 1000 dollars to straighten out. Its a lot of money but, in the grand scheme of things $1000 dollar educations in farming happen all the time. I've had more than a few, even after doing this for over 2 decades. I've been where you are, as recently as 2 years ago. I had my hay contracts based on what I had in the barn in June figuring on fall hay for me. There wasnt any fall hay. I ended up paying what I'd sold hay for, plus a lot of freight, to cover my shorts.
 
Hey easy there, he contracted before he found out it was only 120 acres. So if he contracted based on 400, that's only 15 bushel an acre.

He knew the acreage before he planted. But had already contracted as many of us do.

I got Oct 2011 contracted already myself.

Sounds like a lot of you guys deal with some unforgiving grain dealers. I wouldn't do business with one like that.
 
When I was young I thought I knew everything. You are smart enough to seek advice from older farmers. You made mistakes and will learn from them as we all have. Use this forum to try to learn before you make major decisions in life. Good luck with your current situation Gerard.
 
I suspect you guys out there have a lot more choice in brokers than what we have here. Just about all the brokers here come with warts of some type if you know what I mean.
 
ask whoever you contracted with ,you may be able to roll part of your contract into next year . it has been done . been there.Paul
 
Reid1650, I don't have any advice on your contracts, but when it comes to renting new ground, take a look at the <a href="http://websoilsurvey.nrcs.usda.gov/app/HomePage.htm">Web Soil Survey</a>. It lets you draw Area of Interest plots using satellite photos which not only give you acres, but soil types under it. It won't always help you if the trouble is the ground being too wet like this, but it can still be handy tool.
 
We had the same issue, we were 166 bushels short on a contract. It cost us $1.77/bushel to buy the contract out. We wrote the check and have no commitments left with the elevator for our 2010 crop.

As a side note, I NEVER take a landowner's word for the size of a field. I use a combination of GPS, USDA Web Soil Survey, and our local GIS data to determine acreage of farms we intend to bid on or farm.

Jim
 
The tradeoff of you getting a darn nice price tho - we were lucky to get down to 70 cent basis just now. Was close to a dollar a bu a bit ago. I suspect those of you with tougher buyers, tend to be where grain is short & they pay pretty close to CBOT price.

Here we end up dealing with a coop elevator most of the time, and they can be pretty forgiving - if you work with them, and inform them early on so they don't get slammed.

Last fall the late harvest, I said can't deliver the October contracts until Nov. He shrugged his shoulders - get plenty of grain around here, they end up storing it themselves until spring so doesn't matter if you bring it a month late. Would be different with an actual end user, they write the contract to get grain when they need it; they get messed up if they don't get whaqt & when they plan.

--->Paul
 
Reid, I think it might be a little presumptious for a person who didn't do his homework to call the landlord "shady" if he had 400 acres to start with. Particularly since he made it right and adjusted the contract to what you planted. A lesser person may have told you tough luck since you didn't do your homework. And you supplied the contract. Don't blame him for your mistakes.

Perhaps you should live and learn from this. 120 to 400 acres is hard to come by. Maybe you two should just be laughing together at your rookie mistake. Then you and he should take a good look at what it would take to make the other 280 acres tillable. Maybe work out a long term contract for the non-tillable acreage with him after you get an estimate of costs. Unless there is too much timber or something. Post a state, section, township, & range description and maybe the folks here can look at it on google earth and the web survey and give you some advice.

You should work on making this a win-win situarion for the both of you. And now you know not to forward contract without crop insurance. Crop insureance will require the FSA field surveys. You can't predict acreage without a measurement and you definitely can't predict the weather, disease, and bugs. Doesn't take much of a freeze, drought, hail, disease, or bugs to wipe out a crop. BTDT. I thought about dropping insurance a few years ago but we've made a bunch of bucks off of it just insuring for average yield.

For a new guy, the FSA office and your county extension agent are your friends. Farming is a long term deal. I'm surprised you ordered fertilizer without doing some soil testing at least till you have some history on the land.

Sounds like you are too young to be an ag college graduate. A K-State grad would know some of the things we are talking about. There is a lot of science behind farming and you need to take some courses somewhere.
 
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