• When selling wheat, it’s important to understand your obligations and rights where your contract is concerned.
  • By getting the basics right, you can save all parties a lot of hassle.
  • Here, we explain how you can avoid disputes and disappointments with your buyer.

Introduction

I grew up as a farmer and became a grain trader in the UK in my mid-twenties.

Many of my life-long farmer friends and neighbours’ comments had a common theme: grain traders were all too often dishonest rogues. My reaction was simple: if true, then there must be room for a decent, honest one among them!

25 years later, I reflect on those comments and realise what an extraordinary amount of my time has been spent educating farmers in contract detail, while encouraging both buyers and sellers to adhere to their contracts and treat others as they’d wish to be treated.

The Contract

The principles of a contract are designed to protect all parties. Global wheat and grains are mostly traded under GAFTA (Grain and Feed Trade Association) contracts. In the UK, most use the AIC (Agricultural Industries Confederation) No.1 contract for farm purchases.

Know Your Buyer and Their Terms

Every grain buyer will have their own terms of purchase, which will be based on the relevant standard contract, such as the AIC No.1 in the UK.

Read, understand, and question these terms as needed. They’re there to protect you, but are provided by your buyer, so may have some amendments that require clarification.

undefined

Get the Basics Right

It may seem obvious, but disagreements often arise from a misunderstanding of the simple stuff. Your buyer will know what wheat they’re purchasing. Ensure you do too by understanding the following:

  • Contract: Whether it’s an AIC No.1 or something else, you should have the relevant Farm Assurance Certification.
  • Contract Confirmation: You should promptly receive a signed contract which states the terms you agreed upon.
  • Type: Are you providing hard, soft, feed, or low/high grade milling wheat?
  • Quantity: You shouldn’t oversell as this can be a real headache for all parties. There’ll be a tolerance of +/- 5% or 15mt, whichever is the lesser. It’s better to have more left to sell than be short.
  • Quality: Know your specification. It must be suitable for the purpose for which it’s intended. Most buyers will sample and/or test your wheat in advance. Use this service, for the benefit of all parties. Your buyer does not want quality hassles any more than you do!
  • Price and Movement Period: You will agree the price. Clarify the movement period (probably one calendar month). Check if it’s fixed or flexible at the buyer’s option; if it is flexible, get a price carry for each month. If it’s high-quality wheat that you need to move due to quality concerns, verify that it’ll be collected during the specified movement period. If it’s not subsequently collected as specified, clarify that you can cash settle or simply cancel the contract if needs be.
  • Payment: Know your payment date. If a contract is for movement over several months, do you need the cash before the end of the period? If so, have this written into the contract.

Contract Execution

Be proactive prior to the month of movement. It takes a few minutes to make a phone call a couple of days before your contract period begins to avoid potential aggravation later.

Know where your wheat is being delivered. Mills differ, even when buying basic feed wheat. Some will be more accommodating if your wheat is marginally out of specification. Be aware of this before you load the lorry to avoid any possible rejection and large redirection costs.

You have a contractual obligation to load lorries, make sure that you’re available.

Problems, Force Majeure or Default

If you have a problem, be sure to communicate this as soon as possible to your buyer. They may well be able to accommodate your issue, particularly if they know in advance. When the lorry is loading on your farm, it’s probably too late.

Force Majeure and Default are generally for the extremes. Have a good relationship with your buyer, discuss, and these problems are likely to be resolvable.

Conclusions

  • Wheat contracts are standard stuff for traders and buyers; they know what they’ve agreed to purchase and when they need to move it.
  • A simple hour or so, once a year, to read your buyer’s terms together with any relevant standard contract will stand you in good stead.
  • Know your wheat quantity and quality.
  • Always sample and test your wheat.
  • Understand your contract; it’s more straightforward than you might believe and it’s there to protect you.
  • Communication is key in any dispute; confirm conversations in writing to avoid misunderstandings and for the sake of good order.
  • With many years on both sides, I firmly believe that the most honest, honourable, and sustained trading relationships are cemented by resolving problems and disputes together.
undefined

Other Opinions You Might Be Interested In…

undefined

Jolyon Hobby

Growing up on a Wiltshire farm sparked my passion for agriculture. With a BSc Hons in Agriculture and Land Management, I farmed for three years before diving into a 20-year career in the UK grain trade.

In the past eight years, my focus has shifted to the agri-food supply chain, where I focus on understanding the impact of commodity price volatility and transport logistics on the food chain. My expertise now lies in analysing global wheat markets and providing support to businesses across the entire spectrum – from farm to retailer.

More from this author