Crop downgraded on a contract? Deliver it, or buy out
Contracted at one grade and it came off lower. See what each way out pays on your own numbers: deliver it at the buyer's discount, or buy the contract out and sell the grain elsewhere, and the price elsewhere at which they come out the same.
The discount is from the buyer's grade schedule: ask for it in writing. "Buyer's price today" is their bid for your contract's grade and delivery month. The buyout is worked out as on the buyout calculator: today's price above your contract price, plus the fee.
Deliver it on the contract
Buy out, sell it elsewhere
Before you choose
- Check the grade. If you think it's wrong, at a licensed primary elevator in Western Canada you have 7 calendar days from delivery to ask the Canadian Grain Commission for a Final Quality Determination. Write the request. In Ontario, a dispute is started within 24 hours under the Code of Practice.
- Get the discount schedule in writing, for every grade you might deliver, and whether the buyer will take the lower grade at all.
- Ask what a buyout would cost today, and how it's worked out: which price, fixed on what date, the fee, any interest.
- Count the freight if elsewhere is further away, and when each pays.
A worked example
The numbers loaded above: 100 tonnes of durum contracted as 2 CWAD at $320 a tonne. It came off 4 CWAD, and the buyer's schedule takes $45 off for that grade. The buyer's price today for the contract is $330 and the fee is $10. Elsewhere, 4 CWAD fetches $285.
- Deliver it: ($320 − $45) × 100 = $27,500, $4,500 less than at the contract grade.
- Buy out: ($330 − $320 + $10) × 100 = $2,000. Sell elsewhere: $285 × 100 = $28,500. Net $26,500.
- Here delivering comes out $1,000 ahead. Elsewhere would have to pay $295 a tonne to come to the same.
These figures are an illustration, not current prices or discounts.
Questions
Should I deliver downgraded grain on my contract or buy it out?
It depends on three numbers: the buyer's discount for the grade you have, what the buyout costs (today's price for your contract above the contract price, plus the fee), and what the lower grade sells for elsewhere. If elsewhere pays more than the contract price less the discount plus the buyout per tonne, buying out comes out ahead; otherwise delivering does. Freight and the buyer's terms can change it, so ask for both in writing.
What if I think the grade is wrong?
At a licensed primary elevator in Western Canada you have 7 calendar days from delivery to ask the Canadian Grain Commission for a Final Quality Determination; in Ontario a grade dispute is started within 24 hours under the Code of Practice. Check the grade before you settle on either option.
Every contract, and what each settlement paid
GrainPosition keeps your contracts with their grades and delivery windows, checks each settlement against its contract line by line, grade and discounts included, and counts the days you have to question a grade.
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Method and sources
Method: arithmetic on your numbers. Delivering pays the quantity times the contract price less the discount. Buying out costs the quantity times today's price above the contract price (zero if below) plus the fee, and selling elsewhere pays the quantity times the price elsewhere. The break-even is the contract price less the discount plus the buyout per unit. No prices are fetched.
Sources: the buyout formula as the Manitoba Co-operator describes it (Rebecca Hannam, "Four things to know about grain contracts"); the Canadian Grain Commission's Final Quality Determination.
Were you paid right on your last grain settlement?
Send me a photo of the settlement, and the contract if you have it. Within a day I’ll email you back what each line is, what’s worth asking the buyer about, and any grade or payment deadline that’s still open. Free, no account.
Ruslan Glick, Winnipeg. Not a farmer, so I check against your contract and the grain rules, not opinions. Top Crop Manager wrote about GrainPosition.