Using a broker to market crops

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Source: Government of Alberta

“There are numerous buyers for annual field crops, especially for the high-volume crops, and particularly when those crops are of good quality,” says Neil Blue, provincial crops market analyst with the Alberta government.

The traditional buyers are the elevator companies on rail lines, with much of the crop volume purchased by them going to the export market. Other buyers include some seed cleaning plants, specialty exporters, millers, canola crushers, off-grade crop buyers, resellers and feed users, possibly including a neighbour.

“For those producers who want to avoid shopping around for a favourable crop market, there are cash grain brokers who can help. By definition, a broker provides a matching service for a buyer and a seller. The cash grain broker does not take legal possession of the crop and just charges a fee for arranging the transaction, including potentially arranging for on-farm pick-up by a trucker.”

Cash grain brokers have contacts who want to buy crops and producers may contact a broker to arrange a sale of crop. Brokers can often obtain a higher price than producers can obtain on their own, possibly because of buyer convenience and premiums for volume. For a sale to proceed, the broker has each party to a transaction sign a contract to ensure compliance with the delivery, crop receipt and timely payment for a certain volume and quality of crop at a certain price.

A delivery period should be included in the contract. With a brokered transaction, the payment for the crop sale will be issued by the buyer, not the broker. Following the delivery, the broker will invoice for brokerage services.

The Canadian Grain Commission (CGC), under the Canada Grain Act, provides safeguards to the grain industry. Unless exempted by the CGC, a grain dealer who takes legal possession of grain to handle or resell must be licensed by the CGC and provide security to be acted upon in a situation of payment default to a producer.

“Producers work hard and deserve to be paid for their production,” says Blue. “Before making a crop sale commitment, a producer should determine as much as feasible if the buyer will pay them following crop delivery and when that payment will be made. Note that an end user need not be licensed with the CGC. Even if a buyer is licensed and has security pledged with the CGC, time limits relate to a security claim and, in the case of default, the security may not cover the full amount of outstanding accounts payable for crop purchases.”