STAY AHEAD OF THE GAME
Some will say the hardest part of Indiana farming is being successful at marketing each year’s crop. Typically, farmers will “sell ahead.” This means the farmer enters into a grain contract to deliver a certain amount of crop during a certain time frame.
The rules governing these grain contracts are very technical and complex. For starters, grain contracts are generally subject to commercial law that applies to all states, not just Indiana. The Uniform Commercial Code (UCC) has been developed and, with some modifications, enacted by every state. Article 2 of the UCC generally will cover most grain contracts. In addition to the UCC, almost all grain contracts are subject to the rules promulgated by the National Grain and Feed Association (NGFA).
You can find more information visit the NGFA.
Visit this document for current Trade Rules governing grain contracts.
Making a Grain 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. The UCC protects the farmer by providing that these unwritten contracts are only enforceable if a writing and confirmation is sent 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 is legally binding.
TERMS & RESOLUTION
Grain Contract Terms
As with many legal contracts, grain contracts will contain a vast amount of language that is not easily understood by someone without experience dealing with them. 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, which essentially frees a party from liability or obligation when an extraordinary event or circumstance beyond the control of the parties.
Interestingly, some grain contracts give the buyer the ability to be excused from performance or declare a “Force Majeure”, but specifically say that the farmer cannot. How is that for fair? There are other such terms and conditions that can be included in grain contracts that give the buyer more rights than the seller. As such, it is very important to carefully review the terms and conditions contained in grain contracts.
Dispute Resolution for Grain Contracts
Almost all grain contracts call for disputes to be handled by the NGFA’s board of arbitrators. This means any dispute will be determined by an arbitration board, and its results are binding. So, instead of settling differences in the farmer’s county court, or the elevator’s county court, the dispute will go through the NGFA, located in Washington, D.C. The NGFA has its own set of trade rules and arbitration rules, so the farmer will need to find specialized legal counsel that handles these matters.
As a farmer, John Schwarz understands the importance of having grain contracts that are fair for the Indiana farmer. As an attorney, he has experience handling disputes that arise with grain contracts. He also understands the technicalities associated with grain contracts and is familiar with the NGFA Arbitration System.
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