Grain sellers beware

A grain broker operating in Western Canada has hit a financial squeeze and as a result a number of producers are unpaid for grain deliveries made many months ago. The number of unpaid producers and the amounts owing are not public, but the situation raises a number of questions.

When I heard about the issue, my initial thought was this shouldn’t be happening. My experience with grain brokers is that they simply broker deals between buyers and sellers. They are paid for their brokerage service by the buyer or sometimes by both the buyer and seller, but they aren’t the entity actually buying grain.

If they are buying grain, they should be licensed and bonded by the Canadian Grain Commission and then producers would have payment protection as long as claims are filed within the prescribed times limits.

Well, it turns out that some brokers, or at least this particular broker also does Grain Purchase Contracts.

Many cattle feedlots and hog barns regularly buy grain directly from producers without being licensed and bonded. Grain for someone feeding livestock does have an exemption.

In this case, the buyer is a brokerage firm, not a livestock feeder. They seem to be using an exemption in the regulations which says a transaction may be entered into by a person who is not a licensee where the transaction is “a contract for the purchase of grain without reference to any grade name on terms whereby the consideration payable under the contract for the purchase of the grain is to be paid in full at the time of the making of the contract or the delivery of the grain.”

Yes, the grain didn’t have a grade. No, it wasn’t paid in full upon delivery.

Back in June, the company posted a blog on its website explaining how it ended up in financial difficulty. According to the blog, coming into the 2023/24 crop year, producers held onto their grain hoping for prices to rebound. This caused a big drop in volume. On top of that, imports of corn from the U.S. were high reducing the demand for domestic feed grain.

The company was not able to generate enough trade volume to match outgoing costs. I’m not naming the company because the owner is taking full responsibility for the problems and appears to be doing his best to right the ship and get producers paid.

For unpaid producers, there’s little they can do but wait and hope to eventually receive payment. Getting paid seems to hinge on the company surviving.

The payment protection through the Canadian Grain Commission has in most cases fully compensated producers for unpaid grain. In the few instances where security wasn’t adequate, producers still received a high percentage of what they were owed.

In past cases, the producers left out in the cold were the ones missing the timeline requirements. Claims need to be filed with the Canadian Grain Commission within 90 days of grain delivery or within 30 days of a failed payment being issued, whichever time period is less.

Personally, I like doing transactions through a broker. Once you do a deal that’s brokered, it’s like having a mediator if something doesn’t go according to the contract. I had never really considered a situation where the brokerage company was the buyer and on top of that wasn’t licensed and bonded.

“Buyer beware,” is an old adage. In the grain business, “seller beware” also resonates.