Flooded Arkansas growers with forward contracts for grain need to examine their contracts and insurance policies closely, say economists with the University of Arkansas Division of Agriculture.
A forward contract is a cash market contract in which the seller agrees to deliver a specific commodity to a buyer sometime in the future at a predetermined price.
“Typically, a grain contract doesn’t include an ‘act of God’ clause, so the contract is still binding despite a disaster such as a flood or other damage,” said Scott Stiles, Extension economist-risk management for the University of Arkansas Division of Agriculture.
Conditions vary from contract to contract, but in general, growers have three options: deliver from current production, buy and deliver grain from another source, or cancel or buy back the contract.
Most elevators are willing to work with growers. Depending on the grower’s contract price, he may be able to cancel the contract without penalty.
If a grower chooses to cancel, he and his elevator representative would need to work out a cancellation price – the caveat being that this may not work in the producer’s favor and a price differential could be owed to the elevator.
“For growers with crop insurance, they can meet their forward contract obligations up to their production guarantee,” Stiles said. “Growers should talk to their elevator rep as soon as possible to look at options and determine a course of action.”
Growers faced with a replanting decision should also contact their insurance agent as soon as possible to begin the claim process. “The line to visit with an insurance agent is long these days,” Stiles said.
For more information on risk management, visit www.uaex.edu, or contact your county Extension office. Another source for risk management information is the Southern Risk Management Education Center at http://srmec.uark.edu.