The end of the Wheat Board signaled a new era in malt barley marketing. Maltsters and grain companies now offer a range of pricing, movement, and grading options that growers can use. The question is, do they to fit the grower’s needs?
The various production contracts on offer set the malt barley industry apart from other commodities. In its simplest form, a production contract commits a grower to provide a certain volume of malt barley to a maltster or grain company. It may or may not include price.
Not every company offers production contracts and the types of contracts vary significantly - different companies, different contracts.
Why sign a production contract?
Production contracts help mitigate production and marketing risk.
Malt barley, a quality-driven commodity, may be difficult to market in years when lots of barley makes the malt grade. Production contract holders get delivery priority over non-production contract holders. That makes it easier to realize the premium paid out for malt barley.
Typically, growers will still leave a portion of their production open to the market. That reduces the risk of relying solely on one company or dealing with production issues that might arise.
Four things to watch for in a malt barley production contract
Grade Specs: Barley grade specs drive production contracts. Maltsters tend to have tighter specs as they’re the end user. Grain companies have more end users and export market options, so they have more flexibility on specs.
Price: Some companies force growers to price production when they sign. That locks them in to pricing risk. Others, like Cargill’s unique 1st Choice Malt Barley contract, gives growers the freedom to establish a price prior to product delivery. That gives growers the ability to capture market gains.
Act of God: The Act of God clause is always a hot topic. It often doesn’t protect full production. Some companies split it in half and offer Act of God on 30 acres for the first delivery, then the next 30 acres of Act of God on the second delivery. That only covers half the grower’s production. Other Act of God offerings force growers to price their barley as feed if the barley doesn’t meet malt specs. That can cost a grower money.
Delivery: Some contracts force growers to split delivery periods, where 50% of production moves in the fall and the following 50% through spring/summer. Others give growers a large contracting window, from October to March, but delivery is at buyer’s call. That leaves the grower with no timetable on grain movement.
Production contracts give priority
A production contract gives the grower priority movement, priority pricing, priority acceptance and priority samples. While in some years growers may lose marketing opportunities with a production contract, the pros of gaining market access tend to outweigh the cons.
When deciding if you want to sign a production contract and with who, read through the details and know what’s important for your farm.
Need some help? Contact a Cargill Grain Marketing Advisor in your area (click here for locations) to find out more about Cargill malt barley production contracts.