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Be careful with deferred payment contracts

Agriculture.com Staff 11/03/2006 @ 12:31pm

The recent surge in corn prices is very reminiscent of ten years ago when, in 1996, prices rallied to over $5.00. That year, many farmers suffered the consequences of hedge-to-arrive contracts, which were not properly executed. We are encouraging producers to be cautious this year, as the fundamental setup for a significant rally in the year ahead exists.

Producers who are considering deferred payment contracts need to be careful. Elevators promising to pay you later for product delivered now could become strapped financially.

If prices move higher and they need to make margin calls, it may be your corn that is used to meet their requirement. In other words, when it comes time to make payment to you, there may be no funds available.

We are not trying to sound an alarm or suggest there is any wrong-doing. We are, however, encouraging caution to make sure that, in a volatile market, you have all your i's dotted and your t's crossed as well as the people with whom you are dealing. Vivid memories from 1996 still loom large for many.

If you have any questions or comments, please contact Top Farmer at 1-800- TOP-FARM, ext. 129.

The recent surge in corn prices is very reminiscent of ten years ago when, in 1996, prices rallied to over $5.00. That year, many farmers suffered the consequences of hedge-to-arrive contracts, which were not properly executed. We are encouraging producers to be cautious this year, as the fundamental setup for a significant rally in the year ahead exists.

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