Grain Contracting Strategies to Induce Delivery and Performance in Volatile Markets

One of the impacts of higher prices along with greater volatility in futures and basis is thatthere is pressure for an escalation in cash contracting for grain. This volatility has resulted inan unprecedented level of contracting with growers in recent years. There is a wide array ofcash contracts with varying terms. There is also a growing realization of growers not deliveringon contracts, in part due to escalation in postcontract prices. These are evolving asmajor strategic issues for buyers and the marketing system, particularly as buyers seek to usesuch contracting strategies as an element of risk mitigation. There are three purposes of thisarticle. First is to provide a broad survey of contract terms used in grain contracting withgrowers. Second, we illustrate some issues in contracting of some of the grains (durum,malting barley) in the upper Midwest. Third, we show some of the common contract clausesbeing adapted in these contracts. Finally, we summarize these issues with respect to industryimplications.