Grainswest - Spring 2025

Spring 2025 grainswest.com 13 COMMITMENT IS A STRESSFUL word for farmers who are subject to the unpredictability of the weather and grain markets. Forward contracts with buyers allow them to lock in a cash price long before the grain is delivered. In doing so, these agreements reduce downside price risk and uncertainty. But, when farmers can’t deliver on their commitment due to drought, flood or other factors, a for- ward contract may prove costly. Forward contract insurance may be the answer to this dilemma. “If a grower falls short of the total bushels they have contractually promised the buyer, they must replace that grain at their own cost,” said John Devos, director of sales and distribution for Agi3, an insurance and risk management compa- ny in Winnipeg, MB. “Forward contract insurance oers protection on your con- tract in the event that you don’t have the grain to fulfill your obligation.” Agi3 has now launched Forward Pro- tect, a new insurance policy that covers forward contracting. The concept was spawned largely in recent years as a re- sponse to the financial penalties farmers face when drought ruins their harvest. While Agi3 oers AgriEnhance to insure against crop loss, Forward Protect is the first program to directly insure forward contracts. “Every grain contract has a dierent level of risk,” said Devos. “Some are low risk with only a few bush- els involved. Once you get north of 20 per cent of your production, though, your risk increases substantially in the event of, say, a major hailstorm. Our program covers up to 70 per cent of a farmer’s average yield.” Depending on a farmer’s contracting approach, Forward Protect may be a fit for their business. Farmers can sign up online and receive a quote with the sub- mission of a crop plan for the year. “There is simply no protection in the market right now,” said Devos. “Interest rates have been rising, so the cost of money goes higher, and the cost of hav- ing canola in your bin is getting crazy.” Forward contracting allows a farmer who is so inclined to be more aggres- sive in their commitments, which also increases the potential downside should things go wrong. Insurance may dimin- ish the risk. Additional products are available to address risks associated with crop mar- keting. “The two main risks for growers relate to production and price,” said Jesse Cole, manager, insurance products and product innovation for Agriculture Finan- cial Services Corporation. “On the price side, we oer a policy that guarantees a price floor. If canola is trading at $10/bu when you buy the policy and rises to $15/bu later in the season, we pay out at $15. If it drops to $5, we still pay you $10.” Under the Sustainable Canadian Agricultural Partnership, AgriStability protects farms in the case of a substantial drop in income from higher costs, chang- es in the market or production disasters. As well, AgriInvest can help with small income declines, and AgriRecovery tar- gets extraordinary losses. Evan Sawatzky is senior manager of Ag Risk Management Resources with MNP in Saskatoon, SK. In his view, the recent drought on the Prairies highlighted the need for such insurance. “Normally, if your yield falls short of your forward contract commitment, you can buy grain from your neighbours to fill the gap, but in that instance, nobody met their targets, so you were on your own. If in- surance could step in at a low point like that, it might be worth the money.” Painmedicationformarketing obligations New insurance product targets forward contracting risk BY GEOFF GEDDES “If a grower falls short of the total bushels they have contractually promised the buyer, he must replace that grain at their own cost.” —John Devos