Numerous cash grain brokers have become established across the Canadian Prairies. Could using the services of a cash grain broker be part of your marketing plan?
“By definition, a broker is a matching agent who arranges a transaction between a buyer and a seller, and for that service, is paid a commission,” said provincial crop market analyst Neil Blue. “The seller typically pays a commission, but some brokers may charge commission to both the seller and buyer.”
A broker acts as an agent between a seller and a buyer. Unlike a grain dealer, a broker doesn’t take legal or physical possession of the crop (but may arrange for trucking). That means a broker does not need to be licensed with the Canadian Grain Commission, although some are. If licensed with the grain commission, the broker will need to post a bond or irrevocable letter of credit from a bank to serve as security for outstanding payables. (A list of licensed grain companies can be found at www.grainscanada.gc.ca — click on ‘Licensed grain companies’ on the left side of the home page.)
Cash grain brokers often deal with buyers who aren’t licensed. Under current rules (which are under review), end-users of grain need not be licensed with the grain commission. End-users include cattle-, hog-, and poultry-feeding operations. The cash grain broker attempts to deal with buyers who they believe will stand for payment of the delivered grain, but there is always a chance of a full or partial payment default. In such a case, the cash grain broker will try to help recover the funds. At least one cash grain broker, said Blue, in a case of payment default, covered the outstanding payments for their brokered grain sales from their own resources.
“If there is a higher default risk in using a cash grain broker compared to a large licensed grain company, why would one do so? The answer is usually for a higher net price,” said Blue. “A cash grain broker can often get a producer a higher price for grain than the producer could arrange on their own. Brokers can often do so by arranging to meet a buyer’s needs for volume purchases.”
Also, a broker may be able to find higher-priced markets that the producer may not have the time or knowledge to seek out. Often the deal is made ‘picked up from the farm’ with direct delivery to the buyer’s facility. Typically, an intermediary buyer is not involved and that saves handling costs, potentially benefiting both buyer and seller.
“In this year where many producers have lower-quality or ‘tough’ crops to market, a cash grain broker may be able to find a buyer who is willing to purchase grain with specs that prevent that grain from entering traditional market channels,” said Blue.
A crop-marketing contact list, that includes some cash grain brokers, is available by emailing Blue at [email protected].