It's September 2006. Chicago Board of Trade (CBOT) corn futures starts moving up, something uncommon at harvest. They push $3/bu. for '07, '08 and even '09. So a grower contracts with his local elevator and figures a 30¢-under basis. Can't go wrong with $2.70.

Fast-forward six to eight months. The grower and others are flabbergasted by corn topping $4 cash. But he's booked at $1.30 lower. Does he deliver at the contract price or look for any possible escape clause?

That's undoubtedly a scenario nearly every producer has heard of, or for some, even lives right now. Think of it, if you sell 1,000 acres of 150 bu./acre corn at $1.30 under the market price, that's a little under $200,000 lost because of that contract. Where are the Rolaids?

Gerald Scheckel, Richmond, KS, faced a similar situation in recent years. He's bitten the bullet. He's taken the agreed-upon price, while a new regional ethanol plant and competing entities have paid more at the current market price.

“I was raised that if you sign your name, you were happy with the price when you sold your grain in the beginning,” he says.

“You deliver what you market. If you contract corn at $2.50/bu. and the market is at $3, take the $2.50 and try to get more the next year,” he says.

There are still marketing horror stories from 1995-1996. That's when drought-caused $5 corn led some growers to recklessly misuse some hedge-to-arrive (HTA) and other rollover contracts. There were margins that couldn't be covered. Money and bushels were owed that couldn't be delivered.

Bad marketing yielded bitter feelings among growers and their grain handlers, some of whom did their share of bungled contracting themselves. Lenders also hollered. So did state and federal prosecutors.

A decade later, $5 appears possible again. The doom of yesteryear caused much more scrutiny in marketing plans. But still, more non-deliveries are expected on contracts.

“There are still situations that are not totally resolved from the mid-'90s,” says Diana Klemme, market analyst with Grain Services Corp., Atlanta, GA, which handles marketing and other services to grain elevators nationwide.

“And there are problems surfacing now with farmers who have already contacted lawyers; already announced their plans not to deliver on low-price contracts,” Klemme says. “It's for any number of reasons. Maybe one where the farmer didn't sign the contract, or where the farmer says his son signed the contract and didn't have authority to do so.

“It inevitably boils down to the fact that the price on the contract is way below the current market value,” she says.

Darrel Good, Extension grain marketing specialist, University of Illinois, says that for last year's crop, some were disappointed that they priced too early. “I haven't heard of any action to get out of any of those contracts,” he says. “I see it as less of a problem for 2007, but who knows when we go forward and see how high prices can go.”

Scheckel says that his '06 marketing program involved some corn contracted up to $4.13/bu. to the regional ethanol plant. “They need a steady flow of corn,” he says.

But with the lack of a crystal ball, he contracted much of his '06 corn early last year for $2.45-2.53 — a good enough price to get his name on the dotted line.

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