Fertilizer Contracts: A More Formal Relationship

Ask any ag retailer what makes their business model work and chances are good that their answer will involve the word “relationship.” Grower-customers are not only trusted business partners, but also friends and “good guys.” In this environment, handshake agreements have traditionally been good enough to seal deals worth millions of dollars for both sides.

But according to J. Stephen Lucas, president of Jayhawker Consulting Co., LLC, this view of the ag retail world has been largely rendered obsolete by the events of the past two years. In today’s world, handshake deals need to be replaced with formal contracts, to protect both sides from wild fluctuations in the commodities market and prevent “he said/she said” debates that could ultimately end up in court.

“In the grain business, using contracts is second nature,” said Lucas, speaking at the 2009 Agricultural Retailers Association (ARA) meeting. “We don’t do anything without that confirmation. I’m horrified that people buy and sell stuff without contracts. Sure, you can view your grower-customers as friends and good old buddies, until there’s a $100 per ton difference in the fertilizer price. Then, without a formal contract in place, you may find out that grower-customer isn’t such a good old guy after all.”

Jim Shelton, manager of agronomy for Landmark Agronomy Services, Juda, WI, agrees that handshake deals are becoming a thing of the past. “It’s just good business to have a contract,” says Shelton. “Everyone who buys a $2,000 motorcycle has to sign a contract to make the purchase. It doesn’t make sense that our industry will sell $100,000 worth of fertilizer with just a handshake.”

Preparing For The Future

According to Shelton, Landmark has been using fertilizer contracts in its business since 2006. “Back then, the fertilizer market was booming and all the prices were steadily ratcheting up,” he says. “But we realized that market would eventually fall back down to Earth, and all these handshake deals could potentially come back to bite us in the you-know-where.”

To get started, the cooperative used the contracts it signed with crop input suppliers as templates to create its own contracts. These were then reviewed by Landmark’s legal representatives for clarity.

Introducing the fertilizer contracts into the company’s business model took a little bit of time, says Shelton, but not because of reluctance on the part of the grower-customers. “Once we explained the risk and volatility aspects of the fertilizer market to them, there was no problem,” he says. “Besides, growers tend to understand the idea behind contracts because they’ve used them with their grain business forever.

Sample Contract

“The toughest part was getting our sales representatives to buy into this concept,” he continues. “That took us almost a full year to accomplish.”

Today, formal contracts for fertilizer purchases at Landmark represent 100% of the cooperative’s business transactions. In the past year, says Shelton, more than 1,700 contracts were filed with the company. “We even have an online contract option for growers if they prefer,” he says.

Offering Protection

In Spring 2009, ARA formed the Fertilizer Contract Task Force with the objective of developing an ARA-branded fertilizer contract confirmation that specifies the mutual agreed upon terms of the buyer and seller between any two business entities in the distribution system: manufacturer, distributor, retailer, and end user. The association undertook this effort in response to the extreme volatility that has occurred with fertilizer prices and supplies over the past few years. This was viewed as a way to help establish better risk management, more accountability, and common terms and conditions.

The sample contract was formally introduced at the ARA annual meeting in December. Among the items spelled out in the document are breach of contract penalties, technical assistance from the seller, and taking disputes to arbitration. According to Jacob Bylund, a lawyer specializing in agribusiness with Faegre & Benson LLP, this should protect both buyer and seller from the threat of default in tough financial times, such as the ones most retailers and growers experienced during late 2008 and 2009.

In addition, says Landmark’s Shelton, the formal contract can be used to spell out liability terms with grower-customers that store fertilizer. “We put that on the back of all of our contracts,” he says. “The language says that the grower is responsible for any damages if there is a release of fertilizer we delivered from the equipment on his property. This protects us from any environmental claims that could come up.”

Since implementing its fertilizer contract arrangement, Landmark has found the system to be quite effective at not only protecting the company from cancelled orders, but saving money as well. “It took a lot of the guesswork out of our operations because everything we needed to do was spelled out beforehand in the contracts,” he says. “Without contracts in place during 2009, I’m convinced our company would have lost an additional $4 million in revenue on top of what we did lose.”

His advice to other ag retailers is to not delay in implementing their own fertilizer contract programs. “Given what’s happened to our industry during 2008 and 2009, with constant price ups and downs and some grower-customers looking to back out of their verbal purchase agreements, the time is definitely right to start using contracts to protect yourselves,” says Shelton. “If ever there was a year to launch this kind of thing with your grower-customers, it’s 2010.”

Leave a Reply

Fertilizer Stories

FertilizerYara Tampa Ammonia Terminal Garners ResponsibleAg Honors
November 25, 2015
Yara has received its first ResponsibleAg Certification for its Tampa, FL, Ammonia terminal location. This achievement demonstrates Yara’s commitment to Read More
Tiger Sul Crop Nutrient Calculator
FertilizerH.J. Baker Launches New Nutrient Calculator App
November 12, 2015
H.J. Baker, a global agriculture firm, has launched a new agronomic nutrient calculator app. This innovative and powerful tool will Read More
FertilizerH.J. Baker Hosting Chinese Delegation
November 12, 2015
International Agricultural firm, H.J. Baker, is hosting a delegation from Beijing Xinhefeng Agrochemicals Co., Ltd. (XHF), a leading distributor of Read More
corn field
FertilizerWest Central Distribution Launches Levesol DFC
November 5, 2015
Levesol DFC, a dry fertilizer compatible version, joins the original Levesol as another option for growers to maximize the potential Read More
Top 100 Articles
CropLife 100United Cooperative Acquires Four ADM Wisconsin Facilities
November 12, 2015
United Cooperative, based out of Beaver Dam, WI, recently acquired four grain and agronomy locations from Archer Daniels Midland (ADM) Read More
CropLife 100BRANDT Car Makes NASCAR Xfinity Series
October 29, 2015
BRANDT will join JR Motorsports with driver, Justin Allgaier, for the 2016 NASCAR Xfinity (NXS) Series season. Allgaier will pilot Read More
CHS Building exterior
CropLife 100CHS Leaders Help Shape Succession Report
October 22, 2015
Succession planning was listed as a main concern of cooperative leaders at this summer’s 15 regional CHS owner town hall Read More
Fall Harvest
CropLife 100Pinnacle Purchases Eight Regional Seed Companies
October 12, 2015
Pinnacle Agriculture Holdings has announced the purchase of eight regional seed companies to advance its seed business. Pinnacle has acquired: Read More
MRM Agricultural Service
CropLife 100Pinnacle Acquires CropLife 100 Ag Retailer
October 8, 2015
Pinnacle Agriculture Holdings, LLC has successfully acquired the Missouri-based agronomy business of MRM Agricultural Service, LLC and its affiliates (MRM). Operating Read More
Eric Jenks, Wilbur-Ellis
CropLife 100Wilbur-Ellis Opens Dry Fertilizer Storage And Blending Facility In Washington
October 8, 2015
Wilbur-Ellis Co., ranked No. 4 on the CropLife 100, has constructed and opened a 22,000-ton dry fertilizer storage and blending Read More
Latest News
HerbicidesBREAKING: EPA Pulls Registration On Dow’s Enlist …
November 25, 2015
EPA on Wednesday withdrew approval of a controversial new weed killer to be used on genetically modified corn and soybeans, Read More
FertilizerYara Tampa Ammonia Terminal Garners ResponsibleAg Honor…
November 25, 2015
Yara has received its first ResponsibleAg Certification for its Tampa, FL, Ammonia terminal location. This achievement demonstrates Yara’s commitment to Read More
ManagementReviewing The Top Ag Stories For 2015
November 24, 2015
Editors Eric Sfiligoj and Paul Schrimpf discuss the most noteworthy events from this past year in agriculture. Read More
EmployeesAgriculture Jobs May Be Plentiful, But New Grads Are Sc…
November 24, 2015
Close to 60,000 jobs are set to open up in agriculture each year for the next five years, but there's not enough grads to fill them. Read More
Radish cover crop
StewardshipCover Crops Guide Helps Growers Improve Water Quality
November 23, 2015
A publication that teaches growers the advantages of using cover crops to improve soil health and crop yields has won Read More
Crop InputsThe Andersons’ Products Receive California Organi…
November 23, 2015
The Plant Nutrient Group of The Andersons, Inc. announced today that its Humic DG and Black Gypsum DG products are Read More
Eric SfiligojNew European Study Seems To Support Glyphosate Safety
November 23, 2015
Looking at any international news over the past few years, it might seem as if the European Union (EU) is Read More
Toggle Biostimulant corn roots
Crop InputsTwo New Biostimulants Added To United Suppliers’ …
November 20, 2015
Winfield US announces the launch of two new products in the United Suppliers portfolio for the 2016 crop season, Optify Read More
StewardshipNRDC Report: Cover Crops Contain Vast Benefits
November 19, 2015
As harvest season ends and farmers in the United States ready themselves for winter, one small change could make a Read More
Fall Harvest
Seed/BiotechArysta Launches New Seed Protectant
November 19, 2015
As spring wheat growers begin planning for a strong start to their season, Arysta LifeScience North America announces RANCONA V Read More
Crop InputsInocucor Receives U.S. Patent For Microbials
November 19, 2015
Inocucor Technologies Inc., the Montreal-based agriculture biotech company, was issued patent No. 9,175,258 by the U.S. Patent and Trademark Office to protect Read More
ManagementSyngenta Rumors and ARA 2015 Preview
November 19, 2015
CropLife Editor Eric Sfiligoj looks at the latest rumors involving Syngenta selling its crop protection business and talks about events Read More
EquipmentAGCO Announces Finalists For Operator Of The Year Honor
November 19, 2015
AGCO Corp. has announced the four top operators chosen as finalists for AGCO’s 10th Annual Operator of the Year program, Read More
High Plains Aquifer
StewardshipStudy: High Plains Aquifer Overall Usage In Decline
November 18, 2015
A new Kansas State University study finds that the over-tapping of the High Plains Aquifer’s groundwater beyond the aquifer’s recharge Read More
Golden Harvest Corn healthy leaves
FungicidesArysta Launches New Corn And Soybean Fungicide
November 17, 2015
Arysta LifeScience North America has recently launched ZOLERA FX Fungicide. The highly systemic, powerful fungicide delivers broad-spectrum disease control with Read More
Young corn plants in soil
Crop InputsBioAg Alliance: Microbials Targeted For 250-500 million…
November 17, 2015
Monsanto and Novozymes have announced a new 2025 acreage target that will guide the companies’ microbials business for the next Read More
Syngenta Sign
Crop InputsSyngenta Still Being Eyed For China Takeover
November 16, 2015
China National Chemical Corp. approached sovereign wealth funds including China Investment Corp. to help pay for a potential acquisition of Read More
Cedar Country Cooperative
Eric SfiligojCooperative Consolidation Continues
November 16, 2015
As I put this enewsletter column together, we’ve just put the finishing touches on our magazine’s annual CropLife 100 report. Read More