Regional variations in types and terminology abound, and more complicated contracts include both cash market and futures market components. It's incumbent on each farmer and merchant to fully understand what he or she is getting into before signing or agreeing to any contract. Current grain market conditions have upset the contracting apple cart. Some farmers have found themselves over contracted and unable to deliver the volume contracted. Others have second thoughts about delivering at previously agreed to prices that are below current levels.
Some merchandisers face large margin calls on grain hedged on behalf of their farmer suppliers.
Others are squeezed between previously contracted purchase and sale prices and reduced margins resulting from the tight supply and strong demand. Lawsuits are starting to appear, so it's more important than ever to proceed cautiously. Failure to perform on the contract can be costly and can result in legal action. Before entering into any contract, it's crucial to understand exactly what is required of all parties. Fixed-price contracts normally specify quantity, quality, price, and delivery requirements.