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CONTRACTS CAN BREAK FARMERS OVER CROP LOSSES

8 May 2007

Crop losses because of the last few months' dry and hot weather can break farmers who can not comply to their crop contracts.

According to a crop broker from the Free State, many farmers had fortified the price of their planned crops with term contracts to a guaranteed price of R1100 per ton white maize in October last year.

This way a farmer ensures a fixed price frame in spite of the variable maize price in the market.

These contracts for white maize supply in July traded above R1600 per ton.

The price for maize had climbed because of the expected smaller harvest (because of the drought) and increasing international prices.

Some farmers could, because of partly or whole harvest failure, not comply to these contracts.

Consequently these farmers will have to buy back their contracts against the increased price - a loss of about 45% to avoid breach of the contract.

"We will be able to observe these type of loss over two months when the producers who planted late, will start harvesting," the broker said yesterday.

According to him there are farmers who had total harvest failure and have nothing to plunder.

He thinks that in the future farmers will focus more on option contracts where a producer "will have the right to sell against a fixed price, but will not be under obligation to do so."

According to Mr. Rod Gravelet-Blondin, general manager of the JSE agricultural department, a producer who can not comply to his contract, can also sell his product somewhere else, probably against higher price.

"A farmer should take out insurance against drought, so he could buy back his contract," he said.

The term price for white maize fotr supply in July has yesterday gone down with R2 to R1661 per ton.

The term price for yellow maize for supply in July has yesterday gone down with R20 to R1635 per ton.