The groups that administer the cash advances are expecting a flood of requests from cash-strapped growers struggling with the exorbitant costs of planting a crop.
“We certainly think there will be demand because of the poor last year,” said Dave Gallant of the Canadian Canola Growers Association.
“There will be so many farmers who have not harvested crops who have had a very difficult winter due to a lack of cash.”
The prospect of more farmers rushing to get the loans prompted his organization to open the application window earlier this year (in mid-February instead of early March). Alberta Wheat (which operates FarmCash) also started accepting applications earlier (March 1 versus mid-March).
Gallant said his association has its program ready to go as soon as the federal government announces the advance rates, which are based on the price at which AgCanada expects each product to sell. Although advance rates are set at around half of the expected selling price, they are rising sharply for many crops.
“Rates are significantly higher on some grains, and higher across the board,” Gallant said. “For canola, last year the advance rate was $252 a tonne. This year it’s $363 a ton…Farmers have the opportunity to get a lot more money this year due to the federal government increasing rates for the same acreage or tonnage they have grown last year.
However, the maximum cash advance remains at $1 million. Still, Syeda Khurram, CEO of Alberta Wheat’s FarmCash program, expects to issue more checks and bigger ones.
“We’re seeing a significant increase in the number of calls we’re getting from producers,” she said. “We expect advances to increase as farmers need to maintain their cash flow.”
The rising cost of fertilizers and other inputs is putting pressure on farmers, Gallant added.
“When the costs of inputs, such as seeds, fertilizers and fuel, go up, there is always an increased demand for the program,” he said. “You need money to put the product in the ground, and you can’t generate money until you sell. So it gives farmers access to cash, so they don’t have to borrow from other sources. This allows them to pay bills, which are getting bigger and bigger.
The higher advance rates are badly needed, he added.
“We are very pleased that the government has increased rates the way it has, to recognize the fact that farmers are facing increased input costs this year — quite a dramatic increase,” Gallant said.
That money will start flowing out early next month.
If the producers “receive the request and if everything is completed, we will deposit this money in their account on April 1,” he said. Last year, the Canola Growers Association deposited more than $200 million into the accounts of 1,500 farmers on April 1.
The first $100,000 is interest free and FarmCash and the Canola Growers Program charges prime minus 0.75% on the rest. (There are a large number of program administrators, which vary by province and product. For a list, go to Advance Payments Program page on the Government of Canada website)
The discount, the interest-free portion and the low prime rate (which was 2.45% at the time this document went to press) make this a very cheap interest rate.
“If producers ask for $1 million, they can take advantage of the blended rate, which is 1.52% per annum,” Khurram noted.
(However, the prime rate is expected to rise, perhaps as early as March 2, when the Bank of Canada may raise the interest rate on money it lends to banks.)
Loans must be repaid when the crop or livestock are sold. For grains and oilseeds, the maximum loan term is 18 months and for livestock, it is 24 months. Cash advances are also available for other commodities, such as honey, vegetables and special crops.
The program works well for new growers, Gallant said.
“The only guarantees required under the program are inventory and crop insurance,” he said. “It gives a lot of flexibility to new and beginning growers.”
Neither the Canola Growers Association nor FarmCash charge an administration fee, and this is the second year that FarmCash has been offered to growers in Western Canada.