There’s been a “very dramatic” spike in applications for cash advances since Ottawa upped the amount farmers can borrow against crops in their bins.
“We’ve had probably an extra 500 applications this year, and it’s not just new producers to the program — it’s also increased usage of the program by our existing customers,” said Dave Gallant, director of finance and operations for the Canadian Canola Growers Association, one of the organizations that administers the federal advance payments program.
“We’ve seen a significant jump in the total dollar value that we’ve issued by 38 per cent, and our average advance has jumped up by almost $50,000. So farmers are definitely taking advantage of these changes.”
Two key changes last year were likely behind the jump, said Gallant. Last June, in response to Beijing’s defacto ban on canola seed, the federal government upped the amount farmers could borrow to $1 million (versus $400,000 previously). As well, Ottawa temporarily upped the interest-free portion of the loan to $500,000 (from $100,000 previously) for canola growers.
As China’s purchases of canola plunged (it’s currently running about 30 per cent of normal) and program repayments began to decrease, a stay of default was granted in August for 2018 program participants, extending the repayment deadline from Sept. 30, 2019 to March 31, 2020.
Those changes — and the accompanying press around them — likely drew people to the program, said Gallant.
“A lot of people who talked to us for the first time this year weren’t really very familiar with the program, but now they’re seeing the advantages of it,” said Gallant. “I think a lot of the new customers will continue to stay as customers within the program.”
Alberta Wheat’s new FarmCash Advance program, which launched in September 2018, also saw a jump in applications following the changes. In its first program year, Alberta Wheat reviewed about 115 applications. In 2019, that number climbed to 184 applications, and the value of those advances nearly doubled.
“It may be partly because we’re a new administrator, but what we see is that there is increasing interest in the program, or at least in our program, from Alberta producers,” said Tom Steve, general manager of Alberta Wheat and Alberta Barley.
“We’ve reviewed about $36 million in total in cash advance applications since we started the program a year and a half ago, so we’re pretty pleased with the response from Alberta farmers and ranchers.
“It’s been a welcome addition to the risk management portfolio of Alberta farmers. We’re still small, but our program is definitely growing.”
Repayments have been proceeding at a normal pace, both farm groups said.
“So far, it looks like it’s going to be a relatively normal year on the repayment schedule, but we know a lot of our customers still have grain in the field,” said Gallant. “I suspect had we not had the fall we had, we’d see a lot more farmers participating in the program.
“So we’re not seeing a significant impact today, but it’s still early in the year.”
Repayments are also on track for Alberta Wheat’s FarmCash program.
“We have not had any significant issues with producers approaching or going into default,” said Steve. “It’s early days because our program is still relatively young, but we have already had repeat customers who have paid off their loans and reapplied.
“I don’t think that we see any significant trends in terms of producers being at the end of their credit limits and struggling to repay.”
That means it’s unlikely farmers will have to empty their bins before they want to in order to repay their advances.
“That’s the primary objective of the program — to give them the flexibility to market the crop when it makes the most sense for their farm,” said Gallant.
“Of course, while farmers have the flexibility, if prices don’t bounce back over the next few months, they’re going to have to sell in order to repay their cash advance. But it still gives them that opportunity to wait and find the right price.”
And that might be the right approach for farmers with canola in the bin right now, Steve added.
“The forward prices into the spring for canola are higher than the current market prices, so there’s an argument to actually taking out an advance and sitting on that inventory over the course of the winter,” he said.
“It’s always a concern to us when farmers are struggling to pay bills and selling at the low points of the market, but this is a tool that helps them alleviate that pressure.”
In the meantime, farmers should take advantage of these changes while they still can. Farmers with 2018 advances can roll them over to 2019 to give themselves an additional six months (to Sept. 30 of this year) to pay off. And anybody who hasn’t got a cash advance for canola can still access the interest-free benefit until March 31.
“That extra interest-free benefit is only available to farmers until March 31 — same with the farmers who want to roll their advance over — so if they want to take advantage of that, they have that very short window left,” said Gallant.