Managing farm cash flow takes effective planning and access to the right tools. Unlike many types of businesses, farmers face a unique situation where an entire year's production culminates in harvest that spans only a few weeks. Faced with this situation, farmers must determine the best sales strategy to manage their cash flow needs, while attempting to get the most profitable price for their production.
Some may choose to sell a portion, or even all, of their production at the time of harvest – whether selling grain right off the combine or calves right off the pasture. While common, this approach can result in missed opportunities to maximize the prices for production by selling into higher-volume, lower-priced markets. Others will store their grain, background their calves or hold on to their production for sale throughout the year, looking for opportunities to achieve higher prices using forward pricing and delivery tools, or spreading out sales into cash markets.
A cash advance through the Advance Payments Program (APP) is one tool that farmers can use to access cash flow on their inventory, while giving them the time they need to find the right spot in the market to maximize price. For 35 years, Canadian Canola Growers Association (CCGA) has been helping Western Canadian farmers manage their seasonal cash flow needs by providing access to cash advances for more than 50 commodities, including crops, livestock and honey.
There are no limits to how you can put an advance to work for your farm: cover your seasonal operating expenses; pre-purchase next year's inputs; upgrade or do maintenance on your farm equipment or structures; or grow your business by investing in capital purchases. The APP gives farmers the flexibility to plan your commodity sales and optimize the prices you receive, while reducing your borrowing costs with interest-free and interest-bearing advances below prime rate.
Farmers can apply in fall or at any time of the year and eligible applicants can receive up to $1 million, including $100,000 interest-free for all eligible commodities. CCGA's rate on the interest-bearing portion for the 2020 APP is CIBC prime less 0.75%. That means the low blended interest rate on a $1 million advance can save your business $10,000 to $20,000 per year over the same loan value taken at commercial lender rates.
A cash advance can support the ebbs and flows of your farm's fall and winter cash flow needs, whether you're a grain farmer or livestock producer, you raise honey bees or market grass seed, and you sell into conventional or organic markets.
Farmers have access to advance funds for up to 18 months for crops, small livestock and honey, and up to 24 months for cattle and bison. Advances are repaid as the commodity that the advance is issued on is sold, so the repayment schedule depends on when you sell your commodity.
If you have questions about whether an advance is right for you, knowledgeable CCGA staff are just a phone call or email away and always ready to help.
Read more: Applying for a cash advance
The Advance Payments Program is a federal loan program administered by CCGA. It offers Canadian farmers marketing flexibility through interest-free and low-interest cash advances.