Few hands rise when Dave Gallant asks a room full of farmers if they have ever used the federal cash advance program.
“For those who are not using the cash advance program, I want you to ask yourself why you are not taking advantage of this program,” said the head of the Canadian Canola Growers Association in a recent report. Alberta Canola Powering Your Profits event.
“And for those who are already using this program, I want you to ask yourself if you are taking full advantage of this program.”
The federally funded program was started in 1958 to help farmers access cash by providing low-interest cash advances on their crops.
The Canola Growers Association is one of a multitude of farm and other groups that administer money from the Federal Advance Payments Program, which allows growers to borrow up to $ 400,000 (guaranteed against the value of the grain. , livestock and other agricultural products) from the first $ 100,000 as an interest-free advance.
“There is no money cheaper than interest-free money, unless it’s a mommy and daddy forgivable loan,” Gallant said, adding that the rate interest on the remainder is based on the prime rate, currently 3.95%.
“That means your combined interest cost is about three percent, almost a point below the prime rate. Depending on what you’re borrowing from, this should be an extremely attractive rate. Most of you won’t. probably can’t get that rate on $ 400,000 today.
The loan allows producers to keep their produce and sell during peak market times, rather than when they just need the money.
“The purpose of this program – the fundamental reason it exists – is to put you in control of your marketing plan,” said Gallant, director of policy development for the Canola Growers Association.
“Most farmers sell their produce in the bottom half of the market, and one of the main reasons is that they need the money. So the idea is to put some money in your pocket now so that you don’t have to sell when prices don’t make sense for your farm.
Cash advance rules
There are also no restrictions on how the money can be used and only minimum collateral requirements, he added.
“Whatever the amount of the advance, it is the guarantee of the loan. It’s not your land, it’s not the equipment, it’s not the financial resources. This is the product in advance.
For this reason, the products listed on your advance are important.
“This is the product you have to pay the advance with, so the more product you put on your advance, the more options you have when it’s time to pay your advance. “
And you only pay when you deliver the product.
“That’s one of the advantages of this program over doing transactions with a bank or other financial institution – we don’t ask you to pay that much per month or pay interest as you go. “
Elevators can deduct the cash advance from the sale of your grain and submit it to an administrator, although this may take longer than if you had to pay directly. But if you are submitting payment directly, you will need to provide proof of sale (which is not required when going through an elevator). In any case, the advance must be repaid within 30 days from the day you received payment or within 60 days from the day you delivered the product.
But what if the value of the grain is not enough to repay the advance?
This was happening in the days of the Canadian Wheat Board – this is one of the reasons more farmers are not taking advantage of the program today. But it doesn’t work that way anymore, Gallant said.
Instead, the federal government estimates how much the crop will be worth for the entire marketing period, and then cuts that estimate in half. So even if prices fall, producers are protected.
For field crops, the program usually starts on March 1, with farmers having 18 months (until the following September) to repay the advance. The breeders have 24 months to repay.
There are four periods during which farmers typically request an advance. If you apply in the spring before sowing – the program begins April 1 and applications are accepted as of March 1 – this is called an expected advance, and this is based on what you plan to grow.
“A lot of farmers aren’t comfortable doing this. They at least want to know what was buried.
For these farmers, there is the seed advance, which usually runs until the end of July. But fall is the most popular time to request advances – that’s when the grain is in the elevator.
“If you request an advance while the grain is not yet in the elevator, the federal government requires that we, as the administrator, obtain a guarantee on that advance, such as crop insurance or AgriStability.” , Gallant said.
“Once you have coverage and prove to us that you have it, then you can get a cash advance. If it’s after harvest, all you need is grain in the bin.
Cattle producers should also benefit from AgriStability, but can apply at any time.
For a list of administrators, the products they deal with, and links to their websites, go to the AAFC website and search for “cash advance administrators”. Although not on this online list, the Alberta Wheat Commission began offering cash advances this summer.