Unharvested grain throws wrench in cash-advance plan

Jeremy Welter usually relies on fall cash advances to pay his bills and provide him with the flexibility to market his crops when he wants.

That won’t happen this fall because the cash-advance program requires his grain to be in the bin for collateral.

Unfortunately, two-thirds of his crop was still in the field as of Oct. 21 and there was little hope of getting it harvested before the snow flies.

That is creating a serious financial conundrum for the farmer from Kerrobert, Sask.

“As of right now, I still have my entire spring cash advance as well as all my input loans and various other bills that are of course sitting there waiting,” said Welter.

He still has 1,000 acres of canola, 850 acres of malting barley and 130 acres of spring wheat remaining to be harvested.

And it doesn’t appear likely that he will be firing up the swather any time soon. His barley crop is flattened and even if he could get equipment onto his waterlogged fields, the grain is too wet to harvest.

“Barley when it’s dry, it’s supposed to be fairly hard. You have to chew on it to crack the kernel,” said Welter.

“This stuff I could squish between my fingers. It was like sand. It was soft like dough, almost.”

He worries about the kind of yield loss and quality degradation he will be seeing in his barley and canola crops by the time he is able to get back into the field.

In the meantime, he looks out his window and wonders how he is going to pay his bills.

“It is definitely a very, very large concern for me, obviously, but not just for me, for producers all over the place,” said Welter.

“I sincerely hope it doesn’t come to this, but bankruptcy for some guys might be the only solution.”

The Agricultural Producers Association of Saskatchewan has received a number of calls from producers in the same situation.

It wants the federal government to change the rules of the cash advance program to allow farmers to receive advances on the crop that remains in the field.

“To get a cash advance you need crop insurance, so crop insurance could get involved in verifying acres and yields that were in the field,” said APAS president Norm Hall.

APAS also wants Ottawa to increase the limit on the cash-advance program to $500,000 from $400,000 with $150,000 of that being interest free instead of $100,000.

“As farms get larger, we’ve been asking for that (limit) to be increased, and this is the perfect opportunity,” said Hall.

“Guys that aren’t going to get the crop off are going to need that cash influx just to pay the bills.”

Federal Agriculture Minister Lawrence MacAulay was contacted for this story but did not respond in time to meet production deadlines.

Dave Gallant, director of operations with the Canadian Canola Growers Association, which administers $1.3 billion of the $2.1 billion in cash advances that were distributed in 2015, said the limit hasn’t been changed in a decade.

“We hear from farmers all the time about the need to increase limits,” he said.

Farms have increased in size since 2006 and the cost of production has gone up. That is why the association has been calling for a doubling of the limit to $800,000 since 2014. It is not requesting any change to the interest-free portion of the loan.

Gallant said the cash advance program is popular with farmers because they use it to pay their bills and are able to hold off on marketing their crops in the fall when prices are depressed.

The program has been growing every year since 2012, and this year is no exception. Farmers have requested about $50 to $60 million more than this time last year.

The loan rate on the cash advance is unbeatable.

“It gives the farmers a weighted average cost of around two percent for his first $400,000 operating loan,” he said. “Many farmers probably can’t walk into the bank and get that kind of a rate, especially younger farmers.”

Gallant believes the federal agriculture minister has the ability to increase the cash advance limit without having to draft legislation.

He said the logical time to implement such a change would be for the 2017 program.

In the meantime, growers who took out spring advances have until Dec. 31 to report to the association that they have harvested that crop.

It presents a problem for growers who still have crop in the field. They need to get extensions on their crop insurance or else they will be in default on the cash advance.

Farmers who are in default will be charged a penalty of prime plus one percent back to the day the advance was issued and prime plus three percent going forward until it is repaid in full.

Gallant said the association has been in constant contact with provincial crop insurers and is aware there could be some delays getting those extensions in place due to the large volume of farmers that will be seeking the extensions.

Welter hopes he won’t be one of those guys. He was busy cleaning off his swather last week.

“Optimistically I’m cleaning it off so that it’s ready to use when we get back out in the field. Pessimistically, I’m cleaning it off so that it’s ready for storage (until) next spring,” he said.

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