Cash advance expansion will act as stress reliever

Will the big boost to cash advances solve the China problem?

Nope.

Will it compensate farmers fully for their losses from the spat between Beijing and Ottawa?

No.

Will it remove canola-marketing worries from farmers throughout 2019-20?

No way.

But as a temporary stopgap, it’s a good stress reliever, a shield against some bad choices farmers face as they decide what to move in the fall, and a positive, if unsettling, sign that the federal government understands farmers’ problem, and that it’s likely to hang over them for months to come.

Since China began blocking Canadian canola sales, farmers have seen canola prices fall. Some of that is no doubt due to China blocking new Canadian canola sales to the country since February, cutting off a market that has become the destination of 40 percent of Canadian canola. Some of it is due to the general slump in vegetable oil prices and, no doubt the impact of the devastation caused to the Chinese pig herd by African swine fever, reducing the value of canola meal and other feeds.

The bigger problem is what happens to price and movement if the China crisis drags on. Do canola prices reflect the full impact of a Chinese import blockade for all of 2019-20? It seems doubtful.

“This market has further downside risk,” notes Jerry Klassen in the Wild Oats Grain Market Advisory.

“We continue to be bearish on canola prices.”

The boost in canola-based interest-free cash advances from $100,000 to $500,000 can’t compensate much for marketplace losses. It’s a loan that has to be paid back.

But it will allow farmers to have more cash in hand now and after harvest to settle bills that come due. Farmers won’t face as much pressure to rush just-harvested crops to market, allowing them to think better about what to move and when. Being forced to cash out crops at harvest, traditionally the lowest-priced period of the year, for cash-flow reasons is a perennial problem for farmers.

With canola such a wild card, with prices likely to fall further if the China crisis drags on but rebound sharply if it is resolved, farmers will be wrestling with which crop to move and when. That’s going to be a tough call now, but having upcoming bills playing less of a role will help.

The disquieting element of the cash advance boost is the federal government’s apparent recognition that this dispute is nowhere near being resolved.

Perhaps Ottawa is just trying to punt some of the problems beyond next October’s federal election, but it’s more likely that this is a sensible bureaucratic response to a real financial problem it sees coming.

Last year, when I wrote a column about the cash advance program and wondered about why more farmers aren’t using it, I got an earful of reasons from farmers.

A common complaint was that the $100,000 interest-free portion was just too small to be relevant to most full-sized commercial farms today.

At least temporarily, that problem has been mitigated. Farmers with big acres will be able to see if the cash advance will work for them in the coming crop year. That’s a useful experiment.

Cash advances were falling off many farmers’ risk management radar in the last few years. The China crisis won’t be solved, fixed or compensated for (much) by the expansion of the program for 2019-20.

But the expansion will give farmers a chance to consider the program again and see if the beefed-up program would work for today’s bigger farms.

If it does, maybe it’ll be time to press the federal government to up the limits and bring the program into line with today’s farms.

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