Farmers with cash advances should ask a few questions when they deliver grain to feed mills, ethanol plants or grain dealers this year.
Under new rules brought in by the Canadian Wheat Board, those companies won’t necessarily be able to make advance payment deductions.
It will depend on whether they have signed an agreement with the board, spelling out the terms and conditions surrounding the cash advance program. If they haven’t, it will be up to the farmer to send the required payment to the board within seven days of the sale, along with the proper documentation.
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The new rules are designed to protect farmers from the possibility that the company, for whatever reason, doesn’t forward the advance deduction to the board.
“We felt that there was enough risk that we needed to change the procedure,” said Ed Thomas, who oversees the board’s cash advance program.
He said there have been instances in which a company took a deduction on delivery but didn’t report that deduction to the board. The board is then put in the position of having to collect the payment from the company.
At the end of the day it is the farmer’s responsibility to repay the advance, but the board doesn’t think the producer should be held responsible if they have done the right thing.
Because no bonding is required from feed mills, ethanol plants or grain dealers for purposes of the cash advance program, there could be problems collecting the money if a company got into financial difficulty.
“So we decided we needed an agreement with these organizations so if there was a problem we’d have recourse,” said Thomas.
Such an agreement is in place with grain elevator companies that handle most of the cash advance repayments.
“The thought was that if grain companies are liable, then these other companies should be as well.”
Thomas said the board may require a letter of credit from the company, depending on its financial situation. In the case of deliveries to feedlots, there is no obligation on the company to take a deduction, so it’s generally up to the farmer to make a cash repayment to the board.
Top up expanded
The board has also expanded its pre-delivery top-up program for 2004-05 to include Canada Western red spring wheat.
Under the program, farmers who have a cash advance and require additional cash flow early in the crop year can apply for a pre-delivery top-up contact and get a payment of $20 a tonne.
The program was introduced last year, but was limited to non-CWRS varieties.
The deadline is Oct. 31. Farmers must first sign up for a cash advance, then apply for the pre-delivery top-up.
The cash advance payment rates for 2004-05 are $80 a tonne for wheat, $75 for durum, $40 for barley and $63 for designated barley.
The upper limit is $250,000 per crop year for all crops, including canola and others for which advances are available. The first $50,000 is interest-free until the advance is repaid or Aug. 31, 2005. Farmers can repay in cash up to 10 percent of its value, or $500, whichever is greater. Cash repayments of deliveries to feedlots do not count against that limit.
Advances will be placed in default on Aug. 19, 2005.
