Give and get | The financing model provides farmers with capital in return for a set amount of canola at a fixed price
A Saskatchewan firm that offers an untraditional form of farm finance says its list of contracted canola growers has grown faster than ex-pected.
Launched in 2012, the company has already loaned $32 million to farmers in Saskatchewan and Alberta.
Input Capital has borrowed a financing model from the mining industry to offer farmers capital upfront in return for the right to buy a set number of tonnes of canola crop at a fixed price. Agreements usually last six years.
The company, which also claims a percentage of increased canola sales, calls it “agricultural commodity streaming.”
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Its public offering in October raised $41 million to be used on contracts with growers.
“We’re ahead of our plan in terms of that deployment, and our pipeline of potential deals is bigger than it’s ever been,” said executive vice-president Brad Farquhar, who acknowledged the transportation backlog as a factor.
The company completed seven agreements with growers in March worth $7.1 million, including the first in Alberta.
It now has 18 canola agreements with 17 farmers. Farquhar said the average deal size is $1 to $2 million, and the company intends to have 30 contracts in place by the end of the year.
“I know that a few of the deals that we’ve done are with farmers that originally had contemplated selling a half section to finance this year’s inputs, so they didn’t have to sell their crop at a wide basis and low prices,” he said.
Farquhar said the company first attracted interest from growers recovering from bad years in 2010 and 2011, but it has also had interest from farmers expanding their operations or new farmers with smaller balance sheets.
Farmers who sign a contract agree to run an agronomic program with an agrologist to achieve maximum yields.
“It’s growing. It’s still very new and different. This is unlike anything a farmer has seen before,” said Farquhar.
“In essence, we act as a financial partner and most farmers haven’t had a financial partner.”
The company also runs its own sales program, reporting at the end of March that it had sold one-third of the 18,297 tonnes of canola it was to receive from growers from last year. It lists its average cash cost per tonne at $78.95.
The company is owed 23,758 tonnes this year and will receive almost 24,000 tonnes of canola every year through 2018 under current agreements.
“We’re well behind our canola sales compared to where we wanted to be,” said Farquhar.
“The good news is we had delivery contracts for that, so the price is established. We haven’t taken the price hit that farmers that didn’t have contracts have taken.”
Agricultural investor Assiniboia Capital, which launched Input Capital, sold its assets, including 115,000 acres of Saskatchewan farmland, to the Canadian Pension Plan Investment Board in December.
