Agfarm Finance Newsletter – November

Anthony Hall, Agfarm Regional Manager NSW & QLD

Around the grounds – November 2018

Headers were rolling for the month of November and so too were the summer storms. Weather has been hampering any good solid runs nationally with scattered small and large falls. We’ve not heard reports of downgrades, but there is definitely a green tinge appearing, so we expect summer spraying will commence soon. The rain has been positive for sorghum, corn and cotton planting opportunities for those in summer cropping areas.

Harvest would be around 60% done nationally. East coast quality has been good with high protein hard wheat, low screening and good test weights. There has even been a good level of malt barley. Western Australia harvest figures keep increasing, but lower protein ASW makes up more than 50% which is good for the east coast feed rations!

2018/19 winter cropping spend has completely wrapped up for the year. Interestingly, we’re seeing increased enquiry for alternative funding lines for next season’s input costs. Did someone say Royal Commission?

Cashflow Management

Despite record prices, income is generally below average as a result of reduced yields, and many growers are making cashflow decisions now to manage their requirements for the coming season. With that in mind, we thought it timely to look at ways to repay current funding lines while preparing yourself for next season and keeping the cashflow flowing.

“Whenever you’re making an important decision, first ask if it gets you closer to your goals or farther away. If the answer is closer, pull the trigger. If it’s farther away, make a different choice. Conscious choice making is a critical step in making your dreams a reality.”
– Jillian Michaels

1. Sell to Settle

The most obvious way to meet your current debt or cashflow requirement, seasonal or term debt or harvest costs is to sell for cash. Payment terms have never been faster with two, five, seven and 14 day payment terms common.

There are also numerous smart sales platforms and apps which give great buyer and price transparency, and allow you to transact immediately using only your fingertips.

Right now, 2018/19 grain prices across all port zones have wheat and barley selling at decile 9.80 (out of 10). In other words, for the last 10 years, 98% of the time prices have been lower than they are today!

But what if you want to spread your cashflow and grain marketing exposure?

2. Carry for Cashflow

Carrying grain and selling it over time is the most common way to spread cashflow and give you longer exposure to the market. Speaking generally, there are two ways to achieve this goal: store the grain onfarm or warehouse the grain with your bulk handler and sell over time, or enter a long-term sales program offered by a grain marketing company. Commonly these are called a “pool”.

If you store the grain on farm or in the BHC, you’ll need to manage your cashflow requirements by selling the grain as required.

If you deliver your grain to a medium to long term grain marketing product, like Agfarm Advantage, the grain company will manage the sales on your behalf over an agreed time. In addition, these programs will usually provide advanced, monthly and deferred (post June 30) payment options.

A third lessor know option offered by Agfarm is Warehouse Cash. Warehouse Cash is an inventory finance program which allows you to access 60% of the value of your warehoused grain immediately for cashflow, while giving you up to six months to sell the physical grain. This gives you the benefits of cashflow and market exposure over time.

An important difference between selling to settle and carrying is costs. The longer you hold the grain the greater the cost. These costs might be outweighed by a rising market, the simplicity of monthly payment or potential tax benefits of deferred payment. But the costs will be higher than cash at harvest. Also, don’t forget ongoing bank facility interest.

Below is a guide of some of these costs.
Note: numbers are ex GST, for example purposes only and do not represent specific grains, storage sites or funding lines

 
 
 
 
 
 
 
 
 
 
Always remember you don’t need to commit 100% of you crop to either option. Take a mix and spread your risk.

Funding for inputs

Another option to preserve cashflow during the year is to utilise a short term or seasonal finance facility like Agfarm Accelerate to pay for crop inputs such as seed, agchem, fertiliser or water costs.

Crop input or seasonal finance facilities come in several flavours, but their common goal is to allow the user to purchase cropping inputs as required during the season and pay the bill post-harvest from crop sales proceeds. Cashflow management is achieved by the user deferring the input payments.

Using a combination of competitively priced input and overdraft finance can allow users to remove other higher funding costs from their business like credit cards for example.

Industry Report – Agfarm’s agribusiness reporting top pick for the month.

RaboBank AgriBusiness Monthly

 

 

Reid Seaby WA Regional Manager | 0439 625 853

Kate Phillips SA Regional Manager | 0438 128 472

Anthony Hall QLD & NSW Regional Manager | 0400 873 777

James Ryssenbeek VIC Regional Manager | 0447 743 556

 

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