Cash advance and marketing impact

[wd9]

Anyone care to comment if the cash advance may actually 'smooth' the market peaks and dips preventing those who must sell canola in the fall for cash flow (enhanced dip) thereby limiting potential premium or better basis (enhanced peak due to less overage) later on in the year.

Charlie or Lee, have any studies been done on its effect to prices?

[melvill]

wd9, I haven't seen anything done and, quite frankly, I hadn't even thought of it before. Anyone else have any thoughts?

[freenorth]

Cash flow always encourages people to sell those crops which they can access the most cash from after paying off grain advances against them. They do interfere with the market and encourage delivery of
certain products over others. Having interim and final payments tends
to not generate enough value at once so other products must also be sold. It would be difficult to measure the impact but it is significant.

This isn't specific to your question but may be of interest to you.
The federal agriculture department is working on increasing the
interest free portion to $100,000 and the maximum to $400,000.
This requires cabinet approval so who knows when it will happen.

It has also been identified that something needs to be done to improve
cash flow ( imagine that absolutely brilliant revelation). The ag department is trying to figure out if there is a way to
increase advances by calling them emergency advances and perhaps have them go against future CAIS payments. This was done with BSE emergency payments in Alberta I believe. The timing of repayment
of advances is also being discussed. Is there a way to roll current inventory with an advance into new crop without paying off the advance
until the product is moved in 05/06 payments.

[Lifer]

We use the cash advance primarily on wheat.

Since the wheat we grow is not ours therefore not involved with marketing our farms use of the cash advance with wheat would have no marketing impact.

[wd9]

That was the original intent of the advance, since there was no market choice or timing issues, there could be no affect to the market. As far as the producer was concerned, the grain was already marketed.

What about all the non-board grains however as we have today?

[Lifer]

Using the non-board grains or inputs for the spring advance as collateral a loan should be simple enough to receive.

Minimal if any market impact would occur because the cash advance has very little difference from a bank loan.

So do we even need a cash advance on non-board grains.

[TOM4CWB]

WD9,

On some IP programs Bunge provides interest free advances.

It is needed when deliveries are stretched over the whole year, as we need the cash flow to put the crop in.

On our farm we stay totally away from CWB advances, and use the services of the CCGA. The spring canola advance has been the biggest help. We use the interest free part only.

[seedsman]

We grow a number of different crops on our farm. I always take the $50,000 interest free on the crop(s) that I plan to sell last. eg in the past, the pulse cash advance was not due until mid September. This allowed me to sell the crop for seed in the spring, or hold it for a price rally during a harvest weather problem the next fall. And if I didn't sell the crop at all, I could pay it all back in cash, at an pretty reasonable interest rate. If every farmer producing that crop did what I did, then it would have an effect on the market. However, not many farmers do this, and even if they did, it would only be on a small %age of their total crop. I assume, for most farmers, this only represents 10% of their crop.