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CROP INPUT financing programs have become as competitive as the products themselves, and all signs point to a continuation of this trend. The crop input financing business continues to grow, with many retailers going to big ag-related lenders, such as John Deere Credit, Rabo AgriFinance and ProPartners Financial. Retailers also have been able to offer increasingly attractive interest rates to their grower-customers through programs offered by crop protection and genetic trait technology companies.
“There has never been a better time for all of the financing options available to dealers,” says Bruce Senst, director of marketing services, Agriliance. Agriliance offers Partners in Production, a program that allows growers to finance their crop inputs purchased at their local cooperative. Dealers can take advantage of financing programs that offer higher recourse but less overall cost, and vice versa, Senst says.
Dealers appear to be taking one of three different approaches to financing, Senst says. The first is to use financing to help manage their accounts receivable risk. The second is to use it to expand market offerings — service plans, sales in more categories or more financing program options. The third is to bundle financing with insurance and/or production inputs. This can help generate better margins as well as sales, Senst says.
More time for selling
“We're in the selling business, not the loan business,” says Charles Wagoner, Allen County Farmers Service, Scottsville, KY, explaining that his company decided to do all of its financing through John Deere Credit's Farm Plan last March to free up more time for selling. Wagoner adds that automatic approval of customers particularly helps during the busy spring season. “We save time not having to make calls,” he explains.
The Kentucky dealer adds that the financing program has helped attract new customers and has encouraged more customers to take advantage of early-season purchase discounts. Another benefit? The dealership's cattle farmer customers can buy handling equipment and not have to pay interest or make a payment for six months.
Located in south-central Kentucky, Allen County Farmers Service was established in 1949. In addition to seed, fertilizer and crop protection products, it sells heating fuel. This Southern States dealership serves customers in Allen County and surrounding counties.
The financing program also helps the dealership manage cash flow because it can receive funding within 48 hours.
“The only challenge has been helping customers learn the program,” Wagoner says. He says some customers want to pay on a monthly basis, whereas others are interested in longer-term financing. “We've received mostly good feedback. When you explain the programs and that the interest rate is lower than what our dealership can offer, they like that,” he says.
Jayma Sandquist, director of product development and marketing of Farm Plan, describes the plan as providing “a convenient, multiuse account for producers that provides short-term financing for use at ag retailers.” She states, “Farm Plan is a great way for producers to make day-to-day purchases and also have access to special terms type financing. Oftentimes, special terms financing has attractive rates with due dates after harvest, helping a producer meet cash flow needs. The market continually changes, and we'll continue to listen to dealers and farmers to understand what value proposition is needed.”
Lanette Blackwell, Farmers Exchange, Lockwood, MO, says that crop input financing has helped her dealership increase sales. “There is a group of growers who have probably purchased more product from Farmers Exchange than they would have without credit,” she says. Formed in 1921, this full-service cooperative serves growers in four southwestern Missouri counties.
The financing program has helped some customers better manage their fertilizer and crop protection product expenses, Blackwell says. Some use financing with feed purchases, using credit until they sell their calves, for example.
Growers are learning how to make the best use of financing programs, Blackwell says. “A 90-day no-payment, no-interest program could enable them to apply fertilizer twice and pay for it later,” she says. She notes that many growers like the fact they can get credit for rates comparable to those that banks offer, but with less paperwork.
Bridging the gap
Risk management is one of the reasons that Tommy Dollar, Dollar Farm Products, Bainbridge, GA, likes crop input financing. Some of Dollar's customers often do not get paid until three to four months after their cotton or peanut harvest. If growers are waiting on countercyclical payments, the dealership may have to wait as long as three to four months to get all of its money.
Ag lenders, such as John Deere Credit, understand the business of farming, Dollar says. “Our financing program allows us a bridge loan, which allows us to have money before the remainder of the payments come in,” he explains. “I used to hold the gap, and that's risky. In the past, I'd also be in second or third position behind a bank or another lender to get paid.”
Dollar Farm Products, which sells fertilizer, seed and crop protection products, and which also buys peanuts and grain, was established in 1939. It serves farmers within a 30-mile radius of Bainbridge in southwestern Georgia.
Value per acre
With recent high fuel and fertilizer prices, growers are sharpening their pencils and searching for products with the best prices and terms, observes Jerry Harrington, sales and marketing public relations manager, Pioneer Hi-Bred International. Pioneer offers several options in its Rewards Program, including the TruChoice Opportunity Program.
Through November 11 of last year, growers could finance their crop protection purchases at prime -2%. From November 12 through January 13, 2006, they could finance at prime -1%, and at the “InSeason” rate (January 14 through March 31, 2006), they could borrow at prime. (Some regions allow flexibility on these dates.)
For seed, growers could finance their purchases at prime -1% through November 11 of last year. Interest from November 12 through January 13 was at prime; and from January 14 through March 31, it was at prime +1%.
In addition, there are Commitment Reward savings for seed at 7% in the first period; 5% in the second period; and 2% in the third. There are also savings for cash payments.
Harrington says that, over the last five years, programs that link seed and crop protection financing have grown in popularity. Growers like the convenience. He says that, with recent spikes in fuel and fertilizer costs, more farmers are asking early and in-depth questions about financing programs.
He adds, “Anytime dealers (seed sales agents) can provide competitive terms on seed purchases or linking seed with crop protection, they come out ahead.”
What will continue to be important is to help bring the best value to each acre, Harrington says. But calculating value has become more complex when you take into account transgenic traits and seed-applied insecticides, for example. One also may need to take into account identity-preserved markets where growers earn premiums on their grain.
Preapprovals
One of the newest developments in Rabo AgriFinance's program for the 2006 selling season is that it preapproves dealers' customer bases. Rabo AgriFinance can now preapprove qualified customers for up to $50,000 on an unsecured basis, says Jamey Ross, Rabo AgriFinance. The lender also co-brands this program with dealers and creates the marketing materials.
A benefit of the Rabo AgriFinance program is that the line of credit is exclusive to the particular retail location offering it, Ross says. Other benefits include no recourse to dealers, the ability to submit transactions online at raboag.com, customized programs and a one-page application form.
Echoing Charles Wagoner's comments, Tad Mozena, Rabo AgriFinance, notes that dealers can spend more time on selling when they use a program such as the one his company offers. He adds that when grower-customers get approved, the retention rate is very high. “Customers are preapproved for the following year, and retailers like it because their customers are happy,” he says.
More financing
Ross says that higher fertilizer and fuel prices over the last several months have caused growers to obtain more financing than they normally do. Rising costs are creating a sizeable challenge for traditional lenders to provide enough credit to farmers. This adds more pressure on retailers to provide credit because more growers look to their retailer for credit programs.
“Farmers may also be looking to diversify their lending sources,” Ross says. “We're also seeing many more players in the market, whether it be local retailers, national companies or seed companies.”
And because studies have shown that retailers are viewed as trusted advisors, growers will likely continue to rely on what retailers can offer.
John Deere Credit's Farm Plan
Helps a producer purchase everyday essentials (fuel, parts and service) and larger seasonal supplies (seed, fertilizer and crop protection products)
Consolidates ag purchases on one account
Offers one-statement/one-payment convenience month after month
Provides competitive interest rates
Improves a producer's cash flow with flexible payment options
Rewards a producer with deferred-payment finance opportunities
Simplifies account management with user-friendly phone and online capabilities
Keeps the producer informed with monthly statements and annual purchase summaries
Gives the producer dependable purchasing power at more than 7,000 retail locations
Rabo AgriFinance QuickLink Credit Program
Provides line of credit exclusive to a particular retail location
No recourse
Allows submission of transactions over Internet
Online processing (e.g., invoicing) done by raboag.com
Can pay dealers within two days
Terms set up with each ag retailer
Offers initial standard interest rate
Enables offering incentive rates to customers
Straightforward, one-page application
Preapproval of customer database available
Opportunity for retailer to co-brand with Rabo AgriFinance
ProPartners Financial's (PPF) Alliance Partner Program
(provides administration and funding for Agriliance's Partners In Production producer financing program)
Full range of financing — from input only to other operating needs, term loans and other financing options
Competitive interest rates
Preapproved loans with high acceptance rate from producers
Loans have no recourse up to $150,000
Customized programs developed for dealers with large demand for input financing
Loan terms up to 18 months for tax reasons
Producers can have concurrent loans, allowing for marketing opportunities and income management running for each crop season
Funding when customer wants it either through a check from the dealer or an ACH electronic transfer
Online application and electronic loan documents
All collection work done by ProPartners Financial
Allows the dealer to use working capital for purposes other than funding accounts receivable
Reduces dealer's risk from an unsecured accounts receivable to an account with a note and security agreement
Ag Financing Solutions (AFS)
seed program offered by ProPartners Financial and Land O'Lakes
AFS offers dealers and producers an opportunity to take advantage of discounts and extended terms. On a dealer-by-dealer basis, interest rates range from interest free to prime +3%. Tender seed wagons are also available through this program.
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Valued partners
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Wireless grain
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Energy anxiety
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Seed trackers
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21 days and counting
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Fall fertilizer forecast
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Covering new ground
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First lab accredited
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Win free seed
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3 ideas for finding good employees
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RMP compliance
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Tell us about your experience with Syngenta Crop Protection in Latin America and what that experience will mean to your new position here in North America.
Watchful waiting
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Are you pleased with the acceptance of ESN Smart Nitrogen, and how does that new product fit with retailers and their relationships with their customers?
Weed control in small grains
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Interactive Web site
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Cottonseed slate
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Software developers and suppliers 2005
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Free online course
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Energy money available
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