Exploring Crop Input Financing

As farming operations grow and input expenses increase, agricultural producers are searching for more alternatives to pay for their inputs. As a result of this growing customer need, there is an increasing trend toward crop input financing being offered by the manufacturer, as well as the agricultural retailer.

And we can expect this customer demand for such input financing options to continue to grow, as customers strive to better manage and align their crop cycles with cash flow. In fact, when structured properly, crop input financing can benefit all the players in the value chain: The manufacturer, the retailer and the customer.

Manufacturers and retailers see some significant benefits from offering input financing. For one, these types of financing offers can help manufacturers and retailers lock in a customer’s business earlier in the season; in effect, moving those purchases forward. Not only does that improve the seller’s cash flow, but it can also mean the competition is locked out from gaining that customer’s business. Cash flow is also enhanced, because the retailer can receive payment promptly, in some cases as soon as two business days from date of purchase. For accounting purposes, these purchases then no longer need to be carried on the books as an accounts receivable.

Jason Ward, BASF brand manager, discusses how and why BASF was attracted to input financing: “About five or six years ago, customers were coming to BASF, inquiring about financing purchases from BASF. It was retailer- and farmer-driven. The ability to buy early helps farmers better manage their input costs and then to pay at the end of the year, once they’ve harvested their crops.

“There’s a great benefit, too, for our retail customers,” he continues. “Our retail customers are able to receive the financing transaction … the payment … within two business days, which aids a retailer’s working capital.”

Tim Boals, Western regional manager for Wilbur-Ellis says: “We were first exposed to this type of financing with some of the brands we were selling. We began to realize it could provide Wilbur-Ellis with another way to customize our offerings to help better match our customer’s cash flow.  “This type of financing helps us further the opportunity to be viewed as a trusted advisor for the farmer,” says Boals. “You are never closer to an individual than when you are talking about money. We find it valuable to have the opportunity to work with the farmer and plan during a time of year when the farmer may not have the money to actually buy the product. So this type of financing has allowed us to sit down earlier with the farmer and work out a production plan, without the farmer worrying about how to pay for all the products his plan will require.”

The Customer View

Customers are experiencing benefits from this concept as well. One is flexible repayment options timed to cash flow. Manufacturer and retailer-sponsored financing programs typically offer flexible repayment options that best match the farmer’s cash flow. A good example of such flexibility is a “no payments, no interest until after harvest” program. Boals notes: “Crop input financing enables better planning, because it opens up the grower’s window of opportunity to obtain the product, helping them better match their cash flow situation.”

Kip Tom, who oversees, along with his family, a farming operation that spans several counties in northern Indiana, has been using John Deere Financial for his crop input financing. “It’s the service around the credit product that really differentiates one offering from another,” says Tom. “The ease of using that credit facility is most important to us. Sometimes, though, we can also get better terms, as well. We really appreciate the convenience and simplicity. The special terms we get are important as well.”

Keeping credit lines open for other business needs is also a valued benefit for producers. By acquiring their crop inputs using the manufacturer or retailer’s finance program, the producer is able to keep those dollars freed up from their operating line of credit for other needs.

Looking To The Future

What’s the future for input financing? Ward says: “I think one of the benefits from our relationship with our credit provider is that we meet quite frequently and discuss different ideas about what we are seeing in the marketplace. By sharing ideas and best practices, we can determine the best way to satisfy the changing needs of our farmers and retailers. I think it’s through those kinds of discussions that we continue to look forward and make improvements.”

Says Boals: “I would expect this type of financing to continue, and likely to trend up. We at Wilbur-Ellis are focused on the quality of the financing, developing financing programs where and when they will create the most value. So we all need to stay in tune with how we can use the financing to provide the most customer value.”

Adds Tom: “When I think about input financing, and I look at the future growth of our business, I see a greater demand for inputs, whether it’s seed or chemistry. That also comes with a greater demand to easily access funds to finance those inputs. We have to make sure we have the inputs here when we need them, and at a good rate.”

In the end, when using crop input financing, producers can benefit by having access to competitive interest rates and special financing opportunities at their ag retailer, saving them time and money, while better matching cash flow. For the ag retailer and manufacturer, input financing programs and supporting tools can help them more effectively market their products and increase sales.

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