Best practices and tools for managing cash flow on the farm have changed – and continue to change. Today you have more flexibility. And that makes it easier to manage cash flow on the farm. You can decide if it is better to prepay fertilizer or buy and take early. You can market every crop on your farm when and how you want. You can decide when to use credit strategically. And as an online grain marketplace emerges as a viable tool for grain marketing, you can be proactive in how you sell your grain to support cash flow.
Cash flow with and without the CWB
A lot has changed post CWB including more diversification in grain marketing options. We talked about taking advantage of those new grain options without the CWB in an earlier blog. (Read that blog here). And those changes have a big impact on how you manage cash flow. But, let’s start by reminiscing about the CWB days. At that time, there were some wheat and barley contracts available outside the pool but it represented only a small percentage. Most grain was sold under the CWB with A, B, and C Series Pool contracts and contract calls. You received a payment at delivery that would be topped up if the pool ending balance exceeded the payouts. It made cash flow for CWB controlled grains unpredictable and difficult. Growers often relied on the cash advance program to help manage cash flow during the growing season. This usually worked well because the cost of borrowing was reasonable. Sales of the “rest of the crops” were relied on for smoothing out the cash flow requirements throughout the year. Today, you can treat all your crops the same and sell at strategic points throughout the year to not only balance cash flow better, but also take advantage of better prices and terms.
The changing nature of crop input credits
Another big change for farms was the evolution of trade credit for crop inputs. The boom and subsequent bust of fertilizer prices in 2008-2009 changed how crop input retailers offered credit. In the “good old days”, your independent dealer would extend credit to the end of October (plus a few weeks of grace on interest with some dealers). This situation, like the CWB payment model, conditioned growers for decades to take out a cash advance on grain to cover costs. To ensure bills were covered, producers needed to sell most of their crop at harvest when prices are typically at their lowest.
But that too has evolved.
More and more input dealers today are offering terms through credit suppliers that extend into February or March. This has a big impact on what your cash demands look like throughout the year. There is less pressure to sell immediately post harvest and an opportunity for better cash flow management as sales are spread throughout the year.
Today’s tools for cash flow
There are lots of ways you can slice and dice the cash flow decisions on your farm. But, more decisions also mean more management pressures on you and your team. The good news is, there are advisors who can support you, and the next evolution of tools make some of those management decisions easier.
An online marketing platform like CXN360 give you two big things that make cash flow management easier. First, you get crucial price information through real bids from real buyers for grain in your area. This kind of insight gives you an understanding of what your grain is worth at any point throughout the year. Not only can you determine a realistic target price for your grain, but you can also monitor the local market for the right time to sell. And that brings us to the second key benefit of an online marketing platform – the ability to sell when you want to sell. Today’s tools let you receive bids throughout the year from a broader network of buyers or you can be proactive and put out an “ask” for your grain. Either way, you determine when you need to sell your grain and for how much as part of your farm’s cash flow management plan.