Every crop year comes with a plan. Inputs, timing and marketing all have to work together. The way a grower finances those decisions can play a big role in how much flexibility they have throughout the season.
Traditional ag financing often places a strong emphasis on land and other long-term assets when determining how much a grower can borrow. FarmOp Capital takes a different approach. Its production-based lending model considers more than land, including crop production history, crop insurance and marketing plans, giving growers another way to fund their operating needs.
We spoke with Matt Mostad, Vice President of Revenue Operations at FarmOp Capital, about how FarmOp can be a resource for growers, retailers and suppliers as they plan for the season ahead.
How does production-based financing fit alongside traditional farm loans?
Traditional farm loans are one way growers can fund the crop year. FarmOp Capital offers another option: production-based operating capital.
Our focus is the actual crop, crop insurance and the marketing plan that goes with it. That puts the focus on production and the crop year. A production-based loan also fits the seasonality of farming. Growers already operate on a crop-year cycle, and their financing should make sense within that ycle, too.
How can FarmOp Capital support ag retailers and their customers?
Retailer and supplier financing programs can offer advantages such as promotional rates or deferred payments. Rather than serving as a third-party input financing program or supplemental credit line, FarmOp Capital takes a different approach by underwriting the full operating loan around future crop production, with the farm’s operating costs built into that financing.
FarmOp can also provide operating capital in late summer or early fall as growers make decisions for the next crop year. That earlier access can help growers take advantage of cash and early-order discounts. Loans can even overlap, with one supporting the end of the current crop year while another helps fund plans for the next. That structure also gives growers a better grain-marketing window and access to capital when expansion opportunities come up.
For retailers, input costs are built into the grower’s operating budget and payments are managed by FarmOp, helping suppliers get paid sooner and reducing accounts receivable risk.
What are the advantages of having operating capital available upfront?
Having upfront capital gives growers choices. Much of the conversation about being a cash buyer happens early in the year, when there are opportunities for prepay or cash discounts. But those advantages do not end once the crop is planted.
Having funds available earlier can give growers more opportunity to take advantage of cash and early-order discounts. Access to capital throughout the season also gives them flexibility to make purchases when the timing is right. That doesn’t mean leaving behind a retailer or agronomist they trust. Those relationships matter. It means the grower has more flexibility within those relationships when making purchasing decisions.
How can production-based financing support an agronomic plan?
Flexibility can matter as the season progresses. Conditions can change from planting through harvest. Insect pressure may show up, disease may become a concern or another application may be needed based on what is happening in the field.
When some of those potential needs are built into the budget, the grower can make that call based on the crop instead of trying to line up financing at the same time. If a fungicide, insecticide or aerial application makes sense as the season develops, having funds available gives the grower more room to act. It also lets the conversation with the agronomist stay focused on what the crop needs.
Why do ag retailers recommend FarmOp Capital?
It boils down to three things: loan size, a clear view of the full crop-year budget and communication about how that budget is being covered.
Loan size matters because it should reflect the needs of the full crop year, not just one piece of it. We want to go into the season with a clear understanding of that budget and how it is being covered.
The third piece is communication. We work through the crop year with the grower, and if something comes up, we can have that conversation. The job of the loan is to put the crop in, take care of the crop and harvest the crop. We work together to help make sure that gets done.
If you’re interested in exploring whether production-based financing could be a fit for your operation, connect with a FarmOp Capital lending specialist about production-based financing for the season ahead.
Call: 833-327-6677 | Email: sales@foc.ag | Online Contact Form