Commodity streaming is a term most Canadians associate with the mining industry, if they’ve heard it at all. But over the next several years, they may be hearing it more and more, along with the name Input Capital, the Regina-based company that introduced it to western Canadian agriculture.
Input Capital, whose shares trade on the TSX Venture Exchange, calls itself “the world’s first agricultural commodity streaming company.” The company purchases canola using multi-year contracts, paying 80 per cent of the cash up front so producers can invest in necessary inputs, build succession plans or expand their operations before the crop is in the ground.
The company grew out of Assiniboia Farmland Limited Partnership, which began in 2005 and now manages the largest farmland fund in Canada. “Assiniboia’s business strategy was to lease out farm property to other farmers,” explains Gord Nysteun, vice-president of Market Development for Input Capital. “In their pursuit of finding existing farmers, it wasn’t long before they came upon the issue of working capital in their conversations — growers saying that working capital was required just to put the crop in. That was the seed of the idea.”
Assiniboia began a pilot project with half a dozen canola producers in Saskatchewan that ran for three seasons. At the end of the three seasons, Input Capital was born.
“At the beginning our clients were people we knew personally. Obviously we approached more than just six. Past that point in time, we’ve done progressively more marketing, and typically it’s been related to how much capital we have available,” says Nysteun. “Last year, I think we invested in streams close to 50 million dollars. Now that we’re talking about 50 million instead of five, we need more potential clients.”
When Input Capital started, Nysteun visited producers personally, as he was the company’s only salesperson. Last fall, Input Capital added four additional salespeople.
“At the beginning, we were dealing with a very localized area. In the past we’ve done ads in newspapers and farm radio. We do trade shows. We have a web presence. We’ve done media interviews. These are the vehicles by which you make your offering generally known. But at the end of the day you still need to make a personal visit to somebody,” he says.
To date, the company has raised $110 million dollars, and now works with canola producers in all three Prairie provinces.
How streaming works
Contracts with Input Capital are six years in length. Contract prices are based on the forward price curve for canola. “Behind that, we look at futures quotes on canola,” says Nysteun.
Why canola? Nysteun says canola is Canada’s biggest and most valuable crop, but it also boasts the longest futures prices. “It’s the crop we can offer the best financial terms to farmers on,” he says. “There are times when durum is at a very high price — last fall it traded at $14/bu. However, not every farmer grows durum. One of the other challenges with a crop like durum is that there’s no futures market. That inability to see future prices for durum makes it hard for us to offer contracts.”
Because of the length of the contracts, Input Capital offers producers the best financial terms possible based on the future value of canola in the larger commodity price environment. Producers can choose to pay contracts with other crops, the value of which is calculated based on canola prices.
Chris Zamonsky owns a 4,000 acre grain operation near Grandview, Man. He pursued a contract with Input Capital after reading about the company and meeting reps at the CropConnect Conference in Winnipeg in February 2015.
“I was in a rut. I’d have to sell grain to pay for inputs,” says Zamonsky. “I was always working out, and could never get enough acres to go full time farming. There’s no way I would have been able to get that kind of financing from the bank.”
Zamonsky says that the contract has been beneficial to his operation. “The initial financing allowed us to buy fertilizer and chemical inputs. It also allowed us to expand our acres. I was also able to get a hired hand who was here through the summer,” he says. “I haven’t delivered any grain against it, but we’re going to soon. We’re pretty blessed and fortunate that our yields are good again.”
Input Capital requires partner producers to work with agronomists to maximize their operations’ profits, but as Zamonsky has his CCA license, he says the company is working under the assumption that he knows what he’s doing. “I’m a progressive farmer. I use high inputs, and pretty intense farming, pushing yields and stuff. They want to see somebody who’s doing that.”