Are you facing a cash crunch heading into spring seeding? Here are some tips to help you estimate out how much you need and where to find it

Al Worknoplay is a mid-sized grain farmer who has suddenly realized he is short of cash. He knows bills are coming in the mail and some are already sitting on the kitchen table. His operating line is near its limit, even though much of what he owes is for the inputs he bought in December to keep the taxman at bay. Much of the ’08 crop is still in the bin and remains unpriced.

His neighbor, a dairy farmer named Hans Pullteats, has decided to rent 600 acres of crop land to Al. The 600 acres are right beside the Worknoplay farm and Al is excited about the opportunity but apprehensive about the cash required to put in the additional 600 acres.

The anxiety around not knowing where to turn for immediate cash can be overwhelming and has had definite impact on Al Worknoplay’s management team, which also doubles as his immediate family.

Al’s problem, regardless of the cause, is his responsibility, as farm manager, to solve. He needs to find cash so he doesn’t miss the golden opportunity, so he doesn’t destroy relationships with suppliers, and so he doesn’t have to pay tax at a higher rate than what might be necessary.


Al’s first step is to determine how much cash he will need. There may be obvious and immediate needs but how much cash will the business require in the coming months. Al took his projected budget out of his pre-frontal cortex — his head — and with our help, he committed it to paper to determine his anticipated cash inflow and outflow and resulting monthly operating loan balances. Al sees that his marketing approach has resulted in delayed sales that will now drag on into summer. Looming expenses prior to summer include land rent, loan payments, remaining crop inputs, and hail insurance. Al also has to purchase a better swather to ensure the crop comes off properly, but he did not want to take out any new loans.

As it turns out, the cash flow crunch will come in July instead of right now. Al feels short of cash now but the peak requirement by July will be $150,000 more than his existing operating loan would currently support. Al decides he wants to access $200,000 of cash to ensure a $50,000 cushion for emergencies or deviations in anticipated cash flow.


The goal here is to raise cash from the most affordable sources in an effort to reduce interest costs. Al Worknoplay will start with a receivable that he has for custom seeding winter wheat for a neighbor in ’08. This source of cash can be as quick and easy as a phone call or visit. Al should not feel guilty about asking for this money, even with a neighbour or friend. He is in the farming business, not the banking business. By letting his neighbour drag out this receivable, he is simply bankrolling the neighbour’s business with interest costs that are covered by his. A prominent and successful agribusiness CFO once told us, “Look after your receivables. The payables will look after themselves.”

In our financial assessment, it became evident that Al’s cash advance had a balance of $50,000. Al is eligible for an additional $50,000 interest free based on his inventory, production insurance or AgriStability coverage. The Advance Payment Program (APP) provides producers with up to $400,000, including up to $100,000 interest free. This cash advance program is the closest thing to free money Al is every going to get. But with an APP advance, you need to understand how the repayment will take place. You can get APP advances from different groups, including the Canadian Canola Growers Association or the Canadian Wheat Board, so Al will need to understand the mechanics of repayment to ensure that this process goes smoothly.


Al still requires $150,000 to satisfy projected cash requirements including his desired $50,000 cushion. This assumes the receivable from his neighbour, though important to collect, is not more than a few thousand dollars. Al has decided to consider the following options to get the cash he needs:

Increase existing operating loan

Increase his APP cash advance beyond interest free portion

Utilize trade credit with one of his input suppliers

Lease or finance a swather

Crop share the 600 acres with Hans Pullteats

Decide to drag payables past due dates

Let loan payments go into arrears

Credit cards

In Al’s case, he elected not to use credit cards due to high interest costs. The Worknoplays see themselves as people of high integrity and as such have decided to not let their loans go into arrears. They know this will negatively impact the existing relationship with their long-term creditor and would impact availability and cost of future credit. Similarly, allowing payables to drag on could potentially result in high interest cost, poor service, and damage the relationships essential for operating.

One viable option for Al is to crop share the new 600 acres with Hans. This decreases the cash requirements for the expansion however Al feels there is good potential for return in ’09 and crop sharing could increase his rental cost for the land. The loan or lease used for the swather would add cash. The decision to buy or lease would depend on the taxable position of the Worknoplays.

The decision to increase the interest-bearing cash advance will depend on availability and cost compared to that of the operating loan. If the interest charged on the operating loan is higher than that of the interest-bearing portion of the APP cash advance, the cash advance should be increased. Problem solved.

Al Worknoplay’s impending struggle with cash flow is a common challenge in the industry, even for very successful farms. The ability to understand, plan for, and efficiently fund cash flow requirements will decrease operating costs on the farm, which often increases gross margins by as much as 15 per cent. The risk with not planning cash flow is that lack of cash on hand will force you into poor management decisions, such as missing input purchasing opportunities at discounted prices or being forced into selling a commodity when market signals suggest otherwise.

The value in planning a detailed projected cash flow is not to be exactly right about production or markets, but rather to understand the impact on cash flow if unexpected changes occur. Perhaps the greatest benefit is avoiding the strained relationships inside and outside a business.

Andrew DeRuyck and Mark Sloane operate two farms and a consulting business in southern Manitoba. With over 25 years of cumulative experience, they offer support in farm management, financial management, strategic planning, and mediation services. You can reach Andrew at [email protected]or 204-825-7392 and Mark at [email protected]or 204-825-8443.

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