Canadian farmers follow miners, stream crops for cash

SSC Security Services

07/10/2015 20:32

By Rod Nickel 
    WINNIPEG, Manitoba, Oct 7 (Reuters) - Canadian canola 
farmers are tapping an alternative form of financing more often 
used by cash-hungry miners, turning a small Saskatchewan company 
into one of the country's biggest suppliers of the oilseed. 
    Regina-based Input Capital Corp  INP.V , which does not own 
a tractor or grain bin, now controls 75,000 tonnes of canola 
production through contracts with 78 farmers, up from just five 
in 2013. 
    Input, which has a market capitalization of about C$200 
million ($153.43 million), says it is the first company in the 
world to buy "streams" of farmers' future production. The 
practice was pioneered among miners by Silver Wheaton Corp 
 SLW.TO . 
    While farmers have long used forward sales contracts to 
hedge the price they get for their crops, Input's model offers 
the advantage of upfront payment. Input aims to profit by paying 
a discounted price for the oilseed, used to make cooking oil and 
margarine. 
    Streaming currently accounts for less than 1 percent of this 
year's harvest in the world's biggest canola producer. But as 
Input grows, it may claim a larger share of the farm credit 
business of Canada's major banks and other lenders. 
    "There is a dearth of working capital available to farmers," 
said Input Chief Executive Doug Emsley. "Farmers need cash when 
they have crop in the bin, because they can't necessarily 
monetize it when they want to." 
    Input's niche model has helped it attract investors 
including Sprott Asset Management. 
    "They're first to market and they're making it more and more 
difficult for other financial institutions to provide an equal 
service," said Sprott portfolio manager Jason Stevens. 
    But like crop prices themselves, Input's stock is volatile. 
    Its shares on the TSX Venture Exchange hit an all-time high 
in April before crumpling to an eight-month low in August. The 
stock is up about 18 percent year to date. 
    Another company is already hoping to follow Input's path - 
in Australia. Startup CommStream Capital Ltd is looking to sign 
farmers to multi-year contracts to supply half a dozen crops, 
including wheat, barley and canola. 
    Australian farmers' debts currently hold them back from 
investing to improve productivity, said CommStream Chief 
Operating Officer Simon Skerrett. 
    Churchbridge, Saskatchewan farmer Graham Sorgard signed a 
six-year contract to supply Input with 100,000 bushels of canola 
annually, about one-quarter of his production. The deal gave him 
C$3 million up front - 70 percent of the contract's value - 
enabling him to buy an egg farm and stock up on fertilizer. 
    "I can see (crop-streaming) getting bigger," Sorgard said. 
"I think the sky's the limit." 
    Even so, crop-streaming comes with all the risks associated 
with weather-dependent agriculture. Last year, a large farm that 
was flooded could not meet its supply obligation, so Input 
restructured its contract, noted National Bank analyst Greg 
Colman. 
    A risk for farmers is that they typically put up land as 
security. 
    Farmers should give careful thought before doing that, said 
Glen Snyder, Saskatchewan agri-business manager for Bank of 
Montreal  BMO.TO , who said Input has not dented its farm 
business. 
 
 (Editing by Jeffrey Hodgson and Cynthia Osterman) 
 ((rod.nickel@thomsonreuters.com; 1 204 230 6043; Reuters 
Messaging: rod.nickel.thomsonreuters.com@reuters.net; Twitter: 
@ReutersWinnipeg)) 
 
Keywords: CANADA CANOLA/FINANCING