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Deal with financing, input purchases separately

SweetCrisis/Getty Images corn with tassels at sunset
2019 DECISIONS: The 2018 crop is still in the field, but you’re likely getting pressure to make seed and other input buying decisions for 2019 now. Pressure may include financing offers.
Profit Planners: Should you take advantage of financing offers from companies that want to sell you a variety of inputs?

One large seed company will offer low-interest loans if we buy their seed, and buy herbicides and insecticides which the parent company sells. Our banker has been indicating it will be tougher to renew our operating loan for 2019. We’ve bought some seed from this company before. Is it worth going along with their offer to get financing?

The Profit Planners panel includes David Erickson, farmer, Altona, Ill.; Mark Evans, Purdue Extension educator, Putnam County, Ind.; Steve Myers, farm manager, Busey Ag Resources, LeRoy, Ill.; and Chris Parker, cattle, hay and timber producer, Morgantown, Ind.

Erickson: The financing offer may be a good idea, but I’m concerned about your comment regarding financing from your bank. If you need financial advice and counseling, your bank could be a very important partner for you as you work through your current financial situation. A finance department with an input supplier is no place to get help. Perhaps you need to consider restructuring your debt, and that can be more successfully achieved with the help of a good agriculture bank loan officer. If your current bank does not fit that need, then look for other banking opportunities.

Evans: Ultimately, running the numbers in a spreadsheet or on paper will answer this question. It will be important to consider many things. Will loan terms increase the need for cash with two operating loans in play compared to just one? If the banker is expressing concern, how can you mitigate the need to not lose your banker all together? Communication will be essential in this process, while you also must be shrewd in negotiation technique. While cost may seem like everything, the relationship with creditors is essential to assure adequate credit options. For one in a very tight bind, these relationships become even more important!

Myers: If both decisions are mutually beneficial to the operation, then yes. However, one should weigh the costs of this bundling — meaning, does it cost yield and husbandry — for why rob Peter to pay Paul? Other options are to pursue other traditional lenders as well as nontraditional sources, such as similar “large seed companies.” If it does not need to be a one-stop shop, look at securing funds from multiple sources. Work the numbers, think creatively, and talk to your current lender about what you are considering.

Parker: If financing is for a lower interest rate than a bank or farm lending company will offer, or if it’s your only source of financing, it makes economic sense. However, it limits your market availability of products. Will this limited market availability impact yields through less-than-optimal pest control or seed varieties not well-matched to your farm? Only your experience can answer these questions. Other considerations: Will you be ending your banker relationship by doing this? Is that a factor? What does that portend for the future? Does borrowing and buying from the same entity feel comfortable? I don’t see a right or wrong here — just decisions and consequences.

Summing up: The panel suggests there are really two issues here: how you deal with your finances and how you buy products. Most agree you ought to answer these questions separately. It sounds like a talk with your current lender is in order, whether you decide to bundle things together and finance some purchases through a supplier or not. — Tom J. Bechman

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