Grain farmers growing their debt loads in wake of rail backlog

The Globe and Mail

Leo Meyer, a grain farmer from Peace River, Alta., looks out from his tractor trailer in to the PotashCorp Cory Mine facility as it is loaded with fertilizer near Saskatoon, SK, April 15, 2014. (Liam Richards for The Globe and Mail)

As much of last year’s record crop sits unsold, financially stretched Western Canadian grain farmers are scrambling to secure funding for the coming planting season.

Every spring, farmers must pay for seed, fertilizer and other goods to get on with the next cycle of crops. But that’s proving difficult for many this year, amid a rail backlog that has prevented much of last year’s crop from getting to market and bringing in badly needed cash.

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Already, about 2,300 farmers have taken cash advances totalling $183-million just two weeks into the start of a yearly program backed by the federal government. Last season’s program, which ended March 31, saw demand rise by 50 per cent. The rush for financing underscores the difficulties farmers are facing to keep their operations afloat.

“The desperation for cash continues,” said Rick White, a Saskatchewan farmer and head of the Canadian Canola Growers Association, which runs Ottawa’s cash advance program for growers of wheat, canola and other grains in Western Canada. The program allows farmers to borrow up to $400,000 for 18 months. The federal government pays the interest on the first $100,000 loan, which is secured by the farm’s seeded land or by the value of crop in storage, and the rest bears regular borrowing costs.

“Four-hundred-thousand sounds like a lot, but it doesn’t go very far,” said Mr. White, adding most farmers also have other lines of credit and loans through government and financial institutions that are secured against farm property or equipment.

The cost of seeding, fertilizing and growing a crop varies by the kind of grain, from about $100 an acre for winter wheat to $250 for canola. So a typical farm of 1,300 acres needs a few hundred thousand dollars to get started, and cannot expect any return for several months.

Leo Meyer, who farms in Peace River, Alta., had borrowed $400,000 from Farm Credit Canada, a Crown corporation that is the country’s biggest agricultural lender, to help pay for last year’s seed and fertilizer.

Farm Credit’s input program offers growers one-year loans to help them start their crops. In response to this season’s grain backlog, Farm Credit extended repayment deadlines by a month to March 15. But farmers who were unable to make that deadline, like Mr. Meyer, found themselves facing massive interest rates.

The interest rate on Mr. Meyer’s outstanding balance of $280,000 went from about 5 per cent to 19.56 per cent, a number he calls “mind boggling.” He was due to meet with a representative of the lender this week, in hopes of coming to a new arrangement.

“They’re saying if things are not paid back this week, then you have no more credit facility to buy the inputs [seed and fertilizer] two weeks before seeding,” he said in an interview from Calgary. “My main concern is how come Farm Credit, a Crown corporation, needs that interest … and can be so completely insensitive.”

Mr. Meyer, a director of Grain Growers of Canada, said he lies awake at night worried about how to afford the massive interest rate while he is still trying to move last year’s crop, which fills 70 storage bins on his farm, on top of getting ready for the heavy job of planting.

“It takes everything you have. One thing you don’t need is this extra strain,” he said, adding he’s not the only farmer in that situation.

A spokesman for Farm Credit said the loans were not intended to be long term, and that 95-per-cent of last year’s $1.4-billion input program was repaid at the extended deadline, a sign the overall farming industry is not in bad health.

“Would we consider another one-month extension this year? No, but that doesn’t mean we won’t look at other options to address individual circumstances,” Trevor Sutter said.

The record crop should have been good news for farmers. The fall harvest, which was 25 per cent to 40 per cent larger than usual thanks to ideal weather, came at a time when commodity prices were fairly strong. And then came the worst winter in decades. For safety reasons, railways ran shorter trains at slower speeds as extreme cold and snow slowed movement on much of North America’s network.

So the grain elevators quickly filled up, and farmers found they had nowhere to truck their crop to. Wheat prices on the Prairies plunged, assuming a grower could find a buyer. And many couldn’t. In Manitoba, where the winter was the harshest, many farmers sold no grain at all.

As winter has eased, the grain has begun to move. But none of the eight grain elevators near Mr. Meyer’s farm are buying grain as they await rail service to make room in their bins. So he has been hauling his crop to an animal feed maker in Vancouver, driving the 2,500-kilometre round trip in his own transport truck six times in the past several days. Hauling grain by truck costs about $50 per tonne more than by rail, but it’s likely he’ll have to make more trips if he hopes to keep selling. He still has enough grain in storage to fill 150 rail cars – or about 300 truck loads.

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