The Rural Voice, 1993-03, Page 39Professionally Speaking
Agricultural Commodity Corporation provides alternative financing
BY BRIAN M. HUGHES
Agricultural Commodity Corpor-
ation (ACC) is the administrator for
the Commodity Loan Guarantee Pro-
gram. ACC is a non-profit producer
organization whose purpose is to pro-
vide an alternate source of financing
at competitive interest rates, to assist
Ontario producers in the planting,
cultivation and harvesting of their
crops.
ACC was incorporated in March
1992 under the Agricultural and
Horticultural Organizations Act.
Following extensive negotiations
with OMAF and financial institutions
the first loans were advanced in late
July. Due to the late start, ACC only
processed 282 loans for over
$16,000,000 of which 7.3 per cent
were for farm -fed operations.
Loans, on a non -revolving basis,
are granted against eligible crops to
producers who meet program criteria
and are considered credit worthy.
The primary criteria are: enrolment in
crop insurance (including the unseed-
ed acreage benefit for stage 1 advan-
ces), completion of the appropriate
ACC Application/Loan Agreement,
compliance with the terms and condi-
tions in the Agreement, an indication
that the crop will be marketed
through an ACC -approved buyer and
payment of the required administra-
tion fee. Enrolment in Market Reve-
nue Insurance, while not mandatory,
is preferred. Currently, eligible crops
are grain corn, soybeans, winter
wheat, spring wheat, oats, barley,
mixed grains, canola, white beans,
coloured beans, seed corn, and
potatoes. Negotiations are under way
to have apples, flue -cured tobacco
and processed vegetables included.
Loans are generally advanced in
two (2) stages (i.e. Stage 1, March 1
to May 15, maximum 50 per cent and
stage 2 after receipt of the Crop In-
surance Final Acreage Report). The
level of loan accommodation is based
on the product of a predetermined
loan rate, established annually, the
producer's crop insurance guaranteed
production and the number of planted
acres, to a maximum of $400,000.
Producers may take less than their
total eligible loan amount.
Interest is charged at Bank of
Montreal Prime lending rate on 100
per cent of the loan, although 2.1 per
cent is withheld as a loan loss contin-
gency fee (two per cent is returned
when the loan is repaid). There is the
potential for loan rates lower than
Prime which would be passed on to
the producer. Interest is calculated
daily and compounded monthly from
the date the cheques are cashed by
the producer.
Repayment at a pre -established
rate is traditionally due: the earlier of
when there is a change of ownership
of the particular commodity, by a
predetermined date, generally Febru-
ary 28, or upon roll over to a Federal
Advance Payment for Crops Act
program (e.g. corn, soybeans, barley,
oats, mixed grains & canola). A
farm -fed program, repayable by post-
dated cheques, is also available.
Sales to "designated buyers" as
stipulated in the executed loan agree-
ment, will result in the buyer making
the required payment directly to ACC
within 10 days of the sale, neverthe-
less producers are fully responsible to
ensure payments are made to ACC on
time and in the correct amount as per
the prescribed repayment rates. Due
to the nature of the program ACC
will not discuss producer loan balan-
ces with elevators, etc. as the loans
are not crop specific and the informa-
tion is strictly confidential. Security
requirements are: an assignment of
crop insurance, a priority collateral
lien on the crop and executed Letters
of Direction. The producers' finan-
cial institution regardless of borrow-
ing position and all registered input
supplier -based lien holders must
execute an appropriate Priority
Agreement.
Our experience to date confirms
the statistics that suggest only
approximately 40-45 per cent of
Ontario producers actively utilize
operating lines of credit with their
financial institutions, the balance are
either self -financed or utilize trade
credit to cover their crop expenses.
ACC is not to be considered as a
lender of last resort or to be the lend-
er of preference to all producers. Nor
is it the intention of ACC to be a sig-
nificant competitor with the tradition-
al agricultural lenders, particularly
where they provide the required
services at 9 fair and reasonable cost.
ACC acknowledges the need for, and
encourages producers to continue,
strong relationships with their finan-
cial institutions. We see ACC
working in harmony with financial
institutions and input suppliers to
develop a network to ensure the best
possible overall services to the
agricultural marketplace.
The benefits of the Commodity
Loan Guarantee Program to Ontario
producers are numerous, some of
which are: ACC is a non-profit orga-
nization operated by producers for
the benefit of producers, annual ad-
ministration fees are low ($300-$600,
depending on amount of loan request-
ed), the application process is clear
and concise, fast approval turnaround
can be expected with properly com-
pleted applications, very competitive
interest rates which are universally
applied, eligibility criteria and secu-
rity requirements are very reasonable,
the level of financing provides the
potential for supplier discounts and
repayment procedures arc uncompli-
cated.
The Commodity Loan Guarantee
Program is not designed to provide
assistance for crop marketing. Produ-
cer participation in "basis/deferred
payment contracts" will only be
acceptable if we receive full payment
at our pre-set rates based on the total
number of crop units delivered by the
producer to the buyer within the
prescribed time frame of 10 days.
Applications for 1993 commodity
loans will be available the week of
February 22, 1993 at all OMAF
offices, participating input suppliers
and at ACC. Previous borrowers will
automatically be mailed a 1993
application package.0
Professionally Speaking is a monthly
column featuring a different expert each
month. This column is provided by Brian
M. Hughes, General Manager of the
Agricultural Commodity Corporation.
MARCH 1993 35