Nine times out of ten, the worst time for a Grower to market their products is right after harvest when supplies are abundant and prices are the lowest. This is an age old problem. Growers are under tremendous financial pressure to liquidate their products at the time of harvest or shortly thereafter. Typically, at the time of harvest, a Grower has already invested in their crop for nearly a year. Harvest and final land rent bills all loom.
The production lender will soon be demanding repayment of the current production loan commitment before a new commitment will be granted for the next year’s crop production. Much of a Grower’s working capital is tied up in the completed crop. It is illiquid. Buyers know that Growers are under significant pressure to sell early and this puts the Growers at a significant disadvantage in market negotiations.
It usually takes two years for a crop to complete the Grow/Market cycle. The fundamental problem is that the crop’s marketing period overlaps the following year’s production period. In the first year, the Grower finances the production and brings the crop to harvest. In the second year, which is the marketing period, the value of the crop is determined as it is sold throughout the year before the next crop comes to market. Growers typically do not have access to financing that allows them to participate in this all important 2nd year marketing decision. The banking system is set up to provide one year production financing only. Until now, it has been only the buyers that have access to inventory financing on the stored crops. This allows the buyers to take control of the marketing process.