The need to borrow money is the reality of doing business in today's new era of farming, says Chris Hurt, Purdue University Extension economist.

“The risks involved in managing this year's crops are the greatest ever,” says Hurt. “Farmers now have to deal with the highest input cost per acre ever and the most total dollars invested in a crop.”

As a result, many farmers could find themselves in a cash flow crunch as they try to lock in prices for their 2009 crop inputs, especially prior to the 2008 harvest. “This will be a year when almost everything else will be at an all-time high — there's no relief to be seen anywhere,” says Steve Becraft, Cargill crop inputs manager, Minnetonka, MN. “An average-scale farmer could need $1 million in financing next year. So, access to capital will be important to a lot of growers to maintain an operating budget and cash flow.”

But, adequate cash flow isn't an issue for Seth Ivey, Oxford, NE, thanks to a Cargill financing package called Full Season Financing. “This program helps me lock in my projected fertilizer and crop inputs at a lower cost (by buying early), and I pay a lower interest rate than I could get from a bank,” he explains. “I also don't have to pay anything until November, when I have more cash coming in again.”

Seed, fertilizer, crop protection products and application costs are all factored into the financing plan, says Ivey, who grows crops on both irrigated and dryland fields in a variety of soil types. “As long as you do a certain amount of business with them in all four areas, you qualify for low-interest financing,” points out Ivey. “Having that deferred payment plan really frees up a lot of cash from about July until harvest that I'd normally be spending on paying interest at the bank.”

Cargill offers four different financing packages, says Becraft. Each has a different start date and payment date. Interest rates will vary, depending on the year and the program.

Financing promotions like this one can be an important tool for risk management, notes Hurt. “Many input suppliers have recently been saying that their price risks are too big, so the producer will have to pay for forward contracting,” he says. “Most bankers aren't huge risk-takers either, and they may heistate to finance margin calls for grain futures contracts or extremely large loans to an individual producer. So, the producers are being hit from both sides, and there is a real need for companies to offer some kind of margin risk protection.”

In 2008, farmers have already seen soybean prices swing through a nearly $6 range and corn swing in a $3 range, points out Hurt. “This market has both enormous profit opportunity and horrible downside risk,” he says. “So, learning to deal with all this risk is something every farmer should try to manage.”