Grain backlog prompts BMO to loosen farmer loan terms
Unprecedented delays in shipping harvest leading to financial duress
One of Canada's biggest lenders is offering some relief to farmers hit by a cash crunch because of a backlog in shipping grain across the country, offering delayed loan repayments and flexible terms on new and existing credit lines.
Bank of Montreal announced Thursday it would offer a financial relief program to assist commercial customers in British Columbia, Alberta, Saskatchewan and Manitoba affected by unprecedented delays in being able to ship and sell their harvests to market.
"We want to provide immediate support to any grain producers and other related businesses that may be experiencing cash flow disruptions as a result of the backlog, which can hamper their ability to finance crop expenses for the upcoming season," BMO vice-president Steve Murphy said.
"We stand by our customers in good times and bad times and hope this program will help to alleviate some challenges."
The bank's plans include:
- Deferral of loan payments.
- Waiver of a new loan application and concessions on renewal fees.
- Flexible terms on existing and new lines of credit for 2014 are being developed on a case-by-case basis.
The move comes amid an agricultural crisis brought about by a serious shortage of open rail cars to ship grain. Farmers don't get paid for their crops until they have been delivered to market, and that's taking several months longer than usual at the moment because Canada's major rail carriers can't keep up.
Railways like Canadian Pacific and Canadian National say biting cold weather is reducing capacity along their lines. But some critics contend that part of the problem is that trains are shipping a lot more oil by rail than they normally do, and that's leaving other goods literally left out in the cold.
Canadian farmers have seen a bumper crop in grains like wheat, corn, oats, barley and canola this year, and they're eager to take advantage of high prices for most of those commodities. Canadian farmers harvested a record crop of 80 million tons of grain this year — 27 per cent more than the previous record, set in 2009.
But more than five million tons of that is currently sitting idle in storage containers, waiting to be brought to market, as it has been for months is some cases. Farming groups say the backlog is so bad that many farmers won't have enough money to pay their expenses for the coming year.
Saskatchewan's agriculture minister Lyle Stewart asked financial institutions this week to cut farmers some slack because of a grain transportation backlog.
"I think the banks will recognize that there's lots of value in the grain in those producers' bins and they'll be flexible, but I felt it appropriate to suggest that to them, that producers are a pretty good risk and we'd ask for some flexibility," Stewart said Wednesday.
I know that cash flow is very tight for some of them, that's for sure," said Stewart. "When it comes right down to it, they have a lot of money tied up in their grain inventory, hundreds of thousands, in some cases millions of dollars, and so they're a long ways from bankrupt.
"But certainly cash flow is a serious issue, particularly as we get closer to seeding and that time of the year when producers need to spend a lot of money," Stewart said.
For its part, the rail industry says its aware of the problem, and working to address it. CP put out a full-page ad in several Canadian newspapers today, noting the company has been "severely impacted by harsh winter temperatures not seen in more than 60 years."
So far the temperature has dipped below -25 degrees Celsius a record 49 times in the past three months, a figure CP president Hunter Harrison calls "a tipping point" for railways as it's almost twice as many as normal.
"We'll do out part," Harrison said. "We expect to move 240,000 carloads of Canadian grain this crop year, a more than 20 per cent increase over last year's record."