BANK OF MONTREAL Regina-based Input Capital Corp (>> Input Capital Corp), which does not own a tractor or grain bin, now controls 75,000 tonnes of canola production through contracts with 78 farmers, up from just five in 2013.
Input, which has a market capitalization of about C$200 million ($153.43 million), says it is the first company in the world to buy "streams" of farmers' future production. The practice was pioneered among miners by Silver Wheaton Corp (>> Silver Wheaton Corp.).
While farmers have long used forward sales contracts to hedge the price they get for their crops, Input's model offers the advantage of upfront payment. Input aims to profit by paying a discounted price for the oilseed, used to make cooking oil and margarine.
Streaming currently accounts for less than 1 percent of this year's harvest in the world's biggest canola producer. But as Input grows, it may claim a larger share of the farm credit business of Canada's major banks and other lenders.
"There is a dearth of working capital available to farmers," said Input Chief Executive Doug Emsley. "Farmers need cash when they have crop in the bin, because they can't necessarily monetize it when they want to."
Input's niche model has helped it attract investors including Sprott Asset Management.
"They're first to market and they're making it more and more difficult for other financial institutions to provide an equal service," said Sprott portfolio manager Jason Stevens.
But like crop prices themselves, Input's stock is volatile.
Its shares on the TSX Venture Exchange hit an all-time high in April before crumpling to an eight-month low in August. The stock is up about 18 percent year to date.
Another company is already hoping to follow Input's path - in Australia. Startup CommStream Capital Ltd is looking to sign farmers to multi-year contracts to supply half a dozen crops, including wheat, barley and canola.
Australian farmers' debts currently hold them back from investing to improve productivity, said CommStream Chief Operating Officer Simon Skerrett.
Churchbridge, Saskatchewan farmer Graham Sorgard signed a six-year contract to supply Input with 100,000 bushels of canola annually, about one-quarter of his production. The deal gave him C$3 million up front - 70 percent of the contract's value - enabling him to buy an egg farm and stock up on fertilizer.
"I can see (crop-streaming) getting bigger," Sorgard said. "I think the sky's the limit."
Even so, crop-streaming comes with all the risks associated with weather-dependent agriculture. Last year, a large farm that was flooded could not meet its supply obligation, so Input restructured its contract, noted National Bank analyst Greg Colman.
A risk for farmers is that they typically put up land as security.
Farmers should give careful thought before doing that, said Glen Snyder, Saskatchewan agri-business manager for Bank of Montreal (>> Bank of Montreal), who said Input has not dented its farm business.
(Editing by Jeffrey Hodgson and Cynthia Osterman)
By Rod Nickel
