Commodity-based funding models keep cash flowing on the farm

Farmers are seeking new and innovative channels of investment to keep funds flowing into their operations.

Copying a model seen in the North American mining industry, investment companies and farmers are forging contracts in which upfront capital is paid in return for a share in the farm’s commodity production over an agreed period.

Companies like Australian start-up Commstream Capital indicate the method makes investors more likely to expose themselves to soft commodities, while also offering farmers a source of sustainable growth capital to boost productivity and meet increasing food demand.

As recently reported in The Australian, the funding model has been successfully implemented under trial conditions by a grain grower near Moree in North West NSW.

The funding trial involved “a cash advance in return for locking in the supply of about 10-15 per cent of his average grain harvest tonnage for the next 10 years,” the newspaper reported.

“The financing mechanism — which includes a cash advance payment — avoids the need for farmers to debt-fund their growth though bank loans, which only add to their annual interest bills and hamper cash flow.”

The head of Commstream Finance told the metropolitan newspaper his reasoning behind the trial venture. “I found some investors didn’t want to invest in directly buying farmland because of the operational risk, and didn’t want to be involved with the direct operation of farming businesses because of the climatic volatility and difficulty finding skilled labour,” he said. “You could play the listed ag space, but commodity streaming is another way to enable investors to gain exposure to the agricultural commodity and food security space without having to buy the farm.”

Posted on Wednesday, 10 May 2017
in Latest News

Commstream investment

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Commodity-based funding models keep cash flowing on the farm

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