By Rod Nickel
WINNIPEG, Manitoba, Oct 7 (Reuters) - Canadian canola
farmers are tapping an alternative form of financing more often
used by cash-hungry miners, turning a small Saskatchewan company
into one of the country's biggest suppliers of the oilseed.
Regina-based Input Capital Corp INP.V , 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
SLW.TO .
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 BMO.TO , who said Input has not dented its farm
business.
(Editing by Jeffrey Hodgson and Cynthia Osterman)