Farm Cash Management: What Are Your Options?
After two years of good yields and strong prices across much of the Compeer territory, many of our clients are finding themselves looking for cash management options. Farming has unique cash flow demands due to the seasonality of the business. Fortunately, Compeer has two options, which, depending on your circumstances, can provide significant return on your cash, even if on a seasonal basis.
Funds Held has been an option at Compeer going back decades. It is an account for advance payment of your term loan’s unpaid principal balance, which allows up to 24 withdrawals per year. Funds held is an excellent option for clients to earn a competitive return on excess cash, even if just seasonally. Depending on loan terms, this can fully offset loan interest. In the fall of 2022, Compeer made the change from a bill rate minus 3% program to an administered rate that is consistent across the association. As I write this article, that rate is 4.92%, with a maximum of the bill rate on the loan. For many clients across the organization, this has resulted in significantly higher returns from funds held. If you have not looked into funds held recently, I would encourage you to reach out to your financial officer to learn more.
Farm Cash Management
Farm Cash Management® (FCM®) is a short-term investment account that automatically invests your excess funds and pays you a return, similar to a money market account. Typically, a Farm Cash Management account is tied directly with an operating loan to provide maximum return on your excess cash by investing directly in Agribank Investment Bonds. As of April 2023, the rate is 3.4%.
In the last 12 months, your farm operations excess cash has become a much more valuable resource. In the last few years, Cash Management has not provided much value back to your operation, but that has changed very quickly. Maximizing your return on cash can provide significant returns in this environment, and if you haven’t given these products a look lately, I would encourage you to re-visit and see if they may be a fit.
Both of these options offer flexibility and the potential for substantial return on your cash. Take the time to talk through your options with your financial officer and find the best route to take for you and your operation.
Bob Foerder is a Financial Officer at Compeer Financial. For more insights from Bob and the Compeer Team, visit Compeer.com
Note: This is not an offer for the sale of Farm Cash Management® (FCM®) investments or AgriBank Money Market investments. FCM is an investment in AgriBank bonds. Such investments are not insured by or a direct obligation of the United States government. FCM investments can only be purchased directly from AgriBank, FCB. Carefully review the disclosure information provided to all prospective purchasers prior to purchasing. Farm Credit Associations are not authorized to represent AgriBank regarding such investment accounts. You should not rely on any statement or opinion of the associations or personnel in deciding upon the safety and soundness of FCM investment accounts or their suitability for your particular situation. Certain terms and conditions apply to FCM accounts.