How to Accommodate Your Ag Borrower’s Liquidity Needs in Anticipation of Tighter Margins

Though not every commodity is under pressure this year, many producers, farmers, and other agricultural stakeholders are likely to experience tighter margins. As a result, they’ll lean on their financial partners to understand their options for restoring working capital. 

The need for more (and better) options to solve liquidity needs 

When commodity prices decline, it’s natural for producers to feel uncertain about what lies ahead. They’ll ask their banks and financial partners: What liquidity options do I have? What options are there regarding interest rates? Will they go down in six months, or does a long-term fixed rate make sense? 

If a producer is considering putting working capital toward long-term assets but interest rates may go down, a long-term fixed rate likely isn’t the best path forward—but what other options do they have?  

Banks are on the hook to not only guide their ag clients in the right direction, but also to provide more options to them so they can effectively navigate the year(s) ahead, ideally with less stress. 

Delivering more – and better – options to their clients puts pressure on banks themselves as well. They’re juggling various moving pieces and assessing their balance sheets. The deposit game, in particular, has changed since the pandemic and impacted the way banks approach liquidity: 

• Deposits are more liquid: Deposits are very fluid today, meaning they move in and out of banks more frequently, making it difficult for banks to manage their balance sheets. We saw this happen with the Silicon Valley Bank crash when its primary depositors in the tech startup market pulled their deposits due to rising inflation rates. 

• Deposits are shrinking: Deposits are shrinking due to years of inflation and because clients increasingly consider alternatives to banks; as a result, banks feel less secure and are starting to consider new ways for preserving liquidity. 

The pressure their ag clients feel, compounded by changes to deposit size and management, means banks are looking into other channels and partners that will allow them to be more agile in how they service clients and conservative in how they allocate capital. 

Benefits of partnering with Agri-Access

Agri-Access is a secondary market partner that checks all the boxes banks are looking for today: a wider variety of products that their clients are requesting (with long-term fixed rates and additional interest rate options) and another source for capital. 

• More products: Ag clients are asking their financial partners for ways to have more working capital going into 2025 as they anticipate tighter margins. Agri-Access offers participation loans with long-term rates to reduce the banks’ risk while catering to their client’s cash-flow needs.

• More liquidity: Using the secondary market provides more opportunities for banks to solve their own liquidity challenges, too. Essentially, banks can offload loans to Agri-Access, which assumes the credit and liquidity risk of the loan while the bank continues to service the client and feels better equipped to accommodate changes within the ag market. 

When banks work with secondary market partners like Agri-Access, they can better serve their clients while expanding their lending power—it’s that simple. 

Learn more about partnering with Agri-Access by contacting a relationship manager today.