5 Tips to Navigate Prepay Season in Ag Retail

For many ag retailers, there have been significant boosts in prepay sales over the past couple of years. While that’s good news for your business, it also means you must have systems in place to manage the growing trend toward early orders. As harvest ends, farmers will be back at your door to talk pricing for 2023. Review these tips to make sure you’re prepared for those conversations.

With the dynamic market conditions, unstable supply chains and rising inflation, it’s no wonder retailers have recently seen an increase in prepaid sales. While every situation is different, there are three main reasons farmers choose to prepay: for cost savings, to secure the best products, and for tax savings. Understanding the “why” behind each customer’s prepay decision can help tailor the conversation to your grower’s needs and help ensure you’re meeting their expectations.

Cost savings

Earlier this summer, the University of Illinois released its 2023 Crop Budgets report, and, as expected, costs are projected to increase well over 2022 levels. For a typical northern Illinois grower, costs have increased dramatically since 2020. On average, non-land costs rose from $577 in 2020 to $860 in 2022, an increase of 49% or $283 per acre. Farmers are doing everything they can to lock in savings, especially for inputs like fertilizer that have seen dynamic price jumps in recent months. Prepaying can offer substantial discounts, and farmers can use those savings to reinvest in their operations. 

Securing products

Since the COVID-19 pandemic, farmers have a new appreciation for product procurement. Not having their first-choice products available may have forced some farmers to change their production plans, or settle for lower-tier options. For those affected by product shortages, prepaying to lock in their first-choice products is a no-brainer. It could be harder to come by seed and certain crop protection products as the season progresses. Remind your farmers with less flexible plans that now is the time to commit to their orders to ensure that the products they need will be available next season.

Tax savings

Depending on a farmer’s financial situation, they may be looking to prepay for inputs they’ll use next season to reduce their tax liability this year. The Internal Revenue Code allows qualified farmers and ranchers to deduct up to fifty percent of prepaid supplies and feed costs in the year of purchase rather than the year of use or consumption. This could have significant financial advantages for farmers and is another reason many farmers choose to prepay for their inputs before January 1.

Supply chain issues continue to create product availability uncertainty, so keeping an open line of communication with your suppliers is essential. Keep a pulse on product volume expectations, and lock in contracts with suppliers as soon as possible. It’s impossible to plan for prepay orders without having an accurate understanding of the inventory that will be available for you to sell. Set expectations about when products will be available and ensure that timing aligns with your farmers’ needs. In the past couple of years, some farmers have refused to enter prepay contracts unless products were physically available at their local retailer.

Prepay contracts often contain a “force majeure” clause which allows a retailer to back out of the agreed terms due to unforeseen extraordinary circumstances, such as product availability limitations. While this is a way to help you manage risks, it could be a red flag for your customers. Generally, farmers haven’t given much thought to these clauses in the past, but more recently, farmers are paying closer attention to their prepaid contracts. 

What happens if prices go down? Is there price protection for your customers? Many could be hesitant to hand over prepay dollars with no product delivery guarantee. As you draft the details of prepaid contracts, be sure your farmers understand your policies and procedures. You don’t want anyone to be blindsided after executing the contract.

There are a plethora of sales management tools to help you simplify the prepay ordering process. With GROWERS Rally™, ag retailers can manage orders, products and prices in one convenient platform. With the swipe of a finger all of the information you need to manage your customers’ prepay orders are available. No more misplaced notes, outdated spreadsheets or cumbersome binders of information. 

Digital platforms like GROWERS Rally don’t just simplify prepay for your sales team – it also makes the process easier on your customers, too. You’ll have the most up-to-date information to share with your customers, giving them peace-of-mind and confidence to make more profitable decisions. Consistency, clarity and simplicity are the key to a positive customer prepay experience, and effective sales management platforms can help you stay organized.

With constantly evolving markets and product availability, real-time communication is crucial. As a trusted advisor, you want to help your customers lock in the best prices. One way to help them do that is by using digital communication tools to send price alerts and prepay deadline notifications. With GROWERS Connect™, ag retailers can build text message campaigns to send to their customer and prospect lists. Send messages straight to your customers’ phones to promote products and discounts or remind them to pay for any unpaid bookings to secure quoted prices. 

Digital tools are critical for internal team communications, too. With supply uncertainty, having team visibility into what has been planned versus what has been quoted or sold is essential for managing the prepay season.

Prepay season is an exciting time for every ag retailer. It sets the pace for the following year’s sales season and helps shape your company’s business plan. As the trend toward prepayment continues, it will require ag retailers to audit their processes to ensure a simple, streamlined customer experience. If you’ve had issues managing prepayments in the past, it could be worth looking into digital platforms to help you organize your process.

Contact us to learn how GROWERS software solutions can help streamline your prepay season.