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AgridianDairy KB

Eligible collateral and advance rates

Definition

Section titled “Definition”

Eligible collateral is the part of a pledged asset’s value that a lender counts toward the borrowing base. It starts from gross value (what the asset is carried or appraised at), removes ineligibles (items the loan agreement excludes), and may then be capped. The advance rate is the percentage of eligible value the lender will lend against. It reflects how reliably the lender could turn that collateral into cash.

Collateral lines in a dairy credit usually follow one of these patterns:

  • Flat: eligible value × rate, e.g. cattle by class, feed inventory.
  • Assigned payment stream: the milk check, assigned to the lender so the milk buyer pays the lender directly. Because collection is controlled, it is commonly advanced at a high rate with no aging test.
  • Aging test: receivables, where invoices past a cutoff age are ineligible (see A/R and A/P aging).
  • Capped: e.g. growing crops, valued at the lesser of costs put into the crop and a share of expected crop value.
  • Coverage-conditional: inventory whose rate depends on whether it is hedged (see hedge coverage).

Common ineligibles

Section titled “Common ineligibles”
  • Receivables past the aging cutoff.
  • Balances owed by related entities (see intercompany eliminations).
  • Receivables from a customer whose past-due share exceeds a threshold (cross-aging), or above a single-customer concentration limit.
  • Contras: amounts the borrower also owes the same customer.
  • Assets under another creditor’s prior lien, or not owned outright (custom-fed or leased cattle, consigned feed).
  • Cattle classes the lender excludes, commonly beef-cross females, calves under a minimum age, or cattle at locations not covered by the security agreement.

Formula

Section titled “Formula”

Plain text:

eligible            = gross − ineligibles
eligible (capped)   = min(eligible, cap)
line value          = eligible (capped) × advance rate


growing crop value  = min(accumulated crop expenses,
                          cap % × acres × expected yield × price) × advance rate

LaTeX:

V_i = \min\!\left(G_i - X_i,\; C_i\right) \times r_i
V_{\text{crop}} = \min\!\left(\text{expenses},\; c \times A \times Y \times P\right) \times r

G is gross value, X ineligibles, C the cap and r the advance rate.

How to pull it in DC305

Section titled “How to pull it in DC305”

DC305 is the source for cattle head counts and for the animal attributes that rule cattle in or out:

  • Head by class at period end: see dairy cattle inventory classes.
  • Beef-cross identification: a breed item, a sire breed code, or a user-defined item on the animal. Which one is used, and its codes, varies by herd; check the herd’s private dc305-vocab mapping.
  • Location: a site, pen or string item, where the herd records one.
COUNT FOR LACT=0 BREED=<beef-cross code>      beef-cross heifers to exclude

Receivables, payables, feed, crops and the milk check are not in DC305. Use the accounting system’s aged detail, physical inventory counts and the milk statement.

Typical range

Section titled “Typical range”

Herd context: US dairy operating lines; advance rates and eligibility rules vary by lender, loan agreement and borrower risk rating.

Collateral line Advance rate (broad industry range)
Assigned milk check (current period) 80–90%
Eligible trade receivables 70–85%
Milk and dry cows (on appraised or market value) 50–75%
Replacement and bred heifers 50–70%
Fed or feeder cattle, unhedged 50–70%
Fed or feeder cattle, hedged 75–90%
Purchased feed and harvested crops 50–75%
Growing crops (after cap) 50–65%
  • Receivable aging cutoff: 90 days from invoice is common; some lines use 30 or 60 days.
  • Cross-aging threshold: often 50% of a customer’s balance past the cutoff.
  • Concentration limit: often 20–25% of eligible receivables per customer.

Common mistakes

Section titled “Common mistakes”
  • Applying the rate before ineligibles. Ineligibles and caps come first.
  • One blended rate for hedged and unhedged cattle. They are separate lines.
  • Counting beef-cross or custom-fed cattle that the agreement excludes.
  • Treating the cap as the value. A capped line is the lesser of value and cap, not the cap itself.
  • Missing contras. A customer who is also a supplier may net to a smaller eligible balance.
  • Using a stale appraisal for per-head values when the agreement calls for current market values (see cattle valuation).
Section titled “Related”