The Role of Banking Partners in Agribusiness International Trade Success

    • burke-matt-headshot.jpg
    • Matthew Burke

      Director, Commercial Banking
      Jan 23 2024

The Role of Banking Partners in Agribusiness International Trade Success

Author:  Matthew Burke, Director, Global Banking

Following a record number of agricultural exports in 2022, the U.S. Department of Agriculture expects a 17.4% decline in exports by the end of 2023 and continuing decreases in 2024. Although this may sound like bad news, it can easily be turned into an opportunity for exporters if they know how to identify profitable market openings and how to reduce the risks inherent to global trade.

This is where an experienced banking partner can help lead the way in agribusiness international trade, guiding agricultural enterprises to the right resources and helping to mitigate exchange and payment risks.

Mitigating Risk in Agribusiness International Trade

When it comes to U.S. agricultural products, international demand remains high. Global consumption of wheat, for example, continues to rise on a year-over-year basis. The same holds true for corn, where the U.S. is responsible for nearly a third of global production.

However, to capitalize on market openings, agribusinesses must identify the appropriate methods for conducting business in each area and put effective strategies into action.

This is where your banking partner comes in, delivering extensive agribusiness international trade knowledge about export controls, compliance laws and payment terms appropriate in the country of export. Your bank can also offer a variety of banking instruments designed to mitigate the risks associated with foreign trade and help your ag company capitalize on the benefits of exporting goods.

Some options available to reduce payment risk include:

  • Letters of credit (LC): An LC is a financial instrument issued by a foreign bank that guarantees the seller will receive payment for goods or services once certain predetermined conditions are fulfilled. An LC provides reasonable assurance that the seller will be paid, reducing the uncertainty associated with international transactions.
  • Documentary collections: In these transactions, the exporter’s bank and the importer’s bank act as intermediaries, agreeing to facilitate payment once shipping documents are exchanged.
  • Window forwards: A forward allows the exporter to lock in an exchange rate. With a forward in place, the producer is free to send products to the country of export, knowing up front the amount of payment that will be made. When funds come in, the bank will convert it to U.S. dollars at the agreed upon rate. The business receives payment with no exchange risk to the transaction.
  • Spot contract: A spot contract allows exporters to sell goods at a current market rate, referred to as a spot price, allowing you to receive payment up front, rather than at the time of settlement. Spot contracts differ from forwards in that the exchange rate is set in advance, even though goods may be exchanged at a future date.
  • Cash in advance: When an exporter wishes to eliminate credit risk, cash in advance terms require full payment before the goods are shipped to the buyer. While these terms are beneficial to the exporter, importers are often reluctant to accept an agreement where the transaction risk is one-sided. As a result, exporters may find they are outmaneuvered by companies offering less restrictive payment terms.

Since financial instruments like these help agricultural entities mitigate many of the risks associated with exporting goods, your bank is critical to exporting success. You’ll need a seasoned partner at your side that offers essential attributes necessary for agribusiness international trade.

Finding the Right Banking Partner for Agribusiness International Trade

While many banks offer trade finance instruments and have the correspondent network required to facilitate international payments, it’s important to consider the experience of any financial partner before establishing a relationship. The most valuable partner will not only be well versed in aspects of international trade but also possess expertise across the agricultural industry.

A banking partner that understands the intricacies of agribusiness international trade is best positioned to help you identify and navigate any potential pitfalls. A financial institution with agricultural roots is also privy to important partnerships and resources to help you more easily establish opportunities and the right path toward growth through international trade.

This is the approach we take at FNBO, acting as your guide to the ever-changing export landscape. We build individual relationships with each customer, learning your operational challenges and successes to help create the best strategies for your trade program.

Our teams are experienced across agricultural markets, including technology, equipment and manufacturing, and have close ties to all major agricultural institutions. We will connect you with valuable resources, such as the U. S. Commercial Service Department of the International Trade Administration and dedicated experts at the U. S. Department of Agriculture. Both can help connect you to buyers seeking goods, while FNBO continues in its partnership role, guiding your efforts and helping you reduce risks as you enter the world of global trade.

Learn more about how FNBO can support your international aspirations or contact our Global Banking team today.


About the Author

Matt has been in commercial banking since 2006. His experience in the Global Banking Group and Commercial Credit Analysis has given him a wide breadth of knowledge to help clients reach their financial goals. As a member of the Global Banking team, Matt has an extensive knowledge of the foreign exchange markets, international payment options, international trade products and letters of credit.

The articles in this blog are for informational purposes only and not intended to provide specific advice or recommendations. When making decisions about your financial situation, consult a financial professional for advice. Articles are not regularly updated, and information may become outdated.