NetNewsLedger – Farm Credit Canada

REGINA – BUSINESS – According to the Chief Economist of Farm Credit Canada (FCC), the Canadian agricultural industry is in a good position to withstand inflationary pressures and rising interest rates.

“We are in a unique position where record farm incomes are helping to offset the impact of sharply rising input costs and rising interest rates,” said JP Gervais. “The key for producers is to pay close attention to projected income and expenses to avoid any cash flow issues that could put a strain on operations.”

“The ability to repay debt is arguably the most critical indicator of financial risk for a farm business,” he added.

FCC’s most recent projections suggest that farm cash receipts could climb 15.9% to $96 billion in 2022, due to robust commodity prices and prospects for much higher than US farm yields. last year. That would top the 2021 record, which itself was a 14.9% increase from 2020.

“Although our projections were more modest, the Canadian agricultural industry certainly appears to be in good financial health and in a good position to withstand inflationary pressures and rising interest rates,” said Gervais.

Yet farms will have to adapt to farming under conditions of higher interest rates – a different situation than in the past 15 years. The Bank of Canada raised its policy rate by 2.25% in five months and further increases are expected during the year.

Inflationary pressures on agricultural inputs are widespread. Fertilizer prices have increased by at least 50% year over year and have even more than doubled in some cases. Animal feed prices are up more than 40% year over year and agricultural fuel is up more than 35%. Inflationary pressures on farm inputs have clouded the outlook and contributed to an overall increase in farm debt, which rose 7.1% to $129 billion at the end of 2021.

Gervais recommends that producers test various scenarios regarding raw material and agricultural input prices, yields and interest rates to better understand their exposure to financial risk. They can then identify different strategies to mitigate those risks if they find themselves in situations that exceed their risk tolerance.

“If a producer is already bearing significant financial risk, reducing the risk of rising interest rates may be a prudent strategy,” Gervais said. “I’m not saying everyone should lock themselves in, but every producer needs to understand how different scenarios might unfold and do what’s right for their business.”

By sharing knowledge and economic forecasts, FCC provides solid knowledge and expertise to help those in the agriculture and food sector achieve their goals. For the latest economic outlook and analysis on farm cash receipts, interest rates and inflationvisit FCC Economics at fac.ca/economic.

FCC is Canada’s leading agriculture and food lender, with a strong loan portfolio of more than $44 billion. Our employees are dedicated to the future of Canadian agriculture and food. We provide flexible and competitively priced financing, AgExpert management software, information and knowledge specifically designed for the agriculture and food industry.