Despite high interest rates, trade uncertainty and variable commodity prices, ag shows resilience
By Kate Ayers
Staff Writer
Farms.com
Amidst several challenges in the industry, Canadian producers show strength and resilience, Farm Credit Canada (FCC) recently reported.
Farmers face high interest rates, market uncertainty and volatile prices, an FCC release said on Tuesday.
But “our latest temperature check shows the industry is well-positioned to thrive in the current economic and financial environment,” JP Gervais, FCC’s chief agricultural economist, said in the release.
Indeed, Canadian producers are doing their best with the conditions they are dealing with in the market and in the field.
“Producers are good managers. They are CEOs of their companies and they are making the best decisions for a given situation,” Craig Klemmer, FCC’s senior ag economist, said to Farms.com yesterday.
Total farm debt in Canada recently topped $100 billion, Statistics Canada reported. However, FCC’s research on farm assets and debt showed that most Canadian farms continue to have sound finances and many producers used debt to make strategic investments in their operations.
“The current debt-to-asset ratio in agriculture remains lower than the 10-year average, both nationally and in most provinces, and farm liquidity remains healthy, despite facing challenges in the current economic environment,” Gervais said in the release.
“These are just some of the key indicators we monitor to assess the overall health of the industry.”
A low debt-to-asset ratio provides farmers with financial flexibility and represents lower risk. And liquidity allows producers to absorb changes in input prices as well as patiently market their commodities, the release said.
“Liquidity is having cash on-farm. It is essential for making the right decisions (and) making strategic investments,” Klemmer said.
“At the end of the day, (liquidity is) about being able to manage the farm the way you want to and making the best decisions for the operation.”
Profitability in Canada’s ag sector dropped slightly in 2017 when compared to farm assets, FCC’s research showed. However, the value of assets continued to increase, and farmland value appreciation surpassed that of income over the past few years.
Market analysts expect interest rates to rise before the end of the year, so producers should monitor the prices of farm inputs like fuel and fertilizer, the release said.
But a blanket solution will not work for every operation dealing with rising interest rates, Klemmer said.
“The best thing is to work with your accountant and relationship manager to (determine) your financial spot.
To successfully navigate through adverse conditions, “keep track of your financial position and what the challenges are, make proper risk management decisions to protect yourself, … and keep on top of the market – know what is coming down the pipeline and be proactive for your operation,” Klemmer said.
“For many operations, the impact of higher interest rates will be low overall. … (Producers) have good cash flow coming in and the financial health of the farm is extremely strong.”
“For other operations that may be leveraged a little bit higher, they may have to figure out different solutions for different scenarios.”
Crop receipts for this year may be lower compared to last year because of production challenges across Canada. Fortunately, FCC’s forecast shows continued foreign demand for Canadian commodities.
Indeed, over the past 10 years, farm cash receipts have increased by $2 billion per year on average, the release said.
Alex Belomlinsky / DigitalVision Vectors / Getty Images photo