With Canadian farm debt at record levels, half the farmers surveyed by Farm Credit Canada late last year said they plan to reduce their personal debt levels this year.
High debt levels and interest rate fears likely count among the factors behind the decision.
FCC managers say a number of considerations could be at play.
Michael Hoffort, FCC vice-president for Saskatchewan and Manitoba, said producers in some sectors have recorded profits in recent years and debt reduction is considered a prudent business decision.
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“When I look at crops and dairy sectors, we’ve had some profitability in those businesses,” he said. “We’ve seen expansion and entry of some younger operators so it’s my belief that if we see some retrenchment, it is part of the ebb and flow of debt management.”
Part of the motive could be fears that after a period of record low interest rates, debt-servicing costs could start to rise.
Hoffort said signals from the Bank of Canada indicate interest rates could rise by summer. He said FCC officers are spending significant time counselling clients to make certain their debt levels are sustainable if interest rates start to escalate.
“We’re spending a lot of time making sure our customers are aware of the interest rate landscape that we see,” he said.
The senior FCC official also warned that plans to pay down debt could be altered by market factors this year and he predicted a “challenging” year for many producers trying to manage cash flow.
“Trade issues with canola and flax could impact delivery opportunities and worldwide supplies,” he said. “Another challenge is the stronger Canadian dollar, which is acting as a drag on commodity prices for crops, beef and pork.”
And Hoffort said problems in the red meat sector will continue.
The strong farmer intention to pay down debt came in a survey of almost 1,200 producer and agribusiness players who are part of an FCC panel.
Twenty-two percent said they expect to go deeper in debt this year.
Across the Prairies, one-quarter of farmers surveyed said they plan to reduce their operations or leave the business within five years as compared to 11 percent in Ontario.
The survey suggested that prairie farmers are losing their enthusiasm for biofuel production.
Last year in Alberta in a similar survey, 20 percent saw sales to biofuel buyers as the greatest opportunity for their business. This year, just seven percent said the same.
The FCC also surveyed farmer optimism and found levels of optimism declined the further west they went.
The survey showed that while most farmers in supply-managed sectors have recommended a career in agriculture, beef and hog producers overwhelming said they have not.
Twice as many pork producers said their operations are “much worse off” in 2009.
