Bank of Canada governor Mark Carney moved cautiously this week to lift interest rates from their historic low levels and a Canadian farm leader says indebted farmers should pay attention.Carney announced that the trend-setting overnight bank rate is rising one-quarter of a percentage point to 0.5 percent. Private lending institutions took the hint and also announced small increases in their charges to borrowers.Ontario farmer Ron Bonnett, president of the Canadian Federation of Agriculture, said June 2 it could be the start of a trend with consequences for farmers, whose $63 billion debt is a record.”I think this is something farmers should be watching very closely,” he said in an interview from his farm. “As a survivor of the 1980s (when farmers faced double digit interest rates), I know what it’s like to suddenly face higher debt servicing costs when margins are tight.”Bonnett advised farmers to take a hard look at their individual debt level, cash flow and margin available for debt serving costs.”I think farmers should be talking to their bankers, asking them for their predictions and advice on how to respond,” he said. “In some cases, maybe the answer is to lock in for five years. You pay a premium, maybe one or two percent higher rate for that certainty but maybe it’s worth it.”He said the key is that farmers should arrange their debt service obligations “in a way that gives them a comfort level about their ability to manage the debt even if rates go up. That comfort level is the key.”The modest interest rate hike, the first since the recession began in 2008 and rates started to fall to unprecedented levels, is based in part on economists’ predictions that Canada’s economy is rebounding faster than expected.If first quarter results become the norm for this year, the country could have an economic growth rate of more than six percent in 2010. The Bank of Canada uses rate hikes to try to cool the growth and the inflation it could bring.Bonnett said there is no reason to expect significant increases in the near term, but the size of the debt makes any increase a significant annual cost.”For some farmers, a jump of three or four percent could be devastating,” he said.
Interest rates rise, farmers should take note
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