The top economist at Farm Credit Canada painted a mostly positive picture of the country’s agriculture sector last week, suggesting the industry “is well-positioned to thrive” despite some economic and financial challenges.
In a Sept. 25 news release, chief agricultural economist J.P. Gervais said Canadian agriculture continues to show “strength and resilience against a backdrop of higher interest rates, trade uncertainty and volatile commodity prices.”
FCC acknowledged “current production challenges” that could push 2018 farm incomes below 2017 levels.
However, foreign demand for Canadian commodities are expected to remain strong, it added.
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The news release did not mention the state of the 2018 prairie harvest, which has been stalled across much of the northern grain belt for the past three weeks.
According to Saskatchewan Agriculture’s latest weekly crop report, the provincial harvest was about two-thirds complete as of Sept. 24 but in some areas, harvest operations have barely begun.
In a Sept. 27 interview, Gervais said harvest challenges across the Prairies are likely to have a negative impact on cash receipts.
But it’s premature to speculate on how this fall’s harvest problems could affect the financial positions of individual farmers, he added.
According to Statistics Canada, total farm debt now exceeds C$100 billion in Canada, the highest debt load ever recorded by the country’s agriculture sector.
Despite that, individual farm operations have a relatively low debt-to-asset ratio, according to FCC. That means producers are still in a financially flexible position, FCC said.
The value of liquid assets on Canadian farms “reflects the ability of producers to absorb fluctuations in farm input prices, demonstrate patience with their marketing plans or take advantage of unexpected opportunities,” the country’s largest agricultural lender added.
“Our latest temperature check shows the industry is well-positioned to thrive in the current economic and financial environment,” Gervais said.
“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.”
FCC recently published a pair of research reports pertaining to the financial health of the Canadian agricultural sector.
The first report, which can be viewed online at bit.ly/2IkHpup, suggests that profitability in Canadian agriculture decreased slightly in 2017 when measured against the value of farm assets.
FCC’s second report, posted online at bit.ly/2xEqMWk, looks at the impact of rising interest rates on farm equity.
Canadian interest rates are expected to increase again before the end of 2018, FCC said.
The Bank of Canada has increased its benchmark lending rate four times since mid-2017.
The central rate now sits at 1.5 percent, up from 0.75 percent in July 2017.
Nonetheless, the overall balance sheet for Canadian agriculture is healthy, Gervais said.
Foreign demand for Canadian commodities remains strong, “but producers need to understand their financial situation and build resilience into their business plans so they can thrive in this dynamic operating environment.”
Over the past decade, farm cash receipts have increased by an average of $2 billion per year, FCC said.
Gervais said growth in the value of prairie farmland prices is slowing but should remain positive.
FCC is Canada’s leading agriculture lender, with a loan portfolio of more than $33 billion.
