Farm Credit Canada provides more details on new lending options as the industry braces for possible pandemic fallout
Canada’s agriculture sector is positioned to deal with the economic challenges posed by the global COVID-19 pandemic, says the top executive at Canada’s largest farm lender.
Michael Hoffort, president and chief executive officer at Farm Credit Canada, acknowledged that Canada’s agriculture and agri-food industries will be affected by the pandemic.
But how deeply may not be known for some time, he added. For primary producers, a critical factor will be maintaining cash flow.
“Right now, in the ag sector, we are still going about our business,” Hoffort said last week.
Read Also
Ag in Motion speaker highlights need for biosecurity on cattle operations
Ag in Motion highlights need for biosecurity on cattle farms. Government of Saskatchewan provides checklist on what you can do to make your cattle operation more biosecure.
“For now, our interest (at FCC) is in getting our producers — if they do need some financing or credit relief — in getting them some (help) so they can focus on getting the crop in the ground.”
On March 23, Ottawa announced that FCC will receive an extra $5 billion in lending capacity.
Ottawa said the additional credit will be made available to farmers and food processors on a case-by-case basis.
According to Hoffort, existing FCC clients will be offered six- or 12-month payment deferrals on existing FCC loans.
The six-month deferral will offer clients relief on interest and principal payments.
The 12-month deferral option will offer principal-only relief, meaning clients will continue paying interest during the 12-month deferral period.
In addition, FCC will offer new lines of credit as high as $500,000 for new and existing borrowers.
The new lines of credit will be offered to qualified borrowers at a standard rate of prime plus one percent.
“We want to make sure that the 2020 crop gets planted in as orderly and efficient a manner as possible, Hoffort said.
“Having proper cash flow in these next several weeks is going to be critical to that.
“We want to make sure that seed, fertilizer and crop production products are all going to be placed and that some of the cash flow noise that’s currently in the system isn’t going to hold people back from being able to do that.”
In a March 24 interview, Hoffort said it’s difficult to assess how Canada’s agricultural sectors will deal with the turmoil caused by COVID-19.
Some media reports have suggested that distribution channels for important crop inputs will be strained as suppliers scramble to get products in place earlier than usual.
In the food processing sector, some companies have already experienced significant disruptions to their markets and production processes.
As well, primary producers who sell their products directly to local markets or high-end restaurants are also coping with reduced sales and limited cash-flow.
Hoffort said uptake of the new FCC credit offerings is likely to vary depending on individual circumstances.
“We do know that there are areas of the country and certain sectors in the country where we’ll likely see more activity.
“But these programs are going to be available tomorrow, next week, next month and throughout the foreseeable future … so there is no need to rush in and worry that this won’t be available a month from now.”
Canada’s total farm debt load has increased steadily over the past decade, prompting concerns that some primary producers may be over-extended.
In that environment, market disruptions, prolonged cash flow restrictions and unexpected interruptions in production could have a profound impact on farm viability.
When asked about farmers’ appetite or ability to take on additional debt, Hoffort said farmers are thoughtful borrowers and should judicious when considering their debt servicing capabilities.
“I would say that … there is always thoughtfulness from Canadian farmers in their approach to debt and debt load,” he said.
“I don’t know if uptake on the new (FCC offerings) … will be a trickle but I also don’t know if we’re going to see a tsunami of applications, because I agree, I think people want to be thoughtful and they want to be judicious in their approach to how they manage their farms and their balance sheets.”
During the past few weeks, global financial markets have reacted dramatically to the COVID-19 pandemic with many assets experiencing substantial devaluations.
Hoffort said it’s too early to tell how the value of farmers’ most important asset — farmland — will be affected.
“We really haven’t seen any evidence” that farmland values will be negatively impacted, he said.
Hoffort also suggested that the markets for Canadian agri-products, despite short-term uncertainties, will remain solid.
“What it looks like six months from now or three months from now, from a market perspective, I don’t think anyone could give you a definitive answer of that,” Hoffort said.
“Right now, I think the demand (for Canadian food products) is quite solid…. People are going to need to eat.”
Hoffort said FCC has been in touch with other commercial farm lenders, including chartered banks and credit unions.
Other lenders still feel solid about Canadian agriculture and they have every intent of continuing to serve their customer base,” he said.
“I think that gives good evidence to (the strength of) the industry.”
