A senior Canadian banker last week predicted a 20 percent drop in realized net farm income this year, driven down by rising production costs.
Craig Rothwell, in charge of agricultural lending for the Canadian Imperial Bank of Commerce, said farm income after depreciation will fall to $1.8 billion in 1997, after a slight decline to $2.25 billion in 1996.
He told a poultry industry outlook conference May 8 that lower grain incomes and ever-rising farm input costs are the reason for the expected sharp 1997 dip.
The higher costs come despite interest rates at 40-year lows, saving farmers several hundred million dollars each year.
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Rothwell predicted that while interest rates may increase slightly this summer, they will fall even more later this year and through 1998.
He said Canadian farm debt has been growing at close to $1 billion annually in recent years to finance consolidation and expansion.
“Farm debt in Canada is near $25 billion or close to total farm receipts for one year,” he said. “The chartered banks hold 38 percent of farm debt.”
In a later interview, Rothwell said there is no need to worry yet about the rising farm debt, even though he is predicting falling farm incomes.
“I’d have to say it is not a problem at all just now,” he said. “Our loan portfolio is healthy.”
However, he said if commodity prices begin to fall, lenders could begin to get nervous about the industry’s ability to service the growing debt load.
He told the poultry conference that supply management farmers repay their debts quickly.
On average, mortgage loans in agriculture are repaid in a decade. For dairy, it is an average seven years and for chicken farmers, five years.
“That is very fast repayment.”
In light of eroding farm income because of rising costs, Rothwell urged the poultry industry to get costs down whatever means possible, whether it is through expansion, investment, equipment or labor costs.
