FCC official expects crop prices to remain steady but advises producers to lock in long-term borrowing rates
GUELPH, Ont. — Predictions of doom and gloom in the agricultural sector made a few months ago were most likely overblown, according to Farm Credit Canada’s Chief Agricultural Economist.
A more likely scenario for 2015 is a “soft landing,” Jean-Philippe Gervais said. Neither is it likely that farmland prices will plummet, though softening in some regions is possible.
“Are we headed for another farm financial crisis? No, we’re not.”
A farmer who heard the remarks here on May 26 questioned Gervais’s optimism. Charts Gervais displayed suggested farm net income and crop prices will remain relatively strong, at least for this year.
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Bob Buckhan, who operates a 250 acre, cash crop and cattle farm near Rodney, Ont., asked Gervais if the FCC also plugged lower numbers, like $9.50 soybeans and $3.50 corn, into their modeling.
“What I heard him say is that we can all gather around the fire and sing Kumbaya,” Buchan said.
Gervais said lower prices are always a possibility.
Other unexpected challenges could also put a damper on agriculture fortunes, including substantially higher interest rates. Gervais said a three percent increase in rates in a 12 month period would be troublesome, but feels increases are far more likely to be gradual.
Ken Poon and Greg Pate, both with the Institute for the Advanced Study for Food and Agricultural Policy at the University of Guelph, talked about the impact in Ontario of more modest rate increases. Their modeling employed one percent and three percent over increases over two years.
Most Ontario farmers would be able to carry those increases. Of far greater concern would be changes in net farm income, Poon and Pate said.
That said, debt levels continue to rise. The greatest debt lies with the largest farms but these may be the most able to service that debt.
It’s also high among dairy and poultry producers in Ontario.
“It’s true they have a lot of debt but their net income is quite good,” Poon said.
The greenhouse sector has greatest debt for any Ontario sector with interest expenses averaging $250,000 in 2013.
The sector has been expanding dramatically and that’s expected to continue. The operations tend to be large in terms of cash flow and often have scores of employees but the number of operations is small compared to other sectors.
Average greenhouse net income was slightly in the red in 2014 and is expected to worsen this year, according to Poon and Pate’s numbers.
Farm debt has been steadily climbing, from less than $50 billion in 2004 to an estimated $82 billion this year. Gervais said efficiency is important to the industry but the level of efficiency among producers varies widely.
He suggested producers may wish to take advantage of the current low cost of long-term borrowing and not assume rates will stay at current levels forever.
“The bottom line is you have a great opportunity to lock-in long term money,” he said.
