By Connor Lynch
REGINA — Margins are going to get tighter for Ontario farmers, and farm debt is climbing faster than the value of farm assets, but farmers in the province are well equipped to handle the tough times ahead, said chief agricultural economist with Farm Credit Canada, JP Gervais.
“The health of the sector is going to depend on whether or not we can sustain farm cash receipts,” Gervais told Farmers Forum, and “we’re predicting they’ll still go up but at a slower rate.”
Margins are tight across the board. The dairy industry has been struggling with the diafiltered milk imports situation and low dairy prices for the last 18 months; cash crop farmers are dealing with tighter margins; and beef and hog farmers are dealing with pressure on livestock prices, said Gervais.
But farmland prices, which have been on a steady increase, are expected to level off as well. That said, they’re still climbing faster than farm incomes, which means that farmland has been getting more expensive faster than farmers are making more money. “Farmland is getting more difficult to acquire right now,” said Gervais, but added that, “it’s reaching the point where it can’t become more expensive than it is now.”
The FCC is predicting a “soft landing,” for farmland values in 2016-2017, which means that prices for farmland will still be going up but much less than they’ve been, and the rate of increase should almost level off in 2017. “We’re not seeing the large increases we’ve seen in the past.”
The FCC’s report released in September on the outlook for farm assets to debt 2016-2017 suggests that Ontario farmers are going to be in a good position to manage the next few years, said Gervais.
Ontario farmers’ liquidity ratio is a hair higher than our 15-year average, which Gervais said is “right where we’d expect to be.”
“There’s lots of flexibility on Ontario farms to take advantage of opportunities and diversification.”
The liquidity ratio is a measure of how much “working capital” a farm has, said Gervais, calling it “protection against the unexpected.
“Farmers need to be aware of the risks: can we sustain income levels, which depends on a number of things like the exchange rate. I think producers are still in a very good position to manage their debt loads.
“Make sure you have that first line of defence, that liquidity ready, but overall the next few years look good.”