Farmers Forum staff
Farm Credit Canada’s chief economist says that Canadian agriculture remains well positioned to weather higher interest rates — though J.P. Gervais concedes there is a limit to that resilience. It all depends how high rates go, and the key overnight rate now stands at 3.25%.
He says the fundamentals haven’t changed from his observation on July 13 — when the key rate rose a full percentage point to 2.5% — that record farm revenues were “helping to offset the impact” of both input-cost inflation and higher interest rates on the farm.
The Bank of Canada pushed the overnight rate to 3.25% on Sept. 9 — the highest seen in 14 years and, according to some reports, the highest in the G7. It also puts farmers closer to an average 6% effective interest rate paid on their credit this year.
“That puts us back to a financial situation that looks like 2000 to 2008, roughly,” Gervais said. “To me, that’s not necessarily a nightmare scenario.”
And it’s far from the high double-digit rates some veteran farmers may recall paying in the early 1980s.
Many farm operations have “taken some risks off the table” by locking in rates, he said. While farm debt has been rising, so have farm incomes and “most of that debt is for productive purposes,” he said.
However, “if we were to see rates go up even further, or if we were to see income go down, then that’s when we would see issues emerge,” Gervais said. “We are walking a fine line now.”
