By Patrick Meagher
Financial forecasts for 2017 paint an unpleasant picture for young farmers but overall a hopeful year based on a weak Canadian dollar.
Young farmers need to get ready for interest rate hikes that will force them to manage tighter margins over a prolonged period of time or they will be leaving the business.
That’s the forecast from a leading U.S. agricultural economist. Virginia Tech’s David Kohl told a group of Manitoba farmers last month that the low-interest era is over if U.S. President-elect Donald Trump achieves his pro-growth goal with fewer regulations. Kohl expected to see more inflation and with that higher interest rates.
Most young farmers have never lived through higher interest rates and some will not be able to handle it, Kohl said. About 25 per cent of young farmers will quit the business in a tight financial squeeze, 25 per cent will struggle through it and 50 per cent will “hunker down” and make it work, he predicted.
Kohl advised farmers to forecast what their cash flow would look like if interest rates rise by one or two per cent.
Other forecasts painted a brighter picture. Farm Credit Canada’s chief agricultural economist J.P. Gervais said Canadian agriculture will continue to benefit in 2017 from a relatively low Canadian dollar. The obvious benefit means more competitive Canadian products on the world market but also higher cash receipts for producers selling commodities that are priced in U.S. dollars.
A lower Canadian dollar, however, does mean higher input costs, Gervais said. “Given the choice, producers are better off with a low dollar than one that’s relatively strong compared to the U.S. dollar.”
Also affecting 2017 is Ontario’s cap and trade tax that will make gasoline and diesel fuel more expensive. Meantime, Canada’s CETA trade deal with the European Union will mean access to Europe for more Canadian pork, beef and wheat.