An economist with Farm Credit Canada says most farm operations are in good financial position with the changes in the economy.
J.P. Gervais says while a stronger Canadian dollar and higher interest rates may make the business of agriculture more challenging, it doesn't necessarily put producers in a weaker financial position.
Gervais released the FCC’s 2017-18 Outlook for Farm Assets and Debt Report.
Since July, the Bank of Canada increased its interest rate twice by a quarter of a per cent, signaling to financial markets that economic conditions could lead to higher long-term interest rates.
At the same time, the Canadian dollar has gained strength and could hover around the 80-cent mark for the foreseeable future. Although the low dollar has been good for exports, it has made purchasing equipment, particularly from the United States, more expensive for producers.
The FCC report examines farm liquidity, which reflects the ability of producers to make short-term payments, and solvency, the proportion of total assets financed by debt. Both indicators suggest a vast majority of farms are in a strong position to absorb the impact of higher interest rates and a stronger dollar.
The debt-to-asset ratio in Canadian agriculture also remains historically low at 15.4 per cent. A low debt-to-asset ratio provides financial flexibility and represents lower risk.
Gervais cautions that every farm operation is unique and he recommends producers pay close attention to commodity prices and cash flow to ensure their business can withstand sudden changes in the economic landscape.
