Kicking the Farm Debt Can Down the Road

I am nearing the end of my corn harvest. When I started harvesting corn in October I thought I would be done everything sooner than the year before. However, November has been a month full of rain showers, which has constantly challenged me every day. Corn is a different animal than soybeans, in theory you can harvest when it’s almost raining outside. However, do you really need to?

I answer that question by saying no hoping to get at least some decent weather to harvest my corn. Needless to say, with my capacity to harvest being what it is, it’s taken me almost all of the month of November. I can see it now, once the last corn rolls thru, there will be the most unusually dry December on record.

I’ve often said that my equipment has more capacity than I do to drive it. That’s a good thing, because it means that I get quite a bit done for being the only guy on the farm. I’ve often said that I do more per hour now than I used to do what I was younger. In fact, you could argue that I worked much harder when I was younger, equipment and technology has made things so much easier now. I marvel at some of the equipment available to farmers now. However, I shudder when I consider the cost. It’s got to be leading to some creative financing for that equipment to be sold.

Debt levels have always been a bit of a sore subject with me. In my early career carrying debt was much more expensive than it is now. I think you have all heard my stories about paying 23% interest rates. In fact, I think some of you have grown very tired of hearing that. Needless to say, those experiences always stayed with me and it is one reason why I do not have a high tolerance for big debt on the farm. Of course, I’m older now, and it’s a different world. With machinery assets being a lot more expensive than they used to be, is pretty obvious farmers have to become much more comfortable with debt that I am.

I have said more than once that the era of low interest rates has not been a comfortable one for me. I say that because even though the carrying cost of debt is cheaper than it used to be, capital has flowed into fixed assets making them much more expensive. I’ve never gotten used to land being worth what it is. Ditto for farm machinery. However, that is me and not necessarily the greater farm community in Canada. There are many farmers who have a great propensity in 2017 to carry large debt amounts.

Of course, the worry with this is not the 23% interest rates that I paid back in the day. I’ve had more than one farmer tell me that a two or 3% rise in interest rates now would have a tremendously detrimental effect on the farm economy and the pricing of these fixed assets. It’s all a theory now; it certainly feels like nobody in the farm community is at all worried about it.

It’s a little bit different in the nonfarm community. We’ve all heard respective finance ministers openly worry about Canadians propensity to take on debt. In a preview of the Paris-based OECD’s economic outlook released last week, the OECD mentioned Canada’s high economic growth rates but also its rising debt levels.

According to the OECD, the Canadian economy is supposed to grow 3.2% in 2017, which is among the best of the G7 countries. Last week, Statistics Canada reported that the combined deficit of the country’s federal provincial and local governments increased to 18.1 billion in 2016 from the combined 4.9 billion in 2015. In the same report Statistics Canada also reported about how corporate debt was increasing and personal debt. It just makes you think that if we ever did have an interest rate hike in an unexpected way there would be some type of fiscal calamity for almost everybody.

It is almost like we’re living beyond our means as Canadians. By default, why not extend that to the Canadian farm community? Or, am I just all wrong because interest rates are so low and this is a product of the low interest rate era. You can essentially borrow money or access capital in such a cheap manner it changes the game of how you acquire assets. Maybe the never, never plan is something that we should never ever worry about?

It certainly is a tough one for me to figure out. There is even talk of an interest rate cut coming in the United States in the next few months. That would likely mean the same in Canada. That will make farm debt even more enticing, to say nothing about Canadian consumer debt. Will there be a reckoning? I don’t know. Everybody will be just kicking that can down the road.