Despite Our Issues, Canadian Agriculture Remains Resilient

Soybean harvest ended for me October 24th. I was glad to put my soybean economy behind me as this has been such a challenging year. Make no mistake about it. Planting early does make a difference. When you plant close to Canada Day, there isn’t a lot of upside. I’m hoping the spring of 2020 is kind. I’m hoping to get all my corn planted in April and all my soybeans in by the 20th of May. That might help put 2019 to bed.

Every year is different on the farm and certainly 2020 will be no different. I must say, I have a bit of a hard time getting used to the numerals in the year 2020. Wasn’t it just yesterday, we were discussing Y2K and the turn of the century? I don’t think so, it’s just a sign that I’m growing in wisdom. Let hope my personal farm economy can continue to percolate with innovative new ideas. Greater still, would be to get a boost in crop prices. We’re due, after several years of grain futures not giving a whole lot of hope.

It’s interesting, our farm economy is looked at so differently than it used to be. I had a discussion today with a colleague who farmed in the 1980s like I did. He brought up the penny auctions and farm gate defences which were quite prevalent back in the 1980s in Ontario. When banks would force sales, sometimes bidders would only bid pennies for the equipment, frustrating the bankers at the time. There were also farm gate defences where local farmers would bandy together at the farm gate to defend that farmer from his creditors. Simply put, it was a different time with high interest rates, low prices and equity being eroded. It was a tough time for farmers.

The big difference from that time over the last decade has much to do with what I call, the low interest rate era. Where at one time, we used a 14% discount rate as a hedge to measure the returns from buying a farm asset, now, the phrase “discount rate” is never really heard at all. Interest rates are so low and have been for so long, credit is a booming business in agriculture. If you can’t pay this year, we’ll just re-arrange things. It is something that we could have only dreamed of back in the 1980s.

Of course, the health of the farm economy actually has some litmus tests. In a recent DTN article written by Katie Dehlinger and Todd Neeley, entitled Working Capital Wears Thin, the authors quote Jeff Swanhorst, the CEO of AgriBank, which provides farm loans throughout the US corn belt. Swanhorst emphasized that the debt to asset ratio in US agriculture is relatively strong at 13.5%, compared to the 1980s at 16.1%. Despite that, working capital is being continually cut in this present farm economy and farm profits are tight. The elephant in the room in this scenario is what happens if land prices go down?

That’s something you don’t really want to think about. Yes, we had that happen in the 1980s. I bought land that went down 50% in value. Of course, at the same time I was trying to farm, borrow more money and pay off that farm at the same time. Equity was eroding and you could just imagine the attitude of the bankers. Under the scenario Swanhorst is referring to in US agriculture, you don’t want land prices going down. That would completely upset the apple cart.

Luckily for Canadian agriculture, that hasn’t happened lately. In a recent report published by Farm Credit Canada, farm assets increased 4.2% in 2018 to $623 billion partly due to the appreciation of long-term assets such as farmland. However, farm debt expanded by 8% in 2018 as farmers continued to make investments in land and equipment. Essentially farm debt has been increasing twice the rate of assets. However, with farmland prices continuing to increase, nobody is pushing the panic button. In fact, in the public discourse on Canadian agriculture, rarely do you hear much of problems with our financial health.

Ditto for social media. If you spend anytime there, nobody discusses any farm debt portfolio at risk. In a world where interest rates might go negative someday, there are few storm clouds in a relative sense on the horizon.

This is happening at a fortuitous time as geopolitics hasn’t been kind to farmers. We all know what China and Huawei means to our canola farmers. We all know what the US and China trade spat has meant for soybean prices. With the Canadian dollar still down around 75 cents US with low interest rates, it means weathering any financial storm is taken for granted. It’s all relative. Times might be changing, but in the low interest rate era, it’s more of the same.

At the end of November, I’ll be travelling to Belleville Ontario to speak to a young farmers forum sponsored by FCC. The message I’ll deliver is one of hope for the future. Despite our many challenges in Canadian agriculture, you can’t question our resilience. Now that the soybeans are off, corn is up next. It’s always onto the next thing.