There is a shifting of gears in September as you can almost feel the change in the air.  You would not know that this past week as very warm temperatures descended on southwestern Ontario, a welcome respite from a bit of a wet and cool summer. I have a habit of checking my corn very closely on Labour Day and I found it this year not dented as much as I would like. There are consequences from a soggy summer, I’m just hoping for a very open and warm September.

We shall see. In all my years of farming I’ve only had about one year where corn didn’t reach black layer properly and of course that’s never fun.  As it is, some of the private yield forecasters have come out in Ontario and predicted an average corn yield of over 200 bushels per acre province wide.  Guys this is amazing based on the weather we have but it’s also amazing compared to some of the “I” states in the US.  It’s like we’re doing something right and I will take it.  Let’s hope Jack Frost stays away

As it is we have $6 corn this fall as well as $17.50 soybeans. Some of you might not be satisfied with that or you are lamenting that you didn’t sell more earlier in the season. However, consider that we never know what the future holds. The last few years have been good, and it is shaping up to be that way again here in Ontario.  Last week we got a little bit more good news, depending on who you are, the Bank of Canada kept their benchmark interest rate at 5%.

I am always particularly interested when the Bank of Canada makes their interest rate decision. Interest rates to some extent are the lubrication of our Canadian economy as well as our Canadian agricultural economy. The low interest rate era that we have seen over the last decade has been instrumental in the increase in fixed asset prices we see on our farms. in essence, it made everything cheaper and much of the unleashed capital was put into land and equipment.  With such a ratcheting down of the interest rates there was a bit of a Wild West with regard to farm asset accumulation over the last few years.

The inconvenient truth about interest rates is as they get higher the economy slows down and that is the same for the agricultural economy. It’s interesting, I had breakfast last week with a representative of a major farm lender in Canada and he told me that his clients have two major limiting factors in their farming operations. He said the one was red tape and the other was the scarcity of farm labour. I asked him about the red tape part of the conundrum, and he said something about the bureaucracy of permits for farm expansions in certain areas of Ontario. We all know about the scarcity of farm labour. Needless to say, he didn’t say rising interest rates were a problem for farm expansion, at least not yet.

That was an interesting discussion to me, because it tells me there’s a lot more capacity within our agricultural economy to spend more money on fixed farm assets.  For somebody who cut his teeth on 23% interest rates, it should mean full speed ahead.  However, we know that agricultural economics is all about managing risk and on my farm, it shows up everywhere.

It might be more so in the non-farm real estate economy. For instance, last week the Premier of British Columbia and the Premier of Ontario wrote the Bank of Canada governor extolling the fact that they didn’t want to see any more interest rate increases, in fact, they wanted to see cuts in interest rates as mortgage holders were having a difficult time making payments.   They also were playing to the political narrative of affordability in this era of so-called “higher interest rates”.

Bank of Canada governor Tiff Macklem responded to press questions that it was too early for interest rates cuts especially with the 2% inflation target still in view. He also said that when the cuts come, don’t expect to go back to the lower interest rate levels we saw in the past decade.  With all this talk, the Canadian dollar sank to 73 cents US.  Of course, as we all know that’s a stimulus for Ontario and Quebec cash grain prices.

What’s this say for the road ahead? Well, it’s hard to say especially if the Bank of Canada is not done. On the contrary if we do see several interest rate increases in the next year it is inevitable there will be a slowdown in the economy as well as our agricultural economy.  On the other hand, if the Bank of Canada does reach its inflation goal of 2%, things should be better. Yes, I realize the farm inflation rate was much higher than that and remain so.  It is such a long and winding road.

Of course, we haven’t talked about all of those Black Swans that could come along.  Covid and Ukraine almost seem like old news, but at the time, they came out of nowhere.  As we move ahead, let’s hope for blue skies and clarity.  The last few years have been eventful to say the least.