At this time of year farmers often find themselves at production meetings as local businesses sometimes sponsor customer meetings going over growers concerns for the upcoming year. I expect to go to a few in the next few weeks. I always enjoy hearing from the latest experts on weed control in my local area, something specific to my geography. I’m always waiting for that silver bullet of management on how to control glyphosate resistant group 2 resistant giant ragweed! Regrettably, that seems to be a tough one.

Needless to say, 2024 is going to be a bit of a tough one as we’ve got lower commodity prices and farm input prices not quite as low as maybe they should be based on the outlook. One facet of that farm input picture that is increasingly getting some traction these days are interest rates.  Interest rates are the highest they’ve been in several years and I often hear it mentioned not only in the grain trade but also the farm retail trade. The point is that the cost of money is higher than it used to be, and it can no longer be ignored.

You might say that hasn’t been the case over the last few years, but I would beg to differ. Even though interest rates have been in the cost of production since the beginning of time the last several years of ultra-low interest rates have made it a minimal factor.  Let’s just say it’s been a long time since 1981 when the bank manager told me he would give me an operating loan for 23 1/4% and that I should be happy to get it.

I guess it’s all a matter of perspective.  What I consider high interest rates that I paid in my early career versus what people are becoming accustomed to over the last 10 years is completely different. In fact, talk to any farmers the same vintage as me and all of them talk about that difficult time in 1981 in haunting terms.  In fact, and I include myself in this it follows us around like a cloud since those bruising times in the 1980s.

That’s an old story and I’m sure some of you are sick of hearing it. However, in the Canadian business press over the last week we’ve heard commentator after commentator speculate on the hope the Bank of Canada would cut interest rates setting up a chain reaction which would make the cost of borrowing mainly for houses a little bit cheaper. Of course, the hope would be now we have inflation under control enough where we could see these interest rate cuts on a consistent basis going back to that ultra-low interest rate era of recent history.

We heard from the Bank of Canada last Wednesday and they kept interest rates at 5%. This was disappointing to many people who had grown accustomed to almost 0% money. You can also read in the editorial content across Canada hoping for better things in the weeks to come from the Bank of Canada. Unfortunately, with our inflation rate still at 2.9%, the bank didn’t feel it should cut interest rates. Core inflation is running at about 3.4%, which makes the situation a bit thicker.  I know that these inflation definitions can be a bit confusing but just take my word from it that the Bank of Canada wasn’t comfortable with reducing the cost of capital.  Unfortunately, the carrying cost of grain and the carrying cost of some of this 2024 farm equipment will remain relatively high for the foreseeable future.

Not everybody disparaged the Bank of Canada’s move to keep interest rates where they are. On que, the Canadian dollar gained 42 basis points to close at .7398 US its largest one day move since December the 13th. Today, it’s running at .7448 US. As I told you a million times the Canadian dollar is usually valued in an inverse fashion to where the US dollar goes, but sometimes an unexpected Bank of Canada move does make a difference. Needless to say, that rise in the Canadian dollar value is not good for Ontario and Quebec cash grain values.

Those old crop cash grain values today are $5/bu for corn, $14.77 for bushel soybeans and about $6.45 per bushel of Ontario SRW wheat. Keep in mind that those values in 2024 aren’t what they used to be, and our farm input horizon is much higher to deal with. That means that everything gets a little bit stickier.  The money moving through our hands as well as the money moving through the grain trade and elsewhere in the Canadian agricultural economy gets a little tougher.

Our Bank of Canada governor Tiff Macklem said with the interest rate announcement, “we need to give higher interest rates more time to do their work.”  So, we move ahead.  I’ve always told you interest rates are the hammer for inflation.  It’s pretty obvious that hammer hasn’t hit hard enough yet.  On the farm, we just keep swinging until we get it right.