Soybean harvest ended for me last week and corn harvest started up. It has been a beautiful stretch of weather across the greater American corn belt and of course this has extended into southwestern Ontario. I was asked today whether this is the best harvest weather I’ve ever seen, and I responded by saying it certainly is in the top five. However, I hope I’m not jinxing myself because half my corn is still out in the fields. Let’s hope November is kind.

It is also the time of year with crops quickly getting into the bin that we turn our focus on to some future planning. It won’t be long before seed corn salespeople will have inundated me with the good news for 2025. Believe me, I think that hybrid selection is very important, but I’ve never quite got used to ordering seed corn when the corn from last year is still in the field.

Amid all of this activity during the harvest season we had something happened last week that will likely have true significance to Canadian agriculture. I’m referring to the decision of the Bank of Canada to cut its overnight lending rate 50 basis points.  It had been telegraphed for a few weeks especially when the rate of inflation declined from 2.7% in June to 1.6% in September. At that point, many analysts thought that the bank of Canada should weigh in heavily and that’s exactly what they did.

Simply put, this is a stimulus to Canadian agriculture. If there is one thing that I completely missed in my career it was the era of super low interest rates that we saw pre pandemic and going back in the 2010’s.  I had cut my teeth on the 20% interest rates back in the prehistoric age and I could have never envisioned a time for the cost of capital was so cheap. When the pandemic came along, everything changed and with that so did interest rates.

As a recap, you will know governments worldwide faced an economic calamity with the Covid pandemic.  Initially, there were lockdowns where people couldn’t go to work and there was a transition to work from home. The conundrum was how do we keep the economy from crashing as the economic stimulus would be gone. Governments worldwide responded by putting massive amounts of capital into people’s hands. The hope was to sustain people through the early days of the pandemic until something better could be figured out.

Anybody with a rudimentary education in economics could tell you what too much money chasing too few goods would do. What we got was massive inflation after that point partly induced from all the government capital washing around the economy. Central banks responded by raising interest rates trying to drive down the inflation rate. Over the last year we have actually seen interest rate decreases with the latest decrease being the most aggressive in quite some time. I guess the question you have to ask yourself are we going back to the ultra-low interest rate era and how will that affect you on your farm?

At the present time, this latest interest rate cut by the Bank of Canada puts her overnight lending rate at 3 3/4 percent. That’s still higher than what we had pre pandemic, but this aggressive rate cut is likely not the last. The Bank of Canada in its announcement talked about the Canadian economy growing by 2% in the first six months of this year and they expect growth of 1 3/4% in the second half. Overall, the bank is forecasting GDP growth of 1.2% in 2024, 2.1% in 2025 and two point 3% in 2026. With the inflation rate currently at 1.6%, is it time to let the good times roll?

For those of us currently experiencing lower agricultural commodity prices in 2024, you’d say not so fast. These are not necessarily the good times we become accustomed to. However, the interest rates are going in that direction where future expansion in the agricultural sector could be very real. Should we be borrowing cheap capital hoping for fixed asset appreciation in our agricultural future?

Or will these cheaper interest rates only fuel fixed asset capital appreciation in our future? It’s always hard to say with these things, but to me there is a ring in truth in that.  If we’re going back to a time of ultra-low interest rates, surely the agricultural economy will show some effervescence fueled by cheap capital.

The tough part this time around is that agricultural commodity prices are much lower than the last few years.  Needless to say, the Bank of Canada rate cut did send a signal that capital acquisition will likely become easier and cheaper.  This alone, can present the possibility to further farm growth opportunities.

The challenge of course may come in this post COVID agricultural economic world. It is so different from the pre pandemic world of low interest rates. However, keep in mind, “cheap interest rates” are the lubrication of the agricultural economy.  It adds fuel to any fire and the Bank of Canada just yelled go!