26 Ate Today?Thank a Farmer. Better Farming | November 2023 Inflation & interest rates Farmers could use relief from high interest rates, but aren’t likely to get any soon, leaving them to mitigate the challenges themselves. In a capital-intensive sector like farming, higher interest rates increase borrowing and production costs, and can in uence buying decisions for machinery and equipment, inputs, and land. In its ght against in ation, the Bank of Canada (BoC) has raised its overnight policy rate several times recently, from a mere 0.25 per cent in January 2022 to ve per cent in July 2023, a level not seen since April 2001. Farm Credit Canada’s chief economist J.P. Gervais predicts the BoC’s rate has likely peaked at ve per cent. “FCC Economics expects the overnight rate to remain unchanged through the rest of 2023 and into early 2024,” he says. Given in ation remains above the BoC’s two per cent target, Gervais says “it’s way too early to even contemplate rate cuts. “ e likelihood of cuts will, however, increase as we get deeper into 2024, not only because in ation is expected to be closer to target by then, but also due to enhanced risks of a major economic slowdown as the lagged impacts of earlier rate hikes are fully felt,” he says. As much as farmers would like to see an interest rate cut sooner than later, Eric Olson, an MNP farm management consultant in Winnipeg, stresses they need to assume no such relief is imminent. Farmers should plan for where rates are today, and make whatever changes that are necessary for their businesses. New territory With interest rates having been relatively low the last 15 years or so, there are producers out there who’ve spent their entire farm careers having had no experience with rising interest rates, says Olson. And they certainly never came across anything like the farm nancial crisis of the 1980s when the BoC’s overnight rate at one point exceeded 20 per cent. “While interest rates are rising now, they are still low compared to that time period, and did not take the sudden and dramatic jump up like they did then,” says Alfons Weersink, an agricultural economist at the University of Guelph. Weersink adds the farming sector today is in a better overall nancial position due to favourable prices over FARMERS UNDER PRESSURE TO MITIGATE INTEREST RATE IMPACTS NO RATE CUTS IMMINENT BY RICHARD KAMCHEN Emily Croft photo
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