34 Better Farming | November 2024 Follow us on @BetterFarmingON Mary Loggan photo Interest Rates The Bank of Canada lowered its key interest rate to 4.25 per cent on Sept. 4, making it the third consecutive cut in a row for Canadians. These reductions started in June when the bank slashed its benchmark interest rate for the first time in four years. With another announcement planned for Oct. 23, many experts predict even lower rates to come. Most Canadians experience lower interest rates through mortgages and various forms of consumer debt, including credit cards, personal loans, and auto loans. However, with the current economic climate, low interest rates could offer a silver lining for farmers looking to invest and expand their operations. With borrowing costs at lower levels, producers could access capital more easily, allowing for investments in equipment, technology, and sustainable practices. Better Farming recently spoke with Graeme Crosbie, senior economist at Farm Credit Canada, to discuss what lower interest rates could mean for Ontario producers. The benefits for farmers According to Crosbie, “The obvious immediate benefit is that anyone with a variable-rate loan will see lower payments and – all else equal – improved cash flow.” Of course, “Those with a fixed-rate loan won’t benefit until their current term is up for renewal.” Reduced borrowing costs and improved cash flow could offer opportunities for producers to expand their farms. Lower rates can make it more affordable for farmers to invest in their operations. This could encourage producers to take on new projects, expand their land base, or upgrade technology, which may also lead to improved productivity and efficiency. Crosbie states, “Regardless of whether a producer wants to take out a variable or fixed-rate loan, they will benefit when their current term comes up for renewal (or if they are taking out a new loan) as they will see more attractive rates today than would have been the case just a few months ago.” Potential negative impacts While reduced interest rates could provide opportunities, Crosbie stresses the need for sound management to navigate potential risks associated with increased investment and market fluctuations. He points out, “Central banks typically begin lowering interest rates to provide some stimulus when there are economic storm clouds on the horizon. “This is certainly the case at the moment. Unemployment in Canada has trended higher since early 2023 and GDP growth has been positive but low (and is forecast to remain so for the next year at least). “So, while reduced rates are generally cash-flow positive for a farmer, it likely indicates the economy is losing steam.” Crosbie says this is important when making management decisions; even though rates continue to drop, farmers must always consider how quickly the economy can change. “A worse economy can lower demand for end-products, including those produced at the farm. Commodity prices could move lower alongside uncertain and weaker economic conditions. ‘REDUCED BORROWING COSTS & IMPROVED CASH FLOW COULD OFFER OPPORTUNITIES’ MANAGING YOUR FARM AS INTEREST RATES FALL BY MARY LOGGAN Graeme Crosbie
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