by KRISTIAN PARTINGTON
A nationwide Farm Credit Canada survey released Monday concludes there are healthy signs of optimism sweeping through the Canadian agriculture industry.
More than three-quarters (76 per cent) of respondents believe their businesses will improve over the course of the next five years and two-thirds of respondents say they are better off today than they were five years ago.
The annual survey sought the opinions of 4,900 producers and agri-business owners who participated through in the national agricultural lender’s panel, which consists of more than 9,000 individuals with ties to all aspects of agri-business. In an interview Tuesday, FCC Western Ontario Vice-President Barry Smith said that the survey’s participants were not necessarily FCC customers or clients.
Smith said favourable commodity prices are among the factors that have helped create the positive outlook. In his region farmers have had high quality crop yields. Agri-business owners are also confident in the ability of new technologies to advance growth in emerging markets such as India and China, he said.
Closer to home, society is more supportive of the industry. That support boosts morale. “The alertness of a healthier lifestyle is taking hold, he said. "People are more concerned about where their food comes from and they even want to be more connected to who is providing that food.”
“The whole industry, whether it be in Western Ontario or across the country, is trying to keep economies of scale in mind and will continue to consolidate and land values continue to increase. That’s driven by optimism.”
Optimism breeds optimism, he said, and “for lenders, it’s fun. You’re dealing with people who are keen about the industry and the business they’re in and it’s much more fun than lending in tough times.”
In Monday’s news release, Smith noted “for cattle and hog producers, it’s not as favourable,” and described those producers as “cautiously optimistic.”
Farm Credit Canada is Canada’s leading agriculture lender and this fourth annual survey will be used as basic knowledge in the management of its $20 billion portfolio, Smith said. BF
Comments
Be careful for what you wish for in optimism , we might get more than we bargined for. Remember the go go 70s them 23 % interest and debt review of the 80s
he said, and “for lenders, it’s fun. You’re dealing with people who are keen about the industry and the business they’re in and it’s much more fun than lending in tough times.”
We have seen these lenders before and then they become hard core collectors
There's an old saying that, especially in agriculture, things always look the rosiest, just before they crash. For those with long memories, farmers were equally, if not more, optimistic about the future in the late 70s, just before the effective 50% crash in farmland values which brought us penny auctions and the Farm Debt Review Board.
It's really too bad FCC, and seemingly too many of the farmers they surveyed, don't seem to understand that high price/earnings multiples for farm land, and the fact that too much of our current so-called farm prosperity is based not on economics, but on legislation, should scare both farmers and lenders, not enthuse them.
Stephen Thompson, Clinton ON
Debt review was needed in the 30s and some degreein the 80s but alot who got debt write downs in the 80s didnt learn and now if debt review has to come in again should not reward farmers a free ride. Let these guys go down the next time
Farmers will never learn, a new crop of hard heads are produced every generation.90% of farmleaders dont have a clue about price/earnings multiples
While it is true that excessive expansion did hurt quite a few, there was also great amounts of equity built during the 70's that set up many farm operations. No doubt land values are over heated right now however the percentage of farmers actually trading hands at those values is very small. In the future some of these purchasers may look back with regret but its quite pssible that the regret will be for a poor investment and not a catastrophe that up sets their operation.
At this point there is little to suggest the types of inflationary factors are present that would lead to the extraordinary interest rates of the 80's. There are virtually no segments of agriculture (or most business sectors)that can support 18-20% interest rates. While a certain caution is always advisable there are certainly things in Canadian Agriculture that warrant some optimism.
Just about the only things warranting optimism in Canadian agriculture at the moment are those sectors (dairy, poultry, grains) which owe their optimism to legislation, both here and in the US, rather than to the realism of underlying economic principles.
Furthermore, I disagree with your assessment of the effect of interest rates - it would seem to me one would be in less difficulty paying 20% interest on an asset bought at a price/earnings multiple of 10:1, than paying 3% intrest to buy something at a price/earnings multiple of 50:1 which is about where we are with land prices at the moment.
After having experienced both high interest rates, and low interest rates, I'd far-sooner have high interest rates because people make far-better decisions which cause far-less grief both to themselves and to others.
The biggest lesson this generation of farmers hasn't yet learned, is that low interest rates are far-more harmful to any industry, and the businesses in it, than high interest rates - therefore, the optimism of those surveyed isn't founded on
(1) the reality of the adverse effects of low interest rates,
(2) the reality of stratospheric price/earnings multiples, and
(3) the reality of the long-term folly of basing the very existence of any venture on the whim of government.
Stephen Thompson, Clinton ON
High interest rates are crippling to economic growth. A 10 to 1 price to earning multiple on land with 20% interest rates simply isn't going to happen. I don't think current land prices are warranted but to "wish" for double digit interest rates is pure folly.
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