Farmers’ debt seen hitting fresh record high

(Dave Bedard photo)

Reuters — Canadian farmers’ debt will likely reach another record high this year, while land appreciation slows and incomes flatten, but the industry is still in strong financial shape, the country’s biggest agriculture lender, Farm Credit Canada, forecast on Tuesday.

FCC, the federal Crown ag lending agency, sounded a note of caution for farmers, who have racked up debt to record highs for 22 straight years. Canada is one of the world’s biggest wheat exporters and the largest global canola trader.

While weaker crop prices have hurt farm incomes in many countries, weaker Canadian currency compared to the greenback has softened the blow for Canadian farmers, giving them an export advantage over the U.S. The U.S. Department of Agriculture last month forecast U.S. net farm incomes to decline in 2016 to US$71.5 billion, the lowest since 2009.

Strong income levels and rising farmland values have kept Canadian farmers in sound shape, FCC reported, in an analysis based on earlier farm data released by the Statistics Canada agency. Those incomes are likely to level out this year and the rate of appreciation for farmland may slow, the lender said.

“We think we’re going to be able to ride the wave of strong income a few more years,” said FCC chief agricultural economist J.P. Gervais, in a conference call.

Still, some indicators suggest farmers use caution.

The value of farmers’ current assets, including cash flow and inventory, was 2.38 times greater than debts and accounts payable in 2015, down from 2.63 times the previous year, in a liquidity ratio that lenders use to measure farmers’ ability to manage cash flow and short-term obligations.

In a measure of longer-term solvency, farm debts rose to 15.5 per cent of assets including farmland from 15.1 per cent, but remained below average.

FCC is assuming interest rates, currently low, do not rise quickly and the Canadian dollar continues to trade at less than US80 cents, Gervais said.

Farmers’ total debt reached C$91.8 billion in 2015, Statistics Canada reported earlier. Debt is likely to hit $100 billion by the end of this year, Gervais said.

— Reporting for Reuters by Rod Nickel in Winnipeg.

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