A recent article appearing in Juno News stated that foreigners are divesting Canadian assets while Canadians are investing more in foreign securities, a double whammy to Canadian investments. A direct quote was, “The result of these dual movements — a retreat by foreign investors and an outward push by Canadian ones — was a net outflow of $16.2 billion from the Canadian economy in May.” A similar article appeared in the Financial Post with a chart exhibiting year-to-date outflows from Canadians to U.S. securities, both stocks and bonds, of $59.9 billion. In half a year there were more outflows than any full-year period dating as far back as 1990. The government may be experiencing a honeymoon period with voters but not with investors.

Additionally, during second-quarter earnings calls, both our largest midstream pipeline companies, Enbridge and TC Energy, discussed future investments. The comments were widely reported with a headline in the Edmonton Journal reading, “Despite pipeline hopes, Enbridge, TC Energy see strong demand in U.S., hurdles in Canada,” summarizing the sentiment. Despite political verbiage supporting major development projects, past legislation stands in the way.

While I generally like being lonelier making investment decisions, in this case it looks like the sentiment I experienced immediately after the election was mirrored by others — the main difference being I am looking outside Canada and the U.S., while it appears most others are focused on U.S. investments.

To free up cash to buy more foreign securities, I made two significant sales, one in Canada and one in the U.S. Both are examples of my minimal turnover approach. In a taxable account I sold Bank of Montreal (BMO). The shares were purchased in July 2015 and March 2020 for an average holding period of about 7.5 years. I sold for slightly more than twice what I paid, and with accumulated dividends made 163 per cent total return. While overall BMO is fine compared to other Canadian banks, it has one of the lowest return on equity (ROE) ratios of 9.8 and trades with an above-average price earnings (P/E) ratio of 14.4. I like to see the ROE above the P/E.

In my RRSP I sold half my position in U.S. bank JPMorgan Chase (JPM). I purchased the shares in 2003 for a 22-year holding period, paying $20.46 per share. I sold for $286.39 per share, and a 1,300 per cent capital gain. Add in $46.34 of accumulated dividends (based on the charts on my brokerage website) for a total return of $312.27 on $20.46 invested. Contrary to BMO, JPM has an excellent bank ROE of 16.9 with a P/E of 14.9, which is why I kept half the shares. JPM has been one of the best-performing banks in the world. Its famous CEO Jamie Dimon is, however, 69 years of age and not everyone is as timeless as Warren Buffett. While I have not used cash from this sale, it frees up capital for other foreign opportunities.

I purchased four different Canadian currency-based foreign ETFs (exchange-traded funds). I am a relative rookie at ETFs and used my internet website’s ETF sorting tool to buy the highest-performance funds. I added one emerging-market fund and one developed-market fund to both my RRSP and taxable account.

I selected ticker FCIM, which had the best three-year performance, and VXM, which had the best five-year performance for the developed-markets funds, putting the highest dividend payer into the RRSP.

I selected ticker DRFE, which has the best three-year performance of the emerging-market funds, for the taxable account, and REM, which has the fourth-best five-year performance record and sports a high dividend for my RRSP.

Past performance doesn’t guarantee future performance, but the probability is better.

While I am not exactly sure how taxes work on ETFs, in general there will be withholding tax on dividends paid by companies to the ETF, but when dividends are paid from the ETF to individual investors, if in a tax-sheltered account, those dividends should be tax-free. I will learn more as I become familiar with this investment tool.

Studying ETF performance for the first time, I was surprised by the wide range of performance across funds that are similarly focused. Three-year performance for the emerging-market funds ranged from 16.25 to 1.72 per cent per year, while the five-year performance ranged from 11.7 to 3.44 per cent. Developed-market funds’ three-year performance ranged from 27.06 to 10.74 per cent, while the five-year performance ranged from 19.11 to 7.21 per cent. Three-year performance figures look outstanding because we were in the midst of a bear market in 2022. With myriads of choices, my focus was on long-term performance while also considering the average P/E of the fund and, to a lesser extent, dividend yield and the Morningstar rating.

Overall, I only have about five per cent exposure to international markets and will continue to evaluate opportunities with a plan to double, if not quadruple, this level of exposure over the next few years.

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Two issues ago, I bemoaned how the past mainstays of a Canadian portfolio, banks and telecoms, experienced declining profitability and share prices for an extended period. The last issue discussed the dominance of U.S. technology and noted that, being value-oriented, we had just modest exposure to this sector. Yet our portfolios have continued to perform despite these handicaps.

To maintain performance, I pivoted to smaller companies with good valuations and invested in energy when the world had forsaken it. The first couple examples are a combination of those two themes. In 2021 I made a small investment in CES Energy Services (TSX: CEU) at about $1.50 per share. It has quintupled in three years, making it a more substantial investment. I continue to hold as it sports reasonable valuations with a price to earnings (P/E) of 10.6 and price to cash flow (P/CF) of 6.0. It produces chemicals and fluids for all aspects of energy production and transportation.

Another small energy service company I purchased in 2021 was Computer Modelling (TSX: CMG). It has more than doubled in three years, and I recently sold half. It provides software and consulting for reservoir maximization.

Moving off the energy theme, I have had some success with smaller Canadian tech companies. I have owned Vitalhub (TSX: VHI) for two years, with a nice tripling of my purchase price. It provides tech solutions to the health industry. It is expensive from a valuation standpoint but growing rapidly. I have also had good results with Converge Technology (TSX: CTS), originally purchased for about $2.50 in 2020. I then sold one-third at over $10 in the speculative fervour of 2021 and recently added again at just under $5. While earnings are still elusive, it has superb cash flows.

Additional success has been derived from mid-tier companies. One of my biggest winners has been transportation company TFI International (TSX: TFII), which I have owned since 2017. Originally purchased for $23.80, it is now in the $200 range. Unfortunately, I sold two-thirds of my stake at about $80, and then at $130. Still nice gains, but holding would have been better. Convenience store operator Alimentation Couche-Tard (TSX: ATD) has been a good winner, more than doubling in three years, and engineering firm Stantec (TSX: STN) is up almost four times in six years.

Industrial company and generous dividend payer, Russel Metals (TSX: RUS) has delivered solid gains including dividends of 140 per cent in five years, and while the large midstream energy players get the press, I have done well with smaller Keyera (TSX: KEY). Again, including dividends, it has returned over 100 per cent in four years.

I hope these examples illustrate the value of holding until such a time as the stock no longer represents decent value. Many investors sell if they make 20 or 30 per cent.

None of the examples provided should be considered as advice to buy. They simply represent examples of how I maintained portfolio performance largely missing the top 10 U.S. companies and with poor performance of the traditional stalwarts, Canadian banks and telecoms.

I have picked all these examples from the Canadian side of my portfolios to illustrate that even with a weak investment climate, poor stock market performance and a faltering economy, good companies can be found. None of these companies are reliant on government largesse for their success. They simply go about their business, take care of customers and deliver returns to shareholders.

Speaking of a faltering economy, I believe Canada is on the precipice of recession. July numbers showed a decline of 42,000 employees in private-sector employment, while the public sector gained 41,000. This continues a decade-long trend of relatively stagnant private-sector growth but booming government growth. A decade ago, governments in Canada employed 22.8 per cent of workers, and today they employ 25. In 2014, 3.4 million Canadians worked for the government and there were 2.7 million self-employed entrepreneurs. Today governments employ 4.5 million and there are still 2.7 million self-employed. Over the past year government employment has grown eight times faster than in the private sector. (Source: BetterDwelling.com, Aug. 9, 2024.)

Despite insatiable government hiring, unemployment has grown from 4.9 to 6.4 per cent, and youth unemployment has hit a decade-high level, excluding COVID aberrations.

Recessions usually only officially get called about halfway through, when the data is certain. If overall we are not in recession, families with a declining standard of living and companies with declining employment certainly are, whereas governments are booming. The private sector carries the load, and the growing public sector is being carried by a shrinking private sector.

Yet, despite all the negativity in Canada, I continue to look for ways to “skin the cat.”

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As of May 15, 2024, the portfolio was up a respectable 74.1 per cent. It is on track to double within 10 years, my original modest targeted performance. Much market tumult has occurred over the past six years, including three S&P 500 bear markets, COVID-19 and one of the most aggressive interest rate hiking cycles on record. Yet the portfolio continues to plug away.

The TSP would have performed better with some technology exposure, which was a significant oversight. However, the goal wasn’t to maximize performance, but rather to demonstrate solid performance with minimum effort. Over a similar timeframe my (now-discontinued) newsletter portfolio gained over 200 per cent. That portfolio included stocks and options in combination and entailed significantly more work.

A couple of factors negatively impacting performance were the overall weak Canadian economy and stock market, and the underperformance of dividend value stocks versus growth stocks. What goes around comes around — and there will come a time we experience reversion to the mean.

There is, however, the possibility that value stocks become value traps. That is, they look cheap but face such headwinds they become permanently impaired. This can occur with declining sales or profitability.

Second thoughts

I have long considered Canadian banks and telcos as foundational blocks for Canadian portfolios, especially in RRSPs and TFSAs where income is protected from the taxman. Performance over the past decade has me questioning this status as reliable performers.

While both are essential industries, they are also heavily regulated, with government policy influencing profitability. Recall the 2021 election promise of an excess profit tax on banks.

I studied the profitability of these two sectors over the past decade. Canada has three national telcos: BCE, Telus and Rogers. Return on equity (ROE) is the most used profitability metric, representing the profit divided by the equity or book value of the company. In 2014 the average ROE of the three telcos was 20.1 per cent. In 2023, the average ROE had declined dramatically to 7.8 per cent, and it has fallen further in the current fiscal year. I really question investing in any company with an ROE below 10.

Ten years ago, the average share price of the three telcos was $36.84, and currently it is $37.76. The only return over the decade has been dividends. Much of the blame for the recent share price decline has been placed on increasing interest rates, but I would suggest blame is misplaced, with declining profitability being the main culprit. I don’t know all the factors behind the scenes but am confident one factor is regulation. When BCE responded to a government regulatory decision with job cuts, our prime minister referred to it as a “garbage decision.” I beg to differ, as any company facing the level of profit destruction that the telcos have faced needs to make tough decisions.

The banking sector is slightly more nuanced as one of the major five banks has performed significantly better than the others. Four national banks — BMO, Scotiabank, CIBC and TD — averaged an ROE of 14.9 per cent in 2014, and 8.6 per cent in 2023, with a marginal recovery so far in 2024. The average share price of these four was $62.54 a decade ago and is currently $72.33, with once again the main return to shareholders being just dividends.

RBC’s ROE was down more modestly, from 17.1 per cent in 2014 to 13.3 last year. Its share price has grown from $77.83 to $149.44, demonstrating once again the importance of profitability metrics, not just valuation metrics, on overall share performance. Luckily (or skillfully) I selected RBC as the bank in the TSP, and it is our largest personal holding.

I’m confident you have yet to shed a tear over the banks and telcos, yet virtually every Canadian owns shares in these companies through mutual funds, ETFs or pension plans. Declining profitability also often leads to declining service levels — something I have already experienced with telcos.

While I have not yet sold shares in these companies, contrary to my normal “buy cheap” behaviour, I plan no further purchases until financial performance shows signs of improving. I am slightly more optimistic with banks than telcos, but only in time will we know.

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“It’s unbelievable the amount of cases that have come through our organization in the last year and a half,” says Jonathan Neutens, head of agriculture at ATB Financial. “I don’t know what the percentage would be, but it’s large.”

He discussed the issue as one of the speakers at the recent CrossRoads Crop Conference in Calgary.

“Fraud prevention is something I think is starting to be considered as it relates to the future of finance, for sure.”

Neutens said during an interview that he wasn’t sure of all the reasons behind the increase in fraud, which involves “all of the banking world” as well as victims besides the agriculture industry. He said criminals are devising new ways to ensnare people as financial institutions implement tougher safeguards.

LISTEN: The Cyber-Savvy Farmer

He pointed to measures such as two-factor authentication that requires two separate, distinct forms of identification to prevent thieves from gaining access to online banking accounts. He said criminals have gone beyond phishing emails and smishing text messages, which impersonate legitimate sources to trick people into revealing sensitive data such as passwords or credit card numbers.

“We’ve had that occur where someone does a Google search for ATB, clicks on the top link, and the top link happens to be a fraudulent website that looks exactly like ATB’s. And you put in your information, you log in and they’ve got you, and then all they have to do is log into your account and change contact information so they get the two-factor authentication versus you, and then they can start firing up electronic payments.”

People should always double check the source of emails and texts, said Neutens.

“Sometimes the email address or the website address, it might only have one letter that’s different.”

A good practice is to directly type the correct URL for your financial institution into the address bar on your browser to conduct online banking, he said. It’s also wise to make 100 per cent sure you haven’t received a phishing email or a smishing text, even if you must first make a phone call to your financial institution or other legitimate source, he added.

Phishing emails can look exactly like those of someone familiar, such as a supplier, which could be due to the supplier’s email account being hacked, said Neutens.

“And if their email is hacked, (criminals) watch for the conversation style or what have you, and eventually they send you an email and they say, ‘oh, by the way, you need to change payment to this account, and click on this to make the payment’,” he said.

“If you click on something like that, and that takes you into your online banking or whatever it is and you do your two-factor authentication, then they’re watching it, and they’ve got it.”

ATB is working to improve its ability to detect fraudulent transactions more quickly by increasing the number of staff devoted to the problem, said Neutens. But if someone gets login information and changes a two-factor authentication, “there’s really nothing we can do about that because they’ve got it from you in some way, shape or form.

“We can’t stop that because that’s outside of our systems and outside of our control, and then they come in and they log in like it’s you. How is the banking system going to know the difference?”

Reality cheque

However, Neutens said the largest source of fraud involves cheques, and is a growing problem. One of the more interesting scams targets people who send cheques through the mail, he said.

“They’ve written a cheque to someone like John Deere, or whatever, like to a supplier, and that cheque gets stolen … a new cheque is done up basically using that bank account information with the same dollar amount, but to a different payee, so when the cheque clears, the customer sees the cheque clear and thinks it’s cleared until the supplier calls him and says, ‘Hey, when are you going to pay me?’”

Such crimes have cost some producers tens of thousands of dollars, said Neutens.

“It’s pretty often that farmers can cut a cheque to someone for $40,000, $50,000 or $60,000, and so yeah, we’ve had that.”

Modernizing the funding and payment system by moving away from cheques would be the easiest part of the solution to implement, and producers should stop using cheques if possible, Neutens said in an interview.

“They’re just too risky these days, so if you move away from cheques, do that and get into your online and EFTs (electronic fund transfers) and all that kind of stuff with two-factor authentication, and then just make freaking sure you understand what smishing is, you understand what phishing is, you understand how the fraudsters work,” he said.

“And we have those resources. You can reach out to us at ATB and we’ll give you the resources to help you understand and get trained up on what that is so that you can hopefully not get caught in one of these situations.”

Hacks and hustles

Phishing: One of the most common types of cyber fraud. Hackers use fake emails or text messages that trick users into sharing personal information such as bank details.

Smishing: Deceptive text messages that lure victims into sharing personal or financial information, clicking on malicious links or downloading harmful software or applications.

Malware: Malicious software such as a virus that can destroy, damage or exploit computers or computer systems.

Worms: A malicious software that replicates itself and spreads from computer to computer. Unlike viruses, worms do not need to be attached to a computer program to do damage. They work silently and infect the device without the user’s knowledge.

Ransomware: Cyber criminals use it to lock a device or steal information. They then demand a ransom to restore access or return the information. Payment is usually demanded as a cryptocurrency such as Bitcoin.

Spyware: Malicious software that infiltrates a device and monitors activity. Criminals can then steal logins, passwords and credit card information.

Trojan horse viruses: Code or software that looks legitimate but can take control of a computer.

Distributed denial of service attacks: Occurs when hackers attempt to make a website or computer unavailable by flooding it with internet traffic.

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With 13 days remaining until the expiry of the deal, which has allowed Ukraine to export grain from its Black Sea ports despite Russia’s invasion, Moscow said there had been no progress on any of its key demands, including the banking issue.

The Financial Times reported on Monday that the European Union was considering a proposal to allow Russia’s Rosselkhozbank to set up a subsidiary that could connect to SWIFT.

But Russian Foreign Ministry spokeswoman Maria Zakharova dismissed the idea as “deliberately unworkable,” saying it would take many months to set up such a unit and another three months to connect to SWIFT.

She also rejected a U.N. attempt to create an alternative payment channel between Rosselkhozbank and U.S. bank JP Morgan.

“There is no real replacement for SWIFT, and cannot be,” Zakharova said in a statement.

Britain’s U.N. Ambassador Barbara Woodward said on Monday she was not confident the grain deal would be renewed.

“The U.N. is doing all it can and we will do all we can. We’ve already worked very closely with the City of London to enable a very complex payment system for grain in order to make it work and continue to get food on people’s tables,” she said.

Russia says the severing of the bank’s access to SWIFT is one of the obstacles facing its own exports of food and fertilizer, and that it cannot keep renewing the Black Sea deal unless those issues are addressed.

‘Fertilizer crunch’

The stakes are high. The United Nations says the deal has so far allowed the export of more than 32 million metric tonnes of food from three Ukrainian Black Sea ports to 45 countries on three continents.

It describes the Black Sea grain deal and the efforts to facilitate Russian grain and fertilizer exports as “a lifeline for global food security.”

Any disruption or halt to such trade could aggravate a food crisis in the poorest countries and push global prices higher. Since March 2022, global food prices have dropped by 22%, according to the Food and Agriculture Organization.

Russia has made previous threats to quit the deal, but its rhetoric has hardened since then.

Russia’s foreign ministry said Tuesday it was “obvious there are no grounds” to extend the deal beyond July 17 and that Russia was doing everything necessary for all ships covered by the deal to leave the Black Sea before that date.

It also said the deal had delivered Ukrainian grain to “well-fed” countries but failed to help those most in need.

The five poorest countries — Ethiopia, Yemen, Afghanistan, Sudan and Somalia — received only 2.6 per cent of the grain shipped, it said, while the situation regarding Russian grain and fertilizer exports had “continued to worsen.”

The U.N. said the World Food Programme has bought more than 700,000 tonnes of grain under the Black Sea deal for aid operations in those countries — matching the volumes it procured from Ukraine in 2021.

But it has acknowledged that a “fertilizer crunch remains a reality for farmers in certain developing countries, against the backdrop of the cost-of-living crisis.”

The U.N. said it is continuing to work on ways to facilitate Russian fertilizer exports including: a trade finance platform with the African Export-Import Bank (Afreximbank); facilities related to banking and insurance; and the resumption of key transshipment routes for fertilizer and ammonia.

— Reporting for Reuters by Felix Light and Olzhas Auyezov; writing by Mark Trevelyan and Michelle Nichols.

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With the bank under sanctions, the move aims to safeguard the Black Sea grain deal that allows Ukraine to export food to global markets, the newspaper said.

The European Commission had no comment, while the Kremlin, in response to a question about the report, said it had nothing to announce about the deal’s implementation.

The United Nations and Turkey brokered the Black Sea Grain Initiative for an initial 120 days last July to help tackle a global food crisis worsened by Moscow’s invasion of Ukraine, one of the world’s leading grain exporters. It has been extended three times since but is due to expire later this month.

More than 32 million tonnes of mostly corn and wheat have been exported by Ukraine under the deal.

Moscow reiterated on Monday it was pessimistic about the prospects for renewing the deal because no progress had been made in implementing accompanying agreements that pertain to Russian exports.

There was little immediate reaction in global grain markets on Monday with wheat prices virtually unchanged.

“There is general belief in the market that the Ukrainian shipment deal will not be extended unless Russia gets substantive concessions,” one European grains trader said.

“Easing the banking sanctions would be a quick method of giving Russia something,” the trader said, adding there remained many doubts about whether the deal would be extended.

Russia last week said that it saw no reason to extend the grain deal because the West had acted in an “outrageous” way over the agreement, though it assured poor countries that Russian grain exports would continue.

‘Creative ways’

Moscow’s plan, proposed through U.N.-brokered talks, would let the bank unit handle payments related to grain exports, the paper said, citing unnamed sources.

The new unit would be allowed to use the SWIFT global financial messaging system, which was closed to the largest Russian banks after Russia’s invasion of Ukraine, it added.

The U.N. declined to comment on the FT report.

“I don’t think it would help me to talk in any detail about what the U.N. is doing,” Deputy U.N. spokesperson Farhan Haq told reporters on Monday,

He added that U.N. officials had been in touch with “a number of nations, including European nations, to find creative ways in which exports of food and fertilizer from the Russian Federation could be could be expedited.”

Responding to the Financial Times report, Ukraine’s foreign ministry ambassador at large, Olha Trofimtseva, said the EU wanted “to somehow facilitate the grain deal.

“On the one hand, any opportunities for agricultural exports are good. On the other hand, making concessions to a blackmailer means encouraging him to continue blackmailing,” she wrote on the Telegram messaging app.

“It is a well-known axiom: a blackmailer does not stop if you fulfil his demands. He just comes up with new demands.”

As two of the world’s top agricultural producers, Russia and Ukraine are major players in grain and oilseed markets ranging from wheat and barley to rapeseed and sunflower oil. Russia is also dominant in the fertilizer market.

Apart from the restoration of SWIFT access, Russia is also seeking resumption of supplies of farm machinery and parts as well as the removal of curbs on insurance and reinsurance.

— Reporting for Reuters by Jahnavi Nidumolu in Bangalore; additional reporting by Pavel Polityuk in Kyiv, Michael Hogan in Hamburg and Gabriela Baczynska in Brussels and Nigel Hunt in London and Michelle Nichols in New York.

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The most-active corn and soybean contracts closed weaker, while wheat rebounded slightly after finishing last week at a 20-month low.

Grains prices gyrated throughout the day as U.S. President Joe Biden vowed to do whatever was needed to avoid a potential banking crisis.

“If you want to know what the grains are going to do, keep an eye on the stock market, because that’s really been the pressure the last day or two,” said Mark Gold of U.S. consultancy Top Third Ag Marketing.

Wheat prices were also driven higher on views that Kansas’ crop is lagging, Gold added, while corn and soy prices dipped on crude oil being down.

The U.S. Department of Agriculture’s National Agricultural Statistics Service in a weekly crop report on Monday rated 17 per cent of the winter wheat in top producer Kansas in good to excellent condition.

The benchmark Chicago Board of Trade May soft red winter wheat contract rose 0.77 per cent to settle at $6.84-1/2 a bushel (all figures US$).

Soybean futures dipped by 15-3/4 cents to end at $14.91-1/4 a bushel, with the most-active contract hitting its lowest price since March 2. Corn also settled down 3-3/4 cents at $6.13-1/2 a bushel.

Earlier in the day, Russia suggested extending the U.N.-brokered Black Sea Grain Initiative, which allows the safe export of grain from Ukraine’s Black Sea ports. Renewal before the deal expires on Saturday could pressure prices of corn and wheat that come from the region down.

But Russia only suggested extending the agreement for a period of 60 days, half the term of the previous renewal.

— Reporting for Reuters by Cassandra Garrison in Chicago; additional reporting by Michael Hogan in Hamburg and Naveen Thukral in Singapore.

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CCGA is one of largest administrators of the Advance Payments Program (APP) to Western Canadian producers. The APP is a federal government program made available through Agriculture and Agri-Food Canada that offers farmers cash advances against the sale of their crops or livestock.

The APP provides up to $100,000 interest free and up to $400,000 at a blended interest rate to eligible producers growing any of 45 eligible commodities. Interest-free money always sounds good, but the real value for producers is in the blended interest rate, says Dave Gallant, director of finance and operations at CCGA.

“The program cap is $400,000 and when you look at the fact that the remaining $300,000 is at prime with CCGA, your blended rate is well below prime,” says Gallant. “Right now, prime is 3.95 per cent. If you take a weighted average it works out to about three per cent is your blended rate for $400,000.”

Against the backdrop of steadily rising interest rates, the APP looks like an even better deal, so are more producers flocking to it? “It’s a difficult question to answer, says Gallant. “Interest rates are just one element, [and there are other factors that affect farmers borrowing decisions] such as prices and how crops are moving. We have seen a slow increase in farmers using the program, but we are also seeing an increase in the dollar value that the farmers are taking out with us. I think that increase in dollar rate from existing customers is more a reflection of farmers getting the message that this blended rate below prime is even more valuable to me now that the interest rate is at 3.7 per cent versus 2.7 per cent a year ago.”

One of the other advantages to the APP is that producers only repay the cash advance as they sell the product they took the advance against. “It gives farmers the flexibility to only pay off that loan when they actually have cash generated from the product they have sold,” says Gallant.

How to apply

Producers can apply for the APP online, via email, fax, over the phone or in person at a CCGA office, local elevator or by mail. Application forms can be downloaded from the CCGA website. They can manage their CCGA Cash Advance account online and funds can be deposited directly to their bank account or can be paid by cheque. Producers can repay the advance through their financial institution either online, in-branch or over the phone, or they can have the elevator deduct the payment and submit it to CCGA on their behalf when they deliver their grain.

There is an administration fee, which was reduced to $50 from $150 this year, and the only security required against the advance is the inventory that it is assigned to. In some cases, a producer may have to assign Crop Insurance, Agristability or GARS payments if they are applying for an advance on grain that hasn’t been produced yet.

CCGA will perform credit checks, especially for larger advance and users new to the program, but repayment history is also a big factor in the lending decision, says Gallant.

Program default rates are low: around one to 1.5 per cent. “We work really hard with our farmers during the production period to get it paid back,” says Gallant. “There are always a few that have difficulty meeting the deadline and most of those will be paid shortly after the deadline date. The legislation allows us to work with the farmer for up to three years after required payment date to get the payment settled, so our goal is to get those farmers accounts settled so they can get back in the program.”

The APP is also offered by many other provincial and commodity organizations besides the CCGA. For a full list of administrators go to www.agr.gc.ca, and type “Advance Payments Program Administrators” into the search box.

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“Higher interest rates will impact operations differently based on how the debt is structured,” says Farm Credit Canada (FCC) chief agricultural economist, J.P. Gervais. “Is all of a producer’s debt priced under a variable rate or do they have a combination of variable and fixed rate loans? Changes in interest rate will not impact fixed rate loans until they come due for renewal.”

Ag balance sheets strong

Since June 2017, the Bank of Canada has increased interest rates four times, but agricultural economist Amy Carduner with FCC believes the industry will finish 2018 financially strong and head into 2019 on a good note.

In a recent blog post Carduner says “I might be forced to change my mind, but the fact is that the starting point — the relatively low level at which the recent rate hikes kicked in — will influence the degree of its impact on overall farm financial health.”

More good news, she adds, is that the recent strong net income will take the sting out of interest rate hikes, and that the net worth (equity) of Canadian agriculture continues to grow at record levels, as does net cash income for Canadian farms. Net cash income has more than doubled and strengthened demand for farm assets, the value of which has also increased.

This strong balance sheet will allow Canadian agriculture to weather future rate hikes. “Even though financial markets are currently estimating an almost-certain probability of an increase in the overnight rate on October 23, with a 66 per cent chance of another hike in January, I don’t think any serious threat posed by higher rates will materialize,” says Carduner.

There are several reasons for her optimism. Current interest rates, while on the rise, are still low enough to have a relatively weak impact on agriculture’s overall financial health or to reduce demand for land and other assets. She is confident that net farm incomes in 2018 will remain strong, but also recognizes that weather and weaker prices could lead to a small decline in gross income.

Assessing your farm’s tolerance

One tool producers can use to evaluate how different interest rate scenarios could affect their farm’s financial health is the Interest Coverage Ratio. This is calculated by dividing earnings before interest, taxes and depreciation by the interest expense. If the ratio comes out below 1.5 it could expose operations to difficulties in servicing existing debt if net operating income fluctuates. The higher the ratio, the stronger the financial health of the farm business and the more resilient it will be to increased interest rates at current debt levels.

Shopping for lower rates?

Some producers shop around for a lower interest rate in some instances says Gervais, although interest rates are only one component of a relationship with a financial institution. “How well lenders know your operation, their ability to find solutions, commitment to the farms’ success and being a trusted partner are all part of a successful formula,” he says.

Although producers can’t control where interest rates may go, it’s important to focus on management decisions that can help them control costs, raise revenues and productivity, and prepare them to face unfavourable movements in rates or income, says Carduner.

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Always trying to take the simplest approach, I went to my local bank branch and met with one of the branches’ financial advisors. We filled out and signed the appropriate forms to set up accounts at that bank’s internet brokerage division, and within a few days had the accounts ready to operate. All major banks have an internet brokerage arm. I like that I can go into one website to manage all my accounts. Transferring money between accounts is also easily done. My wife’s accounts are set up so that I can manage them, and I expect many families will have one person doing the investing.

There are also a number of independent internet brokerages like QTrade, Questrade, Virtual Brokers and Interactive Brokers, for those of you comfortable doing everything on the web, but I still prefer a bit of the old-fashioned way. All internet brokerages have help lines to ask technical or account questions, but the onus will be on you to make the investing decisions.

One consideration is to look for an institution that allows both Canadian and U.S. dollar TFSAs and RRSPs. All institutions have taxable accounts in both currencies, but not all allow registered accounts in both currencies. With small accounts it may not be necessary, but as the account grows and when you wish to diversify internationally, it is better to avoid paying conversion costs every time a dividend is paid or you buy and sell a foreign stock. With a U.S. dollar-based account, you only pay the conversion cost upon depositing and eventually withdrawing the money. I expect, in time, all our major Canadian banks will allow both currencies in registered accounts.

For a married couple, if you both have a TFSA, RRSP and regular taxable account, that’s six accounts. Potentially seven if you have an RESP. Let’s say you are working with a financial advisor and want to start learning to invest on your own, I might suggest moving just one or two accounts to start with. Perhaps start with just your own TFSA. When you’re meeting with the bank to set up the account, simply bring in a statement from your current TFSA, and the bank will take care of transferring that account into your new account at the banks internet brokerage. You don’t need to sell anything prior to moving it. It can all be transferred in kind, and when the accounts are moved you can begin to manage on your own.

You don’t even need to talk to the financial advisor where the account currently resides, but I would suggest a courtesy call and explanation, especially if you are leaving some accounts with that advisor. If the account has mutual funds you may want to ask the advisor if there are any penalties for cashing them, as many mutual funds have what are referred to as deferred sales charges.

If you have a few accounts and are just moving one, that advisor shouldn’t be upset. If they are upset it’s not a good sign. An advisor adding value should not feel threatened when you move an account to try taking greater responsibility yourself.

A great way to save is by having money automatically transferred each week or month from your bank account to your investing account. This is very doable with a self-directed stock account. Let’s say you want to begin your TFSA by transferring $105 weekly from your bank account to a TFSA. This will almost max out your TFSA contribution for the year. I would suggest waiting until $1,000 has accumulated in the TFSA and then buying $1,000 worth of one of the stocks mentioned in my previous column. When another $1,000 accumulates, buy another company mentioned. Over time you can build a very nice portfolio.

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