Ontario Agriculture

The network for agriculture in Ontario, Canada

Interest rates – where from here?

Nothing sharpens management skills like a mortgage. For most producers, debt is an inescapable part of the business. In fact, it’s possible that knowing how to manage and optimize debt may be at least as important as agronomy and productivity considerations.

For agriculture, the silver lining to a global recession in outside markets is historically low interest rates. The temptation to take advantage of cheap money is very strong. For crop producers, strong markets over the past year reinforce the urge to expand and/or update equipment and technology. I’m doing some of this myself, which means accessing more debt.

The recent slide in crop prices provides a good lesson, though. Just as high prices do not last forever, low interest rates are not guaranteed to persist. I’m feeling somewhat vulnerable to a sharp rise in financing costs.

You can find experts who say low rates will remain for at least the next year or so, but there are also those who warn that inflationary pressures could lead to sharp increases in interest rates. It’s true that we’re in an unprecedented environment. Never before have so many governments worked simultaneously to inject huge amounts of stimulus spending into the global economy. But my Economics 101 logic tells me that trillions of dollars of government money will eventually lead to some level of inflation. But how fast will this happen? How long will it take before interest rates respond to inflation and creep up? How high will they go?

The upshot of all the economic-speak is that taking on more debt, while it may still be the right thing to do, should be done with a strategy that acknowledges the potential for crop prices to soften further, and for interest rates to rise somewhere down the road. Secondly, variable rate and flexible financing tools are very attractive right now, but it might be a good idea to draw a line in the sand and be ready to lock down the interest rate on at least some of your longer term debt to limit your exposure to sharp rises in rates.

Are you feeling vulnerable on this front? Do you see potential for interest rates to rise dramatically in the near future? What is your approach to managing this risk?

Click here to join the discussion.

Peter Gredig
Farms.com Media
Peter.Gredig@Farms.com

Follow me on Twitter. I’m Agwag.

This commentary is for informational purposes only. The opinions and comments expressed herein represent the opinions of the author--they do not necessarily reflect the opinion of Farms.com. This commentary is not intended to provide individual advice to anyone. Farms.com will not be liable for any errors or omissions in the information, or for any damages or losses in any way related to this commentary.

Views: 37

Comment

You need to be a member of Ontario Agriculture to add comments!

Join Ontario Agriculture

Agriculture Headlines from Farms.com Canada East News - click on title for full story

New In-Crop Cereal Herbicide Is Tough On Weeds And Gentle On Winter Wheat

Farmers in Ontario and Quebec have a new ally to control challenging broadleaf weeds like ragweed, lamb’s-quarters, vetch and wild buckwheat. Nufarm’s TruSlate™ Pro herbicide delivers proven performance, a wide window of application and exceptional crop safety for your wheat, oat and barley crops.

Conservative MPs call for Liberals to lift carbon tax

Increases to the federal carbon tax will harm the ag sector, Conservative MPs said

GFI ANNOUNCES LAUNCH AT SPROUTS FARMERS MARKET

is pleased to announce its national retail launch into Sprouts Farmers Market in the United States for the Company's Yofiit brand.

Connecting with Indigenous youth in North Bay

One of Bioenterprise Canada’s strategic pillars is building networks and creating opportunity for Indigenous and northern entrepreneurs and innovators in the food and agri-tech sectors, as well as young people.

John Deere’s 2022 Sustainability Report Shows Progress Against Key Goals

released its 2022 Sustainability Report, outlining the company's progress toward delivering more sustainable solutions for customers, employees, dealers, suppliers, shareholders, and supported communities.

© 2023   Created by Darren Marsland.   Powered by

Badges  |  Report an Issue  |  Terms of Service