Farmscape for September 14, 2017
The Chief Agricultural Economist with FCC suggests Canadian agriculture is well positioned to withstand increasing interest rates.
Last week the Bank of Canada raised its benchmark interest rate by one quarter of a percent, the second quarter percent increase in less than two months stimulating an almost immediate increase in the value of the Canadian dollar.
J.P. Gervais, the Chief Agricultural Economist with Farm Credit Canada, says it sends a clear signal that it's time to review financial strategies, examine exposure to risk and consider what should be done.
Clip-J.P. Gervais-Farm Credit Canada:
The financial position of Canadian agriculture right now I think is good news.
It's really good news in all of this because we're starting from a position of strength.
We're looking at high interest rates, not panicking or having to do anything drastic.
We just have to realize that maybe the risk profile of what we're doing has changes, now do I need to change my strategies?
If you look at the financial in Canadian agriculture we have strong liquidity.
We're not overly leveraged by any measure.
If you look back at history, actually our debt to asset ratio is really in line with the historical average has been.
Yes it's been increasing slightly over the last year and perhaps it's going to increase even further this year but it's still very much in line with what historical averages have been.
Liquidity is strong and that's important because the first line when there's a shock in the market place, that's your working capital so I think we're very well positioned to face an environment in which interest rates are going to climb.
Also, at the end of the day, interest rates remain historically very low so we're in a position of strength which is really where you want to be when the environment is changing like this.
Gervais acknowledges the effect of increasing interest rates on the value of the Canadian dollar is the greater concern
He says most producers have already changed from variable rate to fixed rate products so it makes sense to also keep an eye on the Canadian dollar.
For Farmscape.Ca, I'm Bruce Cochrane.
*Farmscape is a presentation of Sask Pork and Manitoba Pork