Total farm debt in Canada, the world’s largest canola grower and one of the biggest wheat exporters, will rise at a slower pace in 2017 as gains cool for the value of agricultural land.
Farm debt in Canada is poised to rise by 7.4 percent to C$93.2 billion ($72.55 billion) in 2016 and climb 2.8 percent in 2017 to C$95.8 billion, Farm Credit Canada, a government-owned agricultural lender said in a report.
Canadian farmers took on more debt in the past 15 years as low interest rates prompted them to buy more land as incomes soared. Between 2001 and 2015, farm debt jumped by 126 percent and the value of farmland rose by 211 percent, according to the report. Now, cooling gains for land, which accounts for about two-thirds of farm assets, may make growers more hesitant in taking on loans, especially amid a prolonged slump for commodity prices.
Land-value appreciation is “clearly coming down, and that is going to have an impact on farm debt,” J.P. Gervais, the chief agricultural economist at Farm Credit Canada, said in a conference call before the report’s release.
Unless interest rates rise rapidly from current low levels, farmers will remain in a strong financial position and be able to meet their financial obligations, Gervais said. The debt-to-asset ratio remains below the five and 15-year averages, according to the report.