Farm Credit Canada is predicting a deceleration of increasing farmland values and farm debt levels.
In its 2016 -2017 Outlook for Farm Assets and Debt Report farm profitability dropped slightly below the five-year average in 2015 due to strong farm asset appreciation, especially in farmland values.
In a statement, Chief Agricultural Economist J.P. Gervais says as farming becomes more profitable it becomes more expensive.
“When assets are increasing more quickly than net farm income, overall profitability begins to soften, Gervais said, adding “this reflects the cyclical nature of the business.”
Gervais points to the combination of low-interest rates and strong crop receipts as the primary cause of the rapid rate of asset appreciation in recent years. He projects a slowdown with crop prices expected to be lower over the next three to four years.
The report says farmers are still in a strong position to meet their financial obligations despite plateauing farm incomes and slowing land appreciations.
“The financial strength allows the industry to invest even more in innovation and productivity it will need to feed an ever-growing world population.”
Land made up 67 per cent of the value of total farm assets in 2015, which is a big change from several decades ago when it was only 54 per cent in 1981.
The report also revealed the debt to asset ratio on farms remained historically low sitting at 15.5 per cent.
This is compared to an average of 15.9 per cent over the last five years and the 15 year average of 16.7 per cent.
This bodes well for business since it provides fiscal flexibility and lower risk for producers.
To see the full report click here.