Calgary (Rural Roots Canada) –  Inflation is expected to be a major factor for farms this year.

J.P. Gervais is the Chief Economist for Farm Credit Canada.

He says the financial markets are convinced there will be four rate increases in 2022, with the first one coming as soon as this month.

“It’s not too early for farm operations to think about what’s the financial risk that I’m exposed,” Gervais said.

When looking at your loan portfolio, it’s important to look at different investments you made on your farm and ask yourself some important questions.

“What does this mean for me in terms of the financial risk I’m exposed to? Am I still comfortable with the idea that I might see my borrowing costs go up? And if I’m still comfortable, that’s fine, but if I’m not, there are different strategies for locking in rates for the long term.

READ MORE: 2021 Year in Review: A Drought, Flood, and Inflation

Gervais says the second thing he thinks about when it comes to inflation in input costs from a profitability standpoint.

“Input costs have been going up already, and I don’t see any relief in 2022. So it could be a bit of a double whammy in terms of higher input costs, higher borrowing costs, and so from a profitability standpoint.”

He adds a lot of operations need to reassess the outlook for the sector, which he believes the theme is higher input costs into 2022.

Gervais says that will look slightly different for grain and oilseed farms from livestock operations.

Gervais says he foresees inflation possibly coming down later on this year.

“If you look beyond the four rate increases, which is a 4% increase in overall in the policy rate, which will translate into higher borrowing costs, the markets are not overly concerned about a runaway.   So in other words, they do think that after four or five increases in the policy rate in the bank of Canada, that should be enough to control the rate of inflation.”

He says there could be some good news in the second half of 2022.

“Inflation come down slightly and resume more of a normal pattern, like closer to the target of the bank of Canada. So I think that’s the good news. And I do think that it’s not too early for farm operations to think about. Well, what’s the financial risk that I’m exposed to?”