Ontario Farmer- Rising interest rates are biting; For many farmers, loans coming due at much higher rates are not a pleasant prospect
Farmers are seeing a dramatic increase in the cost of servicing loans when they come due.
In recent conversations with Ontario Farmer, several farmers with solid operations and the best interest rates shared some specifics.
A Quebec cash cropper had a bank loan come due that had been at 1.7 per cent interest. It is now 5.7 per cent interest.
However, Quebec has now long dormant programs, still on the legislative books, that can be utilized, which cap interest rates for farmers at significantly less than market rate.
This farmer will soon utilize that and get interest rebates.
One large Ontario operator is at 0.9 per cent and isn’t looking forward to when it comes due in 2023.
An Ontario dairy producer also had a loan come due that had been at 1.6 per cent interest, but is now 5.5 per cent for one year. The bank had offered 5.8 per cent over five years, “but I took it for one year hoping interest rates will come down,” he said.
Another Ontario dairy producer didn’t share specific interest rates, but did share that his monthly bank payments, on the same amount of debt, have just increased by $12,000 per month.
When the monthly bills were all paid, now higher than ever, plus depreciation and his living factored in, there wasn’t $12,000 sitting there left over, he said.
Some Ontario machinery dealers have signs outside their businesses that FCC will finance equipment purchases at seven per cent interest.
About two months ago, before rates had continued their climb, Simon Jette-Nantel, an economist with Lactanet, focused on the effect of interest rates on dairy producers. Making an assumption of a $20,000 debt per kilo of quota, an increase of two per cent in rates would increase payments by $225 per kg per year, he calculated.
An increase of three per cent with the same debt would increase payments by $380 per kg a year.
On a government debt level the Ontario Financial Accountability Office recently reported on the first quarter financial performance of the provincial government.
Compared to the same time period last year the Ontario government has spent $3.1 billion more than last year, of which $480 million was from the increase in interest payments.
Brian Lang, now retired from OMAFRA has, “seen this before.”
As a young man in the early 1980s he would be brought along with bankers to farmer’s tables. The banker would deliver the harsh message, leaving behind Lang to drive home the point that “the banker doesn’t want to do business with you. He’s pulling your line of credit.”
Every farm, bar one on those targeted visits, folded in one manner or another, recalled Lang.
The one that survived and eventually prospered, still in business today, didn’t keep digging harder in the hole they were in.
The cows and quota were immediately sold and 100 acres of sweet corn was planted, “which they picked by hand.” Veal calves went in the barn.
“But that was the only one.
For the rest, it was just awful.”
I recall talking to a former MP. He was on the debt relief board back in the day. Had a prominent farming neighbor approach him for ‘insider information’ on which fellow neighbor was appealing due to duress. Said farmer hoped to expand at the other fellow’s duress. Gone were the penny auction days of Huron County when the farmers stood up against the banks. Driving around the back roads of southwestern Ontario there are some exceedingly grand cow palaces.
Supply management is not just a Quebec thing.
Interest rate increases are on top of input cost increases, on account of helicopter money to back-stop the financial system and economic warfare on Russia.
“Feed, energy, and fertilizer costs have been particularly impacted, with increases of 22%, 55% and 45% respectively since August 2021.” /gc.ca
1) there is no threat of inflation due to the government borrowing then “spending” a trillion dollars
2) there is no inflation, like we said
3) there is some inflation, but not everywhere, and its not bad, so point 1 stands, please ignore point 2
4) there is some inflation in some minor areas such as fuel, housing and food, but its manageable
5) its only for a short time, just like two weeks to flatten the COVID curve, remember then?
6) inflation is actually good, Stephen Colbert says so, and who would know better than a celebrity millionaire?
7) the government has a plan for inflation if it ever really becomes a for real problem for real people
8) you’ll love wage and price controls…
9) its corporate greed that somehow didn’t exist two years ago, just started overnight
10) did we mention the inflation that isn’t happening, but would be great, is Putin’s fault?
11) overturning Roe will damage the economy
12) CTRL/H inflation/stagflation
13) CTRL/H stagflation/recession
13) CTRL/H recession/New Great Depression
Perhaps the banks should have different interest rates for farmers and small business owners (~0.5% to 1.5%), an interest rate for PRIMARY home mortgages (1.5%-3%), investment interest rate (8%-15%–these are tax write-offs), for non-STEM “university” loans for (45%-85%) and for STEM courses and trades training (0.5% to 1%).
Easy for the dairy cartel, just increase the price of milk.
I wonder what the price of milk will be when it is the last litre being produced for sale.
Jagmeet and Justin want you to drink soy milk.
Things are going to get much worse. England is the canary in the coal mine. Their central bank was beginning to do qualitative tightening, i.e. stop printing, and bond yields exploded. They reversed course are now buying 10 year Gilts, i.e. printing again, which will exacerbate inflation shortly pushing it to 20% (my prediction) which will cause bond yields to explode in a few months time. There is no way out. I have no answer for what comes next, outside financial collapse from a mountain of debt created by profligacy and printing. Coming here soon.
Interest rates were far too low for the given debt levels after the orgy of money printing given the excuse of covid. We bid on some land locally in January of this year but it was sold to the local BTO of course for more money. I knew rates would were rising so bid accordingly but did put in a strong offer. If BTO has to sell some assets, so be it.
Bachmann Turner Overdrive?
Big Time Operator? Oh, by the way for you Canadian Taxpayers. Crop insurance is subsidized by you as well. My understanding is the farmer paid premium is only 1/3 the cost, feds and Provinces kick in the rest. Big farmers probably required by the bank to carry this. So in essence the smaller farmers and the taxpayer are underwriting the ability of the BTO to get financing to force out the little guy. And then when the BTO goes bust ain’t the banks who will take the loss. It will be spread across the whole of the bank’s sectors. Although I wonder how stable the whole she bang is if ag and housing and commercial sectors go back to ‘normal’.
Farmland in SW Ontario is around $20,000 / ac (yes, that is correct, some areas it is much more) so 1% interest rate movement is $200 / ac. If you have to cover off 3% hike, nothing you can grow works. Land price will need to plummet or crop prices and dairy/meat prices need to double or triple. (fertilizer, diesel, seed all up too)
The key is reduce the amount of food produced.
Rid the country of kulak farmers and voila! The government controls whatever farms remain.
Want to destroy a society, destroy their means of food supply!