The Bank of Canada announced this week an increase to its policy interest rate of 75 basis points to 3.25%, as it continues to address inflation.
FCC Chief Economist JP Gervais talked about the impact on farmers.
"Higher interest expenses actually has an impact on margin. I think the good news is that the demand for what we grow is still very robust, both domestically as well as globally. We've had to deal with elevated input costs. Costs have been coming down a little bit now but so have commodity prices. I think margins remain positive for grains and oilseeds. I think the fact that feed prices have declined a little bit, brings a little bit of relief to livestock producers. Overall, margins are projected to be positive for this coming marketing year but no doubt that higher interest expenses are going to be impacting margins."
He notes the demand for farmland could be slowed down the road.
"A lot of transactions in the farmland market that we're seeing right now are based off decisions that were even made prior to rate increases that we've seen, so we're not expecting to see that in the data just yet, but maybe down the road in 2023 we see a little bit of a weaker demand for farmland, fewer transactions and that slows down a little bit the demand which has been very strong in the last few years."
Gervais expects to see more interest rate increases between now and the end of the year.