Are Farms Becoming Too Leveraged?



In early January, I was fortunate to be invited to be involved in a panel discussion on AgVisonTV hosted by Kevin Stewart.  The topic was farm debt and was it was a great experience.  I was joined on the panel by Dr. George Brinkman, a retired agricultural economist at Guelph University and Dina Cover, an Economist at TD Bank in Toronto.  The premise of the discussion was to refer to a recent report published by Dina Cover and TD bank on the state of agriculture in 2010.  The report discussed income opportunities and some of the challenges.  One of the huge challenges that was identified was the growing farm debt and the chance for rising interest rates.

Please check out the two video segments below.

See Segment 1

See Segment 2

I was very interested to listen to Dr. Brinkman’s thoughts during the discussion.  He is quite concerned about the amount of debt being aquired by Canadian farmers in comparison to their American farmer peers.  Dr. Brinkman gets increasingly worried when he considers the potential rise in interest rates.  He is not claiming that we will see 1980 interest rate levels but a sudden rise could cause immediate damage.

My responsibility on the panel was not to provide counter point to the wealth of Dr. Brinkman’s knowledge but to provide some insight into what the producer is thinking.  What is driving producers to make these decisions on paying very high prices for land that are outside the normal farm productivity metrics?

It seems that even in the face of higher inputs, increased urban sprawl, increased environmental regulation and controls and  volatile commodity markets, land just continues to rise.  For the farmers of my generation we have never seen land go down in value.  For my dad’s generation, they lived through the eighties and the economic turmoil that was created as land dropped massively in value with lack of cash and interest rate spikes.  Not everyone thinks that rates are due to increase immediately.  Check out what Gary Pike thinks about agriculture in 2010 and what could happen with interest rates in the short term.

What do you think?  Are farms too levered with debt?  Can land values continue to rise even if interest rates were to go higher?  Why do you think that land values continue to go up?  Are the banks to blame for  allowing farmers to buy land at such an aggressive pace?

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