As Canadian farmers prepare for another year of production ahead, they will face an economic landscape that that has evolved in significant ways while retaining the level of uncertainty that characterized years past. Lower interest rates and a weaker loonie is generally good news for borrowing costs and commodity prices, while unpredictable trade relations with the United States introduce just as many questions as they do answers.
If there’s anything that producers should bank on, it’s the continued importance of financial strategies that align to your specific needs.
This is because thin margins are a consistent theme among our clients, and that makes effective cash flow management crucial to success in this industry. Whether it’s with CWB or another bank you can trust, find a partner who understands your operations, performance, business strategies and goals. We’ll continue to do that for the farmers we work with, and as we come together with National Bank of Canada, I’m excited for the new tools and resources we’ll be able to offer.
Here’s what farmers should be looking for to keep their financials primed for 2025.
Reduced interest rates will provide welcome relief to borrowing costs
The Bank of Canada’s consecutive reductions to the prime interest rate sets farmers up for more financial flexibility, stability and opportunities for growth and innovation in 2025. While simply making it more affordable for farmers to finance their equipment, make purchases and invest in new technologies, lower rates will improve the ability to manage cash flow. This creates more room to buy fundamental inputs like seed, fertilizer and fuel. With reduced debt servicing, producers will improve their ability to match unexpected expenses.
The opportunity
When I think of our clients and farmers in our network, they typically prefer longer-term rates to avoid the risk of a fluctuating environment. Many locked in for two years before the cuts were introduced last year, which sets them up well to take advantage of the more attractive rates available now. I expect more clients will be looking to lock in for longer this year.
A weaker loonie will impact commodity prices, input costs, equipment value and profit margins
Prudent cash management will again come down to careful monitoring of input costs and commodity markets, with the weaker Canadian dollar a major factor in outcomes. Starting with the bad, expect new equipment costs to climb higher as most manufacturing takes place in the USA. On a more positive note, expect commodity prices and input costs to find steadier ground in 2025, as the less-valuable loonie improves overall returns for farmers who sell product – such as cereal grains and cattle, for instance - into the American market where buyers will enjoy a more favourable exchange rate. After years of herd reduction and a continuous consumer appetite for beef, cattle prices remain at record levels due to undersupply.
Solutions
With input costs stabilizing as well, consider a pre-buying strategy. When it comes to cash flow, we want our clients to have enough room to make the best management decisions possible. When prices are low, buy for future uses, even if it might mean adding storage to your infrastructure.
We work with farmers to ensure their clients have operating credit lines that allow them to secure inputs at the right time and at the right price. It’s important to structure your working capital so you can make good timing decisions. And even if it’s too late for to pre-buy this year, we want to start talking about next year so you can be in a good cash-flow position.
New equipment costs will feel the effects of a weaker loonie as well. Trades will be worth more, but higher exchange rates make for considerably higher purchases on new equipment, which will again make leasing – and the longer amortization periods benefit that come with this solution – attractive for many producers.
Hear from Paula Hartfiel, Sr. Account Executive with CWB National Leasing who explains how creative equipment financing solutions can offset high equipment price tags.
“Many of my clients have been using our ‘five and five’ program to finance new agriculture equipment,” she says. “It helps keep payments as low as possible. With this program, farmers can lease or finance for 50 per cent of the equipment cost for five years on a fixed interest rate, then purchase or re-finance the rest over the next five years.* This allows farmers to make lower payments over a longer period of time, and also avoid spending a huge amount of cash up front.”
*The Five and five program is subject to credit and agriculture asset approval, and applies to new equipment. Contact CWB National Leasing for details. Offer valid until October 31, 2025.
Take a business approach to your operation for better financial planning, risk management, and cost savings
While interest rates have decreased significantly, they still may be prohibitive to healthy cash flow and growth prospects for some producers. Farmers who make financial decisions primarily out of the passion for the industry and way of life may fail to generate a healthy profit.
Solutions
Treat your farming operation like any well-managed business. Producers who are keen to improve their planning and management strategies for 2025 should consider in-depth assessments of their operations, starting with their land itself.
A cost-per-acre analysis can be an especially worthwhile exercise. When you understand the costs associated with producing crops or raising livestock down to the acre, you can make more informed decisions that help you control costs, mitigate risk and estimate revenue.
I think of one smart client who was so dialled in on his cost-per-acre that they were able to sell their combines and opt for custom farming (an arrangement where a separate operator performs farming tasks on a landowner’s land for a fee), which really helped their bottom line. Renting land or partnering with land accumulators can also be a beneficial growth strategy that lessens debt obligations.
Keep farmland value in mind when it comes to securing needed financing. As values continue to increase, it’s this kind of off-balance sheet equity that can help secure loans and manage debts. By leveraging your land, we can offer interest-only loans and long-term amortizations to ease your cash flow.
Invest in innovation to reduce input costs and increase productivity
Farm operations are largely at the mercy of input and commodity costs they can’t influence or avoid. Meanwhile, weeds, water shortages and pests simply come with the job.
The solution
Investing in technology can help reduce the amount of resources required to mitigate these risks. Consider AI-powered irrigation systems that match water volume to soil conditions and crop needs, herbicide sprayers that boast pinpoint accuracy on pesky weeds, and drought-resistant crops where possible.
Investments in farming technology can be expensive up front, but they can also provide long-term benefits to your bottom line when you consider the advantages of lower costs on input materials, higher crop yields and a lesser chance of a crop failure.
Labour supply concerns can be eased with employee banking packages and group benefits
Committed workers are essential to many successful farming operations. To illustrate one job that robots can’t yet replace, there’s still only one way to harvest a crop like asparagus, and that’s by hand. Rural locations, seasonality, public misconceptions and an older workforce often characterize the farm as a workplace. Farm labour is generally seen as a lower-paying, manual job, and so it can be more difficult to convince domestic workers to go back to the farm. And while foreign worker programs remain important to this industry, retaining employees remains a challenge because many workers often use their positions as stepping-stones to further opportunities.
The solution
While one approach to addressing labour shortages is investing in labour-saving technology and equipment when possible, it’s also important for farmers to be seen as a good employer. Banking services can be an effective tool in recruitment and retention.
For example, CWB can put together an employee banking package for farm workers that bundles services like chequing accounts and home finance options. We can also arrange direct payroll deposits and, through Wellness at Work, we offer a group savings program for businesses with as few as three employees – far less than what other banks typically require.
In addition to this, our Agriculture Banking team can connect farmers with insurance partners to help arrange health and dental benefits for workers. All of this makes it easier for a farmer to become an employer of choice, and that’s vital in this environment.
Tariffs are a wildcard for profitability
Tariffs pose a significant challenge to Canadian farmers, affecting costs, market access and price stability. They could lead to higher prices for foreign consumers and lesser demand for Canadian products. Retaliatory measures could impact both Canadian and American producers.