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Farm financial primer 7 min read

A farmer's financial primer for the 2022 growing season

From rising interest rates to labour shortages, the CWB Agriculture Banking team is here to help

Farming isn’t just an occupation – it’s a way of life. That’s why farmers tend not to take a lot of time off, even in winter.


Sure, the fields are covered in snow and the livestock are sheltered, but equipment needs to be cleaned and maintained, grain needs to be processed and transported, and a host of other tasks keep farm families busy. Yet according to CWB’s Trevor Sproule, Assistant Vice-President and Head, Agriculture Banking, and Georgina Knitel, AVP and Agrologist, Prairies Region, winter is also the perfect time for farmers to step away from day-to-day tasks – and work on addressing the longer-term issues their farms might be facing.


“This is really the time for strategic management,” says Knitel. “Farmers should be spending a few hours every day working on the business rather than in the business. If they don’t, then they could be missing important pieces of their operation.” 


Addressing the big picture might be especially vital for farmers this winter. After two years of a global pandemic and devastating weather events like the drought that has gripped much of the West, the issues facing farmers today are more complex and perhaps more challenging than ever before. Sproule and Knitel, who together have decades of experience advising and supporting farm clients, say that now is the time for farmers to take stock of their operations, confront the concerns that keep them awake at night, and then take steps to mitigate them.


So what are the big issues facing farmers as the 2022 growing season approaches? Sproule and Knitel identify five of them. “If you ask farmers what keeps them up at night,” says Sproule, “all of these are on the list.” The good news: none of them need be unsolvable, and the CWB Agriculture Banking team is here to help.


1. Rising interest rates

The Bank of Canada is widely expected to begin raising rates this year, and that could have a big impact on farmers’ debt servicing costs and, ultimately, their operations’ profitability. “For a farm operation that is carrying $40 million in term debt, for example, a one-percent rate increase adds up to $400,000 a year in extra costs,” notes Sproule. “So we are definitely talking to clients about their short-term rates right now and getting them to think about locking-in longer-term to protect themselves.”


The goal is to mitigate interest rate risk. A typical laddered debt structure might, for instance, lock in half of a farmer’s debt for five years at a higher rate and keep the remainder on a short-term or even floating rate. Sproule acknowledges that some farmers don’t like the idea of paying higher rates today to mitigate risk tomorrow, but he points out that today’s longer-term rates are low by historical standards. “Paying an extra percentage point to lock in a rate might not make you feel good, but that rate is still really cheap if you look at the last 20 or 30 years,” he adds. “And if you can afford to pay it, it can protect you.”

2. Soaring input costs

The good news: prices for grains and many other farm commodities are high. The bad news: input costs are high, too. According to Sproule and Knitel, farmers will probably be facing fertilizer prices that are 200 to 300 per cent higher this growing season than last, and chemical prices that are nearly double. “Supply is another issue,” says Sproule, noting that COVID restrictions have hindered cross-border transport of much-needed farm materials. “Some chemicals might not even be available by the spring. Same goes for fertilizer.” Pro-active operators would have locked in their chemical and fertilizer supply early last fall if their cash flow allowed, Knitel says, but others may be left scrambling this growing season. And higher prices might significantly impact farm profitability.


The key to avoiding the input crunch: good cash flow management. “When you look at cash flow, the question is whether you have enough to make your best management decisions,” Knitel says. “Should you be pre-buying? Or maybe adding storage to your infrastructure so you can take possession if you have to?” The CWB Agriculture Banking team can work with farmers to help ensure they have operating credit lines that allow them to secure inputs at the right time – and at the right price. “We want to help farmers structure their working capital so they can make good timing decisions,” says Sproule. “And even if it’s too late for them to pre-buy this year, we can start talking to them about next year so they can get their cash-flow position fixed.”

3. Scarce labour

One of the unforeseen impacts of the COVID-19 environment has been called the Big Quit, as more and more Canadians are deciding not to go back to their old jobs. And the trend is hitting agriculture particularly hard. “Farm labour is generally seen as a lower-paying, manual job, and it’s more difficult now to convince domestic workers to go back to the farms,” notes Sproule. On the other hand, attracting migrant workers has also become more challenging, thanks in part to a clogged border and in part to Canada’s COVID-19 restrictions. “We had one client that just lost two long-time workers who decided to go back to Mexico because they didn’t like the COVID restrictions here,” Sproule says. Knitel adds that the pandemic environment can increase farm employment costs, as social distancing and isolation requirements might mean a farmer has to double or even triple living space for workers.


One approach to addressing the challenge is to invest in labour-saving technology and equipment. But it is also important for farmers to be seen as a good employer, and CWB can help. For instance, the bank can put together an employee banking package for farm workers, which bundles services like chequing accounts and home finance options. As well, it can arrange direct payroll deposits, and it offers group RRSPs for businesses with as few as three or four employees – far less than other banks typically require. The CWB Agriculture Banking team can also connect farmers with insurance partners to help arrange health and dental benefits for workers. “All that can make it easier for a farmer to become an employer of choice, and that’s really key in this environment,” Knitel says.

4. Revenue risk

Perhaps more than other sectors, agriculture’s fortunes depend on volatile and unpredictable factors like weather, global commodity markets and complex supply chains. For farmers, that means it’s critical to consider ways to mitigate downside risks and protect their revenue. One well-known approach is crop insurance, but there are other options as well. “We can help broker discussions about things like drought insurance and revenue protection that go beyond crop insurance,” says Knitel. “We have a network and know the insurance people, so we like to have intelligent discussions with clients and look at all the different ways to mitigate risk.”


5. Business continuity

Canadians farmers are entering the 2022 growing season coming off a very challenging couple of years. For many, the global pandemic and drought have strained not just farm operations, but also the long-term health of the business and even family dynamics. “The fracture lines in these operations, whether between family members, or with cash flow, or even mental health – whatever the stresses are, they’ve been aggravated over the past couple of years,” Knitel says. “They might have been tiny cracks before, but now they are big gaps.”


That’s why Knitel and Sproule encourage their clients to take time now to tackle business continuity planning – the process of developing a strategy to ensure that the farm can continue running smoothly for years to come. “It’s not just succession planning about who is going to take over the farm when the current owner is gone,” says Knitel, who is a designated Family Enterprise Advisor. “It’s more about how do farm families work together? How do they make decisions? Who does what? What can we do to ensure that this family and this business continue not just through this year, but for many years to come?” 


That might seem like a lot of things to tackle, and Sproule and Knitel acknowledge that many farmers would rather be out working their land than sitting behind a desk tackling strategic management challenges. That’s why the CWB Agriculture Banking team works with farmers not just as bankers, but as trusted partners who can support them through the complex challenges they face today. “When we have that advisory discussion with farmers, it all boils down to how they can manage the risks,” says Knitel. “The more risk they can mitigate, the more profitability they can build into their business. And as their partners, we can support them.” 


Contact a member of the CWB Agriculture Banking team to learn more.