A stronger Canadian dollar and higher interest rates may make the business of agriculture more challenging, but not necessarily put producers in a weaker financial position.

Last week FCC released its 2017-18 Outlook for Farm Assets and Debt Report.

J.P. Gervais is Farm Credit Canada’s Chief Agricultural Economist.

He says the fundamentals of Canadian agriculture are sound, in the last few years we’ve seen increasing farm income, farm cash receipts, and farmland values going up which means most farm operations are in a good financial position.

"So this does mean producers do have some flexibility if they're faced with some shocks down the road," he said. "I do know for some producers in the prairies this 2017 is going to be difficult due to the weather. The position overall is pretty strong, so to attack or face the current situation in a position of strength, I think it speaks volumes of our ability to withstand the higher interest rates for the next 12 months."    

He notes the Canadian dollar has gained strength and could hover around the 80-cent mark for the foreseeable future.

"When the Canadian dollar goes up, farm equipment pricing goes down a little bit, so that's good to have a little bit relief on the equipment side of things," he said. "Overall a low Canadian dollar is good for Canadian agriculture, so seeing the Canadian dollar above 80-cents is something we need to continue to monitor over the next few months."   

He notes gradual interest rate increases and a stronger Canadian dollar will slow the appreciation of farmland, which now represents almost 70 percent of the value of total farm assets, compared to 54 percent in 1981.

Gervais cautions that every farm operation is unique and he recommends producers pay close attention to commodity prices and cash flow.