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Loan Program Aimed at Young Canadian Farmers

Written by on Monday, 23 April 2012 7:00 pm

Canadian farm values continue to rise. The latest outlook for agricultural producers suggests a positive outlook for the next 10 years. But the average Canadian farmer isn't getting any younger - the average age has been climbing steadily and was 52 in 2006, the last year from which census data is available.

To encourage more young people to stay home on the farm or to embark on a career in agriculture, Farm Credit Canada recently introduced the Young Farmer Loan, aimed at people aged 18 to 39. They can borrow up to half a million dollars to purchase or improve farmland and buildings. The program offers variable rates at prime plus 0.5 per cent, with no loan processing fees.

FCC says farmers in this age group make up just 16 per cent of Canadian producers. "By allowing young producers to borrow with no fees at affordable rates, the Young Farmer Loan will help them build their businesses and develop a solid credit history," says Greg Stewart, CEO of FCC.

"Agriculture is a key driver of jobs and economic growth here in Canada, and young farmers are vital to the long-term prosperity of the agriculture industry," says federal Agriculture Minister Gerry Ritz.

The loans will be secured with real estate.

FCC says the average value of Canadian farmland increased by 6.9 per cent during the second half of 2011, following increases in the previous two six-month reporting periods. Farmland values have been rising steadily during the last 10 years, and on average by about eight per cent annually since 2006, says FCC.

"Low interest rates, in relation to inflation, and higher farm incomes have recently led to significant increases in farmland values in some provinces," says Michael Hoffort, FCC senior vice-president. In the most recent report, values increased in every province except for Newfoundland and Labrador. The largest increase was in Saskatchewan, which had an increase of 10.1 per cent. Saskatchewan has 40 per cent of Canada's arable land.

FCC says Saskatchewan's price increases are in line with the pace of increases in the United States, where double-digit growth has been reported in corn and soybean states including Iowa, Kansas and Nebraska. "Two contributing factors to the value increase in Saskatchewan are the current and anticipated strength of commodity prices, combined with land values that previously increased at a slower rate than in other areas of the country," says FCC.

Hoffort says that "farmland value trends are sensitive to both interest rates and crop receipt trends. With interest rates expected to remain at historic lows until 2013, it will be especially important to monitor trends in crop and livestock receipts in the coming year. These factors combined with strong demand from expanding farm operations and increasing interest by non-traditional investors have all played a role in the continuing trends toward higher farmland prices."

A recent report and forecast from the federal government's Agriculture and Agri-Food Canada (AAFC) says average net farm income set a new record in 2011 and exhibited "strength beyond what was foreseen earlier in the year." AAFC expects more of the same this year.

"Despite a projected pullback in grain and oilseed prices, crop receipts are projected to climb slightly, as planted acreage will increase and carry-in stocks are high," says AAFC. "There will also be a small increase in livestock receipts as markets for major commodities will remain firm, with moderate price increases. Nonetheless, high feed costs will restrain income gains for most livestock producers, with hog farmers seeing income declines on average. However, net operating incomes for livestock producers are still expected to be higher than average for the past five years."

Looking further down the road, the federal ministry says that "many of the factors that will influence farm income…will be felt over the next 10 years", including continued world demand for feed grains.

"A more affluent population in emerging economies like China and India is driving the global demand for food, which results in crop and livestock prices that have remained above historical averages," says Jean-Philippe Gervais, FCC senior agriculture economist. "This helped propel the value of farmland to record-highs in North America. It will be important for producers who want to sell or buy farmland to keep an eye on possible variations in Canadian farm income in the coming years."

Hoffort says the FCC wants to "focus on a more positive perception of agriculture, one that reflects the optimism that producers themselves tell us they have so we can attract the people, the skills and the investment that will be needed to meet this increased demand for food.

"At the same time, we want to provide tools for those who want to buy farmland to expand their operation or enter the industry."

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  About the author, Jim Adair

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