Interest Rate Cut - Good Time to Review Farm Loans

Jun 11, 2024

Fixed vs Variable Rates in Changing Market

The Bank of Canada recently reducing its key interest rate to 4.75%, farmers and agricultural businesses are presented with a timely opportunity to revisit their borrowing strategies. Krishen Rangasamy, the Manager of Economics at FCC, emphasizes that this change is crucial, especially given the economic pressures of the past year.

“This key interest rate has been increasing since March 2022. With inflation having peaked and now heading towards the Bank of Canada’s two per cent target, it makes sense for the central bank to provide relief to a struggling economy by lowering the overnight rate,” Rangasamy explained. He also indicated that further rate cuts might be expected later this year, which could make loans even cheaper.

FCC's recent study reveals that with the central bank's strategy to lower rates, opting for a variable rate loan might lead to lower payments over the next five years. However, if rate decreases are gradual, there might not be much difference in payments between fixed and variable rate loans. Still, fixed-rate loans offer the benefit of predictable costs over time.

Rangasamy suggests a balanced approach: “Borrowers should think carefully about their personal risk level given the pros and cons between fixed and variable rates,” he said. “An option that borrowers can consider is diversifying their debt portfolio by using a combination of fixed and variable rates. This allows them to benefit from both types and to spread their risk over different time periods. For example, a borrower could have a variable rate loan for a short-term project, and a fixed rate mortgage for a long-term investment.”

However, managing a mix of fixed and variable rate loans adds complexity. It’s important for borrowers to talk with financial advisors to choose the best strategy for their needs.

Despite the potential advantages of reduced interest rates, Rangasamy urges caution: “There are still risks with regards to both the global and domestic economies which, if they materialize, can have repercussions on Canada’s inflation and therefore interest rates. That’s why it’s important to stay informed, stay flexible and stay prepared,” he advises.

For more detailed guidance, farmers and agribusiness operators can visit FCC online or call their local FCC office at 1-800-387-3232 to discuss their financing options. This proactive approach will help them make the most of the current lower borrowing costs while preparing for future economic shifts.

Video: Evolution of Beef Cattle Farming

The Clear Conversations podcast took to the road for a special episode recorded in Nashville during CattleCon, bringing listeners straight into the heart of the cattle industry. Host Tracy Sellers welcomed rancher Steve Wooten of Beatty Canyon Ranch in Colorado for a wide-ranging discussion that blended family history and sustainability, particularly as it relates to the future of beef production.

Sustainability emerged as a central theme of the conversation, a word that Wooten acknowledges can mean very different things depending on who you ask. For him, sustainability starts with the soil. Healthy soil produces healthy grass, which supports efficient cattle capable of producing year after year with minimal external inputs. It’s an approach that equally considers vegetation, animal efficiency, and long-term profitability.

That philosophy aligned naturally with Wooten’s involvement in the U.S. Roundtable for Sustainable Beef, where he served as a representative for the Colorado Cattlemen’s Association. The roundtable brings together the entire beef supply chain—from producers to retailers—along with universities, NGOs, and allied industries. Its goal is not regulation, Wooten emphasized, but collaboration, shared learning, and continuous improvement.