Why you should care about economics on the farm
Big picture (macro) economics may feel far removed from your operation but understanding economic trends can keep you on top of the fundamentals that shape your business environment – and your sector’s profitability.
Every farm should of course keep accurate and up-to-date financial records and use those records and financial ratios to determine the farm’s financial health. Beyond that, an understanding of macroeconomics gives an appreciation for the outside factors affecting your farm.
And while a farm’s financial picture can be nailed down with a great deal of precision, macroeconomic factors are ever changing and nuanced. Understanding the basics helps make sense of what’s happening beyond the farm gate.
Borrowing decisions are based on your farm’s financial situation and strategy for the future, but they are also framed by the outlook for interest rates.
If borrowing to purchase farmland, the factors influencing farmland values in your region become important.
Supply and demand dynamics and the value of the Canadian dollar have a direct impact on the price of farm commodities and the cost of inputs.
Economic theory isn’t an exact science, as many global factors interact simultaneously to create market outcomes. And the opinions and approaches of economists don’t always align. But interest rates, Canadian dollar values, global supply and demand and trade policies at home and around the world are all important factors to consider in your decision-making.
This series of articles explains basic economic concepts and connects the dots between the most relevant topics for farm operations, agri-businesses and food processors.
Here are some important topics to get you started:
Canadian dollar: How to protect yourself from the fluctuating currency values that influence commodity and input prices
Interest rates: The role of the Bank of Canada, fixed vs. variable rates and managing your financial risk
Supply and demand: Understanding the drivers, stocks-to-use ratio and how the balance between them determines prices
Farmland values: What influences them and what to consider when buying or renting land
Trade 101: Competitive trade advantages and the role of trade policies
Trade and agriculture: As trade patterns evolve, what are the implications for your farm business?
While the relationship between the Canadian and U.S. dollar is important to watch, keep on eye on the currency values of other significant trading partners.