Farmers are used to keeping an eye on the weather and their fields, but now they're also watching the Bank of Canada after it raised its benchmark interest rate by a full percentage point in an attempt to fight runaway inflation.
"It's made for a challenging year, especially with paying off credit lines and making sure that bills are paid on time," said Rauri Qually, who farms with his wife, Pam Bailey, on land west of Winnipeg.
Most farmers carry a lot of debt, buying seed, fertilizer and equipment upfront every year, then hope for a bumper crop and high returns many months later. The rising interest rates call into question the sustainability of some farms, which could directly affect consumers — as well as the one in nine Canadian jobs involved in the country's agriculture and agri-food sector.
Higher borrowing costs, which are rising with another Bank of Canada rate hike, are adding to the pain for Canadian farmers already coping with poor weather and high inflation. For consumers, the costs could contribute to higher food prices later this year.
For Qually and Bailey, drought hurt their harvest last fall. This spring, inflation drove up seed and fertilizer costs. Spring flooding meant a late start to their planting season. They're about a month behind where they should be.
All of that, combined with this increased cost of borrowing, means they'll hold off on major purchases such as a new combine, which can cost half a million dollars. The bank's interest rate impacts what Canadians get from their lenders on products like mortgages and lines of credit.
"That ship has sailed," Bailey said, laughing.
A central bank cuts the lending rate when it wants to stimulate the economy by encouraging people to borrow and invest. It raises rates when it wants to cool down an overheated economy.
The big question is where interest rates are going in the future," said Richard Gray, an agricultural economist at the University of Saskatchewan. He also farms with his son near Saskatoon.
"Fundamentally, you have to see interest rates higher than the expected rate of inflation. Right now, inflation expectations are six or seven per cent and interest rates are not nearly that high yet so there may be more interest rate hikes to come."