FCC targets young farmers with loan program

© AgMedia Inc.

$500 million program offers young farmers half a million dollars each to buy or improve a farm

Comments

In the 80s farmers got in trouble because of the stupid things they didin the70s
the farmers asked for debt review in the 80s to bail them out, we never learn.

Would you be in favour of bailing out dairy and poultry farmers if/when quota crashes, especially when they were the ones who were betting it wouldn't? Stephen Thompson, Clinton ON

What happens when the interest rates go up to 10 or 20 % what will they do to help the ones they loaned the money too. Will they give the money to someone to buy into the parents farm so they can have money to put up a new building?
The ones that gets the money most times are the ones that doesn,t need it.
I think if someone that doesn,t have any parents in farming at any age should be offered the money to start a farm. There is lots of people out there that would love to start farming with a bit of a hand up and not a hand out.

The only issues with offering money to anyone to start farming at any age (regardless of having an agricultural background or not), are:

1) Younger people have not had as much time to build up capital to purchase property/buildings/etc.

2) More people would see this as a tax write off, which would make people want to become "hobby" farmers. This in turn would not help the viable sustainability and future of agriculture in Ontario or Canada, and would also cause land prices to be driven higher yet.

Lastly, this article is celebrating the fact that young people can get into farming and help keep agriculture alive in Canada. It does not state that the funds can/would be used for purchasing quota or livestock. It states land and buildings.

I pitty ayoung person having to buy a combine of $300000 plus, pitty the wives of these farmers. it also shows how out of touch some of our farm organizations are.

your right its a pain to get funding i need funding for my beef op.. but all the government gives is not enough to buy any thing

Every Ontario generation produces foolish and greedy farmers, this time the world and country Canada Ontario with 16 billion debt cant help, nor should they. We keep electing knowit all mpps while the civil servants manage so they get cash for life pensions.. Guess how many MPs and MPPs we have on taxpayers pension pay and did we get results for the value we spent on these government people.

$500,000 is good for about 4 quarters of land. Not enough to to do much but enough to get you into trouble. However: If I was getting out this should increase the land prices another 20-30 % as they younger producers can increase the bidding prices.

I wonder how forgiving FCC management would be to these young farmers, should circumstances such as interst rates render them unable to pay their loans. I certainly wouldn t count on their, young loan agents, to help them out. If bailouts were necessary should the taxpayer foot the bill,,again. FCC was largely responsible for the run up in quota prices,along with the Europeans and their endless sources of wealth.

Didn,t the milk board blame it on the teachers union for high quota prices?
The farmers all know it was the rich Euopeans driving the price up and the board didn,t want to let on the real truth, they seems to have a keep quiet mode now.

It might sound cruel but no bail outs for farmers spending $12000 plus per acre for land should be had. Fcc management then should be fired , we have had some greedy 80s farmers who are now age 65 and want to cash in screwing the young puppy head young farmers. Farmers feed cities while hooking one another with debt. Debt review board cases could be brutal if economic 101 is used.

After reading through your comments, I had some thoughts that I thought I would share.

If you were to get one of these loans, wouldn't be enough to get started on a small scale. I mean no young farmer is going out to buy top of the line equipment, and get a farm on $500,000.

Also, to get many of these types of loans you need to have a business plan. They don't give it to you willy nilly.

Why does it cut off at 39 It should be for people of all workable age that want to start a new farm

After 39 I guess they consider you to be old and therefore doesn,t deserve to start farming or be farming period. Thats the problem the talk about putting people in diffferent catagories is wrong but they not long pounding down the older farmers not old like they like to state so is it alright for the goverment to label us. I,m consider myself young at 54 and would love to try something different in the farming community and I think some of the readers or writers think I should be put out to pasture for a 20 year old can take my place free. I could put down I,m 39 again?

I would like to become one of these 'young farmers'. I have found what I think is the perfect farm for my family and I have been working on a farm for over a year trying to learn more. I had gone to FCC before about a loan and was told I needed $400,000 down. Will we need a down payment for this loan also? Even if I sold my current house, I wouldn't get that much and the only other option is to sell as much of our stuff as possible to get cash-which happens to be farm equipment we've been collecting. Even if I qualified for the loan and didn't need a down payment, it's not even half of what the asking price of the farm is. I'm not asking for a handout here, just a chance. The plan is for my husband to stay at work and I would stay on the farm to reduce the risk of not making the payments. They don"t seem to look at the whole picture.

As difficult as it may seem for a young couple, buying a farm is not like buying your first small house.The bankers want to see a financially sustainable long-term plan before handing out big bucks, unfortunatly stability in most Agricultural sectors these days is a no-show.

I have a number of tax clients in the exact situation you face, and my advice to them is "wait". Most of them are building their equity by way of owning a good house in town, and see no reason to move to a shabby house on any farm they might be able to afford.

There will again come a time, like it did in the early 70s, and in the mid 80s, when the price/earnings multiple of farm land declines to where it is affordable once again. As a purely practical matter, at both those times, people could trade their house in town for an identical house in the country, with a 100-acre farm thrown in for free - it will happen again.

The only "fly in the ointment" is the strong potential for a crash in the Canadian housing market - however, if, and/or when, that happens, the price of farm land will decline even further, and so it should.

This FCC program is no different than the various new-entrant programs offered by various supply managed commodities - window dressing to make themselves feel good, but doing nothing of substance to help prospective farmers.

Stephen Thompson, Clinton ON

The Canadian residential real estate crash has already started. See Garth Turner's Blog greaterfool.ca

Some think prices will slowly drop 20% to 30%, bottoming of market occurring in Year 2038; others think it will be much worse.

It is unclear what will happen to farmland prices. Since real estate development will collapse for quite a while (over-built for last 20 years, unaffordable), turning the Back 40 into a sub-division with huge profits for the developer and the farmer will be rare.

FCC has helped to create a huge farm debt load, using bubble-based farm pricing, the mirage of Supply Management quota values, temporary windfall profits in commodity grains and other cash crops, and interest-only loans. Farmers can only carry this huge debt today because interest rates are lower now than ever before. The farm crash and bankruptcies of the 70's and 80's may soon repeat.

Once interest rates rise to a more normal level, many farmers will be in big trouble, as will be FCC too. This pending debt crisis won't be solved by spreading the debt amortization out a few more years as FCC likes to do so their loan portfolio looks good. Currently, it will take the average farmer more than 70 years to pay off their current debt. What's the chance of something going wrong sometime in that 70 year period? For more info and graphs, see Small Flock Poultry Farmers Blog postings:

* Frightening Farm Finances
* FCC: The Farm Debt Trafficker

Glenn Black
Small Flock Poultry Farmers of Canada

The traditional way for governments and the chronically-overextended to ease their payments, is through the miracle of inflation. However, inflation seems to be, if not dead, at least dormant.

In addition, our housing "bubble" isn't going to be helped at all because baby-boomers are going to be trying to downsize their houses at the same time Generation Y can't afford to buy, because the jobs they need to be able to afford houses, are still being jealously-held by baby-boomers.

A somewhat different view is held by Kevin O'Leary who now believes housing won't so much crash, but stay constant for the next 20 years, meaning that what you pay to buy a house now, is what you're going to get for it 20 years from now.

The problem in agriculture is that too many people firmly believe prices can only go one way, and that's up - it's worked for quota, at least for now, and nobody deludes themselves better than, and/or more completely than, farmers.

Actually, nothing would be better for the economy than to have a 50% real estate crash and a 100% quota crash - it would get rid of a lot of bad, albeit extremely lucky, farmers and would allow the next generation of farmers and home owners a fighting chance.

Stephen Thompson, Clinton ON

Pleaseee,Garth Turner the Don Cherry of the financial Management world,less than a year of Revenue minister and suddenly the know-it-all about world finance,a newpaperman with celebrity status.l don't even think Don Cherry would have the gaul to suggest where the state of hockey will be in 25 years.

What small town or large city do you see houses sitting empty because of "over-built" ? certainly none that l have drove through lately! Canada's population is set to increase by 5 million people come that magic 2038, excatly where will they live ?Real estate will never collapse in this country, if it was going to it would have during the US hard times.

As far as farmland devaluing, if it does to some extent then it will be gobbled up by foregin investers and we have saw some of that already even with high land prices, so its not something that we want to see happen.

The one fact that these Gloom and Doomers never want to even look at is that the world population will be 1.8 Billion people more by that 2038 figure and yet they continue to say farmers will be in big trouble come the future..rubbish!..as long as the population grows so too will the need for food, l will never understand how some so-called financial experts continue to ignore that.

I had to double-check to see if you posting wasn't dated December 9, 1979 because all of your sentiments completely-accurately reflect what people were thinking, and saying, at that time.

A 50:1 price/earnings multiple for farmland is unsustainable, period - it won't last, and can't last. Farmers are the worst people for ignoring one of the oldest, and truest investment adages - "things look the rosiest just before the crash".

Stephen Thompson, Clinton, ON

Reading through comments when articles from 4 years ago pop up, can be quite enlightening. Here we are approaching the last half of 2016, land prices are up from 2012, but are flattening out now. On the contrary, crop prices have been on a steady decline in the same time frame, and are hitting new lows. I recall real estate bull, Mr. Van Dyk stating on this website years ago that cashcroppers could easily make enough to cover the interest payments on, if I remember correctly, $15000/acre land. Well here we are and not only can you not make enough to pay the interest, one wonders if those who paid the big dollars will make enough to pay for the seed.
Quota prices for dairy capped, chicken/egg quota has been flat for years. If there is little capital inflation during the next 10-20 years there will be plenty of pain for many farmers. Without inflation, farm transitions to the next generation will be next to impossible.

Raube Beuerman

Farmers, by nature, love inflation because it's the only thing in the past that's saved them from the wretched excesses caused by bidding up the price of land to stratospheric price/earnings multiples.

While farm transitions to the next generation will be "next to impossible" without inflation, the present generation of farmers who are paying 50 times earnings for farm land are going to find it equally-impossible to pay for this land in after-tax dollars unless the burden of what they owe isn't reduced by inflation.

What's worse is that a number of economies are on the cusp of negative interest rates which are, by definition, deflationary. The biggest losers in a deflationary economy are landholders and other sectors of the economy with large amounts of fixed assets.

Therefore, instead of being saved by inflation, today's high-spending farmers may be crucified by deflation and, all things considered, it would look good on them and it would look even better on FCC!

Stephen Thompson, Clinton ON

I remember looking at the price that was paid for a farm in southern Perth County in 1980 '81 and calculating that the income from 100 acres of soybeans was barely going to cover the interest on the loan required to buy the farm. The purchaser was a cash crop farmer, by the way. So are inflated land prices really anything new?

My 2 sons want to start a dairy operation on their grandfathers farm, he died some years ago, however FCC say they have to put down 25% of the money they need. A 20 and 25 year old do not have that kind of money laying around. Perhaps they really do not want new young people in the dairy business. Can anybody help us with what else we can do

The above posting seems to be leaving things out, especially the part about where and/or how the two young gentlemen are going to obtain quota.

It's all the fault of supply management, the system that, as noted by Ian Cumming, encourages up to $40,000 of debt per cow, while the rest of the world operates with debt loads of less than 10% of that amount and is the reason why the Cumming family moved their cows from Ontario to New York State.

Secondly, I'm surprised FCC doesn't want more than 25% down - I think FCC is bending over backwards to try to help.

Thirdly, with the utmost of respect, not being able to come up with the down payment could easily be the best thing that ever happened to these young gentlemen.

Finally, if they are truly serious about wanting to become dairy farmers,why don't they follow Cumming to the US?

Stephen Thompson, Clinton ON

So many questions but my advice would be to get a job on a dairy farm first.Biuld up some knowledge about the industry and how to succeed on a very tight budget, because that's what small dairy farms have to operate on.
Your sons have a leg up on other would be new applicants for dairy quota having the farm already but l'm guessing the barn needs upgrades to meet dairy regulations and requirements and then in the end it's all a lottery, so have a backup plan for the farm.

Let's say they want a 50-cow operation - let's also say it would cost $25,000 per cow for quota (assuming they could get any), $5,000 per cow for the cows, equipment and working capital and $10,000 per cow for the farm, all adding up to $40,000 per cow for a total of $2 million.

Even if they got the farm for nothing, it's still going to cost, let's say, $200,000 for a second house for the second brother and another $100,000 or so to replace and/or upgrade the dairy facilities.

So, even if the second brother lived in a tent, it's going to cost them well-over $30,000 per cow, or $1.5 million to get started.

Let's say they're getting a "turn-key" operation (highly-unlikely) and that second house costs $100,000 (once again highly-unlikely) to bring the total to $1.6 million - this would mean that FCC wants them to put $400,000 down which, for a 20 year-old and a 25 year-old, is like asking them to walk to the moon.

Working for a dairy farmer is likely to earn each brother somewhere between $35,000 and $40,000 each year and while, on the surface, it might appear it would take only a few years to come up with the $400,000 down payment, life doesn't work that way. At that age, life, marriage, babies and heavy family cash outflows mean the ability to save any money is effectively zero.

Or, to look at it another way, the ability of any average 20 and/or 25 year-old to accumulate $400,000 in after-tax earnings is pretty-much zero until they're (at least) in their 50's and too old to want to start farming in any event.

Even if all they had to buy was the quota, they'd still have to come up with $312,500 in cash to get approval from FCC and, when you're 20 and 25 and have no money, $312,500 is every bit as impossible as $400,000.

In addition, FCC isn't likely to be impressed by participation in the new-entrant program for quota because farmers still have to obtain half ($156,250 which, to a 20 and/or 25 year old, is like walking half-way to the moon) before they even start plus roll the dice of being able to repay the loan in after-tax income starting in whatever year in the future.

The above portrays the essential awfulness of the barriers to entry imposed by supply management and why older farmers just don't understand that, unlike in 1972, the time spent "working off the farm until you come up with the down payment" is now measured in decades, or even lifetimes, instead of in months.

The other "ticking time bomb" aspiring fraternal-partnerships seem to never consider is that since 40% (or more) of marriages now end in divorce, there's a pretty-good chance that the marriage(s) of one, or even both, brothers will end acrimoniously and take the farm with it.

However, the absolutely-worst aspect of the bleak "you can't get there from here" reality facing these two prospective dairy farmers is the deliberate blindness of older dairy farmers who fall all over themselves to boast about the "health" of the dairy industry under supply management.

Stephen Thompson, Clinton ON

Forget about cows. Milk sheep, goats, buffalo, camels

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