Farm debt increase in 2020 lowest since 2014.   Ottawa—Even with the prospect of strong revenue growth this year and lower debt increases in 2020, farmers need to keep a way eye on interest rates, says J.P. Gervais, Farm Credit Canada's chief economist. A sharp and sudden rise in interest rates could have a significant impact on the ability of farm operations to service debt, Gervais said. Trade issues, weather conditions and high farm input costs could also impact farm revenue and debt forecasts. “The overall balance sheet for Canadian agriculture remains healthy, despite the current uncertain times. But producers need to understand their financial situation and build resilience into their business plans so they can thrive in this dynamic operating environment. “With the level of debt in the farm economy, producers must be aware of the potential for higher interest rates and factor that into their risk management plans,” he said. “Higher interest rates affect your working capital and your ability to service debt obligations. While current low short-term rates are attractive, it may be appealing to lock in long-term rates at the current low levels.” There's still much uncertainty around the permanent nature of current inflationary pressures, he said. “The potential for higher interest rates is the darkest cloud shading recent news that farm debt in Canada recorded the smallest increase in six years.” Statistics Canada data shows outstanding Canadian farm debt increased by 5.9 per cent to $121.9 billion in 2020, the smallest increase since 2014 and below the 10-year average of 6.5 per cent. Meanwhile farm cash receipts climbed 8.3 per cent last year. On top of these positive indicators, he said FCC now is “projecting record high farm revenue in 2021, outpacing expected growth in farm debt outstanding of around six per cent.” That good news isn't consistent across all sectors. Total livestock revenue decreased nearly one per cent in 2020, largely due to COVID-19 disruptions induced by temporary shutdowns of processing plants and closure of the food service sector. “On the one hand, current supply chain bottlenecks and strong consumer spending causing inflation could subside in the second half of 2021,” he said. “On the other hand, accumulated savings in the economy could further increase consumer spending and unleash permanent price increases that warrant higher interest rates.” Demand for agriculture commodities and food is strong and inventories are generally lower than their long-term average. This generates a positive outlook for the industry coming out of the pandemic. But there are no guarantees the high prices recorded in many sectors won't return to normal levels.” Alex Binkley is a freelance journalist and writes for domestic and international publications about agriculture, food and transportation issues. He's also the author of two science fiction novels with more in the works.