One of the key stories in 2023 was the economy with higher interest rates and increased costs.
JP Gervais, Farm Credit Canada's vice president and chief economist says the 2023 crop was the most expensive crop farmers have ever put in the ground with higher input costs and lower commodity prices as compared to 2022.
He says those factors had a key impact on farm profitability along with weather related issues.
"The bottom line is that overall expenses (when it comes to actual expenses occurred at the farm level) those expenses have been the highest on record in 2023. So you know that doesn't take a whole lot of time to understand that those margins are going to be a little bit pressured because again production challenges."
He says agriculture producers need to know their cost of production and risk level which is key when making purchasing decisions especially with the higher interest rates we've been seeing.
Interest rates rose three times in 2022, each time by 25 basis points, so .75 per cent.) actually happened in 2022, with most of the impact being felt in 2023."
It takes time to see the impact as interest rate hikes take some time to work their way through the bottom line of businesses.
Gervais says we're still expected to feel the impact of the higher interest rates for a little while, with loans getting renewed at a higher rate.
The Canadian dollar also plays a key factor in the ag sector and the markets.
In 2023, the loonie lost some ground compared to the U.S. dollar, but Gervais expects to see it rebound in the first few months of 2024.
"Now 2024, that's I think where the good news comes in. We're going to see expenses come down a little bit. So that affordability index that we have when we look at fertilizers, crop prices, that measure is actually looking to improve in 2024. So that actually should give a little bit of relief for those operations that have faced significant pressures."
Along with high interest rates and input costs was the increase we saw in food prices and food inflation.
Overall inflation is right around three per cent, but food inflation is coming down as well.
He notes that it takes a little bit of time for food retail prices to come down with the lags in the food supply chain.
"I definitely think that, or expect that, we're going to have food inflation lower in 24 than what we had in 23. But I would also think that the Canadian population must actually start to realize produce is going to be more expensive to produce in the future."