Tier 2 lenders like Farm Credit Canada and credit unions are increasingly moving away from lending based on farmland asset values and towards more conservative measures like debt serviceability and cash flow. This means that highly leveraged or low cash flow farming operations now need to borrow from Tier 3 lenders at higher interest rates around 10%, compared to the 3% from Tier 2 lenders. Tier 3 lenders are seeing increased demand as Tier 2 lenders capture less of the agricultural lending market, estimated to be around $42.7 billion in Canada in 2015. Borrowers from Tier 3 lenders will need credible repayment plans, and those without may become forced sellers of their land.

1. AGinvest Properties Canada Inc. January 6, 2017
Farmers Borrowing Money
It is getting harder for Canada’s farmers to borrow money from
Tier 2 lenders, notably from: Farm Credit Canada, some local and
regional credit unions, and insurance companies. The reason is
that Tier 2 players continue to shift away from lending primarily
based on farmland asset values to the more conservative basis of
debt serviceability, financial leverage, and working capital.
Higher Interest Expense
What this means is that farming operations that are highly
financially leveraged or generating insufficient cash flow must
now borrow money from Tier 3 lenders. Doing so will require
Volume 1, Issue 1 www.AGinvestCanada.com 1
Volume 1, Issue 1
With this issue, the team at
AGinvest Properties Canada is
launching a monthly
publication. It will draw your
attention to trends and
developments that are
impacting farmland:
operations, risk profile,
outlook, and valuation. We
hope you will find it of value.
Change is Afoot
Carl Icahn and others on
President-elect Donald Trump’s
team have begun a push to
reform the U.S. ethanol
mandate. To avoid refinery
bankruptcies, Icahn wants to
shift the burden of compliance
to fuel blenders. We are
monitoring this movement.
Should we see signs of an
adverse impact on the price of
corn, we will alert you.
Buying Season
After harvest but before Spring
planting is when farmers will,
in general, engage to sell their
property. AGinvest is currently
performing due diligence on
$95-million worth of farmland.
THE FARMYARD
Farmland Insights and Trends

2. AGinvest Properties Canada Inc. January 6, 2017
farmers to pay an interest rate of approximately 10 percent. This
rate compares unfavourably with the approximate 3 percent
interest rate they have been paying to Tier 2 lenders.
A Boon for Tier 3 Lenders
According to Statistics Canada, Tier 2 lenders accounted for 46.5
percent of total farm debt outstanding in Canada in 2015. This
share of the agricultural lending market equates to $42.7 billion of
debt. While it is too early to be precise about how much of this
share is being captured by existing and new Tier 3 lenders, our
expectation is that it will be significant. A telltale sign is that Tier
3 lenders have been experiencing rising demand. One Tier 3
lender we interviewed has seen loan inquiries double.
Another Hurdle
Borrowing from Tier 3 lenders requires a credible plan to repay
the debt principal at maturity. In many cases, this entails
restructuring operations. Farmers who are unconvincing won’t be
able to borrow. Some of them may become “forced sellers.”
Volume 1, Issue 1 www.AGinvestCanada.com 2
Global AgInvesting
In December 2016, our team
attended the Global AgInvesting
conference in London, England.
The key takeaways were:
• If the Trump administration
becomes more protectionist,
history tells us that farmers will
suffer. They need to trade.
• Water is poised to become
more regulated. In California,
for example, new water rules
are being formulated. Australia
already has well-defined rules.
Expect other regions and
countries to follow.
• Food safety is a long-term,
sustainable growth trend.
• A lesson: Don’t feel the need to
own the entire agricultural
value chain. Let other people
make money and use your
money to grow scale!
• Farmers in Manitoba and
Saskatchewan are growing
soybeans. Ten years ago, this
was not the case. The shift to
this crop was attributed to
climate change.
Feel free to contact Kent
Willmore (pictured above) or
Horst Hueniken for elaboration.