Farm Credit Canada’s latest forecast points to a challenging year ahead for Canada’s agricultural sector as wider economic headwinds extend into 2026. The Crown corporation’s analysis reflects a notable deceleration in economic activity, driven by slowing output, muted investment intentions among firms and persistent external pressures linked to global trade tensions and elevated borrowing costs. Data from recent surveys signal that confidence among business leaders has fallen well below long-term averages, indicating that firms are increasingly cautious about expanding operations or deploying new capital in the current environment.

The broader Canadian economy is anticipated to grow at a subdued pace next year, with projections suggesting a marked slowdown compared with recent years. This softer growth outlook is influenced by a combination of weak domestic demand, ongoing global trade frictions and the residual effects of higher interest rates, all of which have dampened consumer spending and business investment. These trends carry implications for agricultural producers who depend on broader economic strength for market growth and financing opportunities.

Interest rates remain a central concern in FCC’s analysis. Although the Bank of Canada has reduced its policy rate in recent months, financial conditions continue to reflect tighter real rates than seen historically. Market expectations suggest that further monetary easing could unfold over the coming year as inflation moderates and economic slack broadens. Lower short-term borrowing costs may help relieve some pressure on producers’ cost structures, but longer-term rates linked to global bond markets may not retreat as quickly without a deeper economic downturn.

For the agricultural sector, subdued business sentiment is manifesting in more cautious capital deployment. Lower confidence among firms has translated into restrained investment in machinery, technology and expansion projects, potentially slowing productivity gains that are critical for long-term sector competitiveness. With productivity growth in Canada already lagging historical averages, weak investment trends could further limit the sector’s ability to adapt and thrive in a changing global landscape.

Trade conditions add another layer of complexity. Uncertainties surrounding international agreements and tariff policies continue to affect export dynamics, which, when coupled with slower global demand, weigh on revenue prospects for commodity producers. These external challenges, combined with the domestic economic slowdown, contribute to a risk environment that may temper agricultural income and borrowing strategies over the next year.

Despite these pressures, some underlying dynamics in Canada’s agricultural economy remain resilient. Farmland values have shown modest increases in recent periods and long-term fundamentals linked to global food demand are still viewed as supportive. However, the pace of value growth and investment activity appears to be adjusting to current financial and economic conditions, reflecting a more measured approach by producers and investors.

With subdued growth, cautious business behaviour and multifaceted pressures on markets and financing, stakeholders across the industry are navigating an environment where strategic decision-making and risk management will be central to maintaining stability and positioning for future opportunities.