Higher interest rates a concern | Farms with high debt could become non-viable
Statistics Canada’s final tally of 2013 farm income tells a story familiar to western Canadian farmers.
Total net income increased to $12 billion last year, according to the agency’s report released last week, but a good portion of it was sitting in on-farm stocks at the end of the year.
Almost all of the $5.7 billion in-crease in total net income came from farmer-owned inventories. Of that, Saskatchewan and Alberta saw the largest increases.
Agricultural economics professor Ken Rosaasen said the real measurement of farm income comes in the form of realized net income, which calculates cash receipts, operating expenses and depreciation.
Across the country, that number grew only 1.1 percent in 2013 to $6.4 billion.
“That’s the more important number because it shows what the cash position of farmers are,” he said.
“Machines wear out. Tractors and combines depreciate. Everybody says as a business you have to allow for depreciation or you’re not viable.”
It’s the fourth consecutive increase in the total but smaller than in recent years.
The numbers reflect last year’s record harvest as well as slower sales and delayed rail service, which began at the end of the year and persisted throughout 2014.
Statistics Canada said that canola receipts were down 11 percent to $7.3 billion at the end of 2013, showing a drop in marketings of more than 10 percent.
Crop receipts rose to more than $30 billion across the country, boosted in part by increased wheat sales in the first half of 2013.
Rosaasen mentioned the income numbers last week in a presentation to the National Farmers Union convention in Saskatoon about farm debt, which grew to $78 billion in 2013.
The record debt total is up $5 billion from 2012, according to Statistics Canada. Rising farmland values, which have seen year-over-year increases of 20 percent or more in 2012 and 2013, have contributed to the rise.
Sarah Martin of the University of Waterloo told the NFU that there’s a good chance that interest rates may rise after reaching historic lows in recent years. It was a sentiment shared by other analysts.
“I guess what happens in the monetary system will be important for whether that debt is not a problem or a big problem,” said Rosaasen.
“If interest rates go up a few percent, it will make the debt much harder to carry. Some people remember the ’80s with 20 percent interest rates on some operating loans, which meant many farms were sufficiently in debt that they became non-viable.”