Canadian farmers are accumulating more debt, but their assets are growing at a faster pace, according to Statistics Canada.
The value of total farm liabilities was up $5 billion on Dec. 31, 2014, compared to a year earlier. Assets were up $43 billion over the same period.
Total assets were $525 billion compared to $78 billion in liabilities for a debt-to-asset ratio of 15.2 percent, the lowest recorded since 1997.
“It does show that based on the ratio, the sector is in a good position to overcome financial risks with lower commodity prices in the future or adverse weather and that sort of thing,” said Stephen Boyd, a senior analyst with Statistics Canada.
Dan Mazier, president of Keystone Agricultural Producers, said the numbers are a reflection of the aging farm population.
“The average age of a farmer is 55 years old, so you would hope the debt ratio is dropping for a 55 year old,” he said. “If it’s climbing, we’ve got a problem.”
Farm equity reached a record $445 billion, up $38 billion, or nine percent, from a year earlier. Saskatchewan led the way with a 12 percent increase followed by Manitoba at 11 percent. Alberta ranked fourth with a nine percent rise in equity in that province.
Land accounted for $381 billion, or 73 percent of the assets, which is the highest proportion since Statistics Canada started the series in 1980.
“Over 80 percent of the growth in assets over the past 10 years has been in the farm real estate category,” said Boyd.
“Certainly strong commodity prices and low interest rates over the past number of years has contributed to that land value increase.”
The fact that land accounts for such a high percentage of assets is a bit of a concern because it is not a liquid asset. If a farmer gets in a financial bind, it could be difficult to get out of it.
Growth in the asset base on the Prairies has been a bit more diverse with land accounting for 76 percent of the growth over the past 10 years compared to 81 percent nationally.
Mazier worries what the mounting asset level means for the next generation of farmers.
“It used to be that you would buy a quarter section for $200 an acre,” he said. “Now we’re talking in Manitoba here $3,000 to $5,000 an acre.”
He also wonders how long the good times are going to last.
“Everybody is focusing on this housing bubble, but I do think there is a land valuation issue coming up at us,” said Mazier.
Boyd said strong growth in the value of livestock and poultry inventories also bolstered the asset base. The category ended the year at $15.2 billion, up $8.8 billion, or 49 percent, because of strong cattle and hog prices.
It was partially offset by a $2.2 billion, or 12 percent, decline in crop inventories.
“That was partially due to price decreases, but it was more due to the decrease in crop inventories following the bumper crop of 2013,” he said.
That was also the year when rail transportation was bogged down, resulting in high ending inventories in 2013.
Mazier said a strong debt-to-asset ratio should not be equated with financial well-being.
“That doesn’t mean that farms are more profitable,” he said.
Boyd said the return-on-assets ratio, which measures how much net income was derived from the asset base, was two percent in 2014, the lowest level since 2010.
That compares to 3.9 percent in 2013, 2.4 percent in 2012 and 2.5 percent in 2011 when farm profits were very good.
The lower ratio in 2014 means farm profits did not keep pace with the growth in assets.