Farm income and debt figures released last week by Statistics Canada indicate a financially strong sector, said Farm Credit Canada’s chief economist J.P. Gervais.
The federal agency holds a sizable chunk of the total $96 billion in outstanding debt as of 2016, but farmers also recorded record realized net income of $8.8 billion, an increase of eight percent.
“We still have in Canada, despite some significant growth in debt, we still have a very healthy ag sector, a financially healthy ag sector with a strong balance sheet,” Gervais told reporters on a conference call.
Farm debt rose about 7.3 percent and although statistics on asset values aren’t yet available, Gervais said they are likely to have increased. Farmland values are up on average 7.9 percent.
He said debt has probably gone up faster than asset values but starting from a position of strength means less worry.
Gervais said farm income is the primary driver of debt repayment and those statistics are positive. Net cash income is the best measure for debt repayment capacity, he said.
Farm cash receipts are basically flat with an increase of just .5 percent to $60 billion. Saskatchewan and British Columbia recorded the largest decreases of 2.5 percent.
Overall, crop receipts rose about six percent to $33.8 billion. Livestock receipts fell by 3.2 percent for hogs and 17.7 percent for cattle for a total of $23.8 billion.
Operating expenses declined slightly, by .9 percent, to $44.2 billion.
“So, if you look at the ability to meet debt payments, for example, net cash incomes, which is your revenues minus operating expenses, it went up 4.6 percent,” Gervais said.
Producers are taking on debt and that should be monitored, but generally balance sheets are strong, he said.
He advised farmers and their lenders to run scenarios to examine how they could handle sudden changes, such as a dramatic drop in income or a crop failure.
When FCC approves a loan, it runs scenarios to understand future financial situations.
“I think everybody needs to do it at least once a year, if not on a quarterly basis,” Gervais said. “That would be my number one recommendation.”
Reverse stress testing, in which the scenario assumes that income drops rather than interest rates rising, is also worthwhile, he said.
The statistics released May 24 found that realized net income grew in Prince Edward Island, New Brunswick, Quebec, Ontario, Manitoba and Alberta.
Program payments rose 13.8 percent to $2.4 billion.