Net farm income plummets

Life on the farm ain’t always laid back.

Statistics Canada provided evidence of that in its May 28 farm income report, published online here.

According to the report, net farm incomes in Canada took a troubling nosedive in 2018, thanks to rising production costs, reduced program payments and relatively flat revenues from the sale of agricultural crops and livestock.

According to StatsCan’s farm income figures, net farm incomes — the difference between farm revenues and operating expenses — fell by nearly 21 percent last year, one of the largest year-over-year decreases ever recorded in Canada.

Realized net farm income — the difference between revenues and expenses, minus depreciation — fell by a whopping 45 percent.

Those figures have heightened concerns about the ability of Canada’s farmers to service a record debt load, now estimated at $106 billion, according to StatsCan.

“Forty five percent is a huge number,” said Todd Lewis, a grain farmer from Gray, Sask., who also serves as president of the Agricultural Producers Association of Saskatchewan, the province’s general farm lobby organization.

“I don’t think anyone can look at those numbers and not be a bit concerned,” he added.

“I think it also raises questions about our whole suite of farm programs as well. The business risk management programs that are currently under review … are not adequate.

“When you have a big drop in income like this, they just don’t offer any relief.”

Statistics Canada’s numbers paint a troubling picture of the western Canadian farm sector.

In Saskatchewan, net cash incomes fell to $3.6 billion in 2018, a 16 percent reduction from the year before and the lowest level recorded since 2012.

Over the same seven-year period, Saskatchewan’s accumulated farm debt rose by 13 percent to a record $14 billion.

At a glance, the situation in Alberta appears even more dire.

In that province, year-over-year net farm incomes (revenues minus operating expenses) fell by nearly 31 percent in 2018, to about $2.4 billion.

As of Dec. 31, total farm debt in Alberta sat at slightly less than $13.6 billion.

In addition to declining incomes and rising debt levels, farmers’ financial worries have been compounded by the loss of key markets for important crops such as durum, lentils and canola.

And if that’s not enough, many growers on the Canadian Prairies are in the midst of a persistent drought that has reduced topsoil and subsurface moisture reserves to levels not seen in years.

In other words, the economics of farming are not what they were a few years ago, and the outlook for 2019 looks tenuous at best.

“Cash flow is tight right now,” Lewis said. “And it’s very hard to sustain an operation if you’re always hungry for cash.

“We’re not going to be able to borrow our way out of this through things like the cash advance program.”

JP Gervais, chief economist at Farm Credit Canada, said FCC’s farm lending portfolio is still in very good shape.

But he acknowledged that there could be tougher times ahead for some Canadian farmers.

“We think that farm operations are still well positioned because we’re (coming into) this downturn from a position of strength, but it (the StatsCan report) does speak to a much tougher environment in 2018 and 2019 as well,” said Gervais.

“With farm debt going up, net cash income is really what tells you about the ability of producers to meet their debt obligations and that’s a steep decline, when you’re looking at net cash incomes dropping by 21 percent, no doubt.”

Statistics Canada’s numbers showed farm cash receipts, including crop and livestock revenues as well as program payments, rising marginally to $62.2 billion in 2018, up 0.1 percent from the previous year.

Significant increases in the value of non-durum wheat sales — up 11.6 percent — helped to offset huge decreases in the value of lentil sales (down 35 percent), field pea sales (down 20 percent) and canola marketings (down 6.5 percent).

Revenues from livestock sales fell slightly, down 0.2 percent to $25 billion. Program payments to producers dropped 8.9 percent to $2.2 billion.

On the other side of the ledger, producers saw farm operating costs jump 6.5 percent to a record $50.6 billion, a number that caught FCC managers off guard.

“We knew that revenues would be challenged … but expenses were up 6.5 percent and that’s the one thing that we didn’t see coming,” Gervais said.

“We had data from the first nine months of 2018 … and it was showing an increase in farm operating expenses of around 3.5 percent, so for farm expenses to climb overall in 2018 by 6.5 percent … that’s something we did not expect to see quite frankly.”

Gervais said he would not characterize Statistics Canada’s numbers as symptomatic of a farm financial crisis, but he conceded that some farms will be watching their balance sheets more closely and scrutinizing spending decisions.

Weather-related production challenges, combined with trade disruptions affecting canola and pulse sales, could take another bite out of farm incomes in the current production year, he added.

Lewis said farmers across the West will be relying on Mother Nature to deliver timely rains. Without them, the financial pressures being felt on prairie farms will migrate to farm input suppliers, machinery dealerships and other ag service industries.

“We’re going to need good timely rains right throughout the growing season but we’re off to an awful start, so it kind of looks like we’re going to be in trouble here,” Lewis said.

“If we continue down this road, I think the equipment dealerships will start feeling the pinch pretty quickly.”

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