Recent boom years have likely come to an end

Canadian farm income took a nosedive in 2018 and that could be a harbinger of what the numbers will do in 2019 and beyond.

Statistics Canada has released an interesting analysis of realized net farm income going back to 2008. The StatsCan report digs deeper than just the raw numbers providing rationale for the major changes.

Realized net income is just one aggregate measurement of earnings, but in addition to cash receipts and operating expenses, it also includes depreciation charges.

Across the country and across all types of agriculture, the 2008-10 period saw realized net income in the $3 to $4 billion range. In 2011, realized net income increased to nearly $6 billion and remained in the $6 to just over $7 billion range until 2017. The sharp drop in 2018 put the number below $4 billion once again.

As StatsCan explains in its report, the commodity boom from 2011 to 2017 lifted farm commodity prices at a more robust rate than input expenses.

It wasn’t just high grain prices that generated the boom years. Cattle prices were also strong as the beef industry went from a glut of low-priced animals following the BSE crisis of 2003 to price-boosting shortages.

We also tend to forget that seeded acreage has steadily increased over the past decade with summerfallow acres falling by 70 percent over that time.

The report singles out lentils for their significance in national farm receipts, or more specifically the rise and fall of this Saskatchewan-centric crop. Cash receipts from lentils more than doubled from 2014 to 2015 due to prices jumping 58 percent and quantities rising 33 percent. Lentils attained a seven percent share of national crop receipts that year, double the 10-year average.

Also in 2015, a sharply weaker Canadian dollar helped shield producers from the sharp global price declines experienced by American grain and oilseed farmers. A relatively weak Canadian dollar continues to help our export values.

Over the decade, cash receipts from grain have ranged from $50 to $56 billion a year, while livestock receipts have fluctuated around the $40 billion mark. Direct program payments to farmers accounted for nine percent of farm cash receipts in 2008. By 2018, that had fallen to 3.6 percent.

In the crop sector, canola is king, typically accounting for about a quarter of crop receipts. Over the decade, production soared more than 60 percent. By 2018, China accounted for nearly half of our canola exports, up from 22 percent in 2008. Of course, export statistics for 2019 will be dramatically different.

We shouldn’t forget about the contribution from wheat. The report notes that over the course of the 2008-18 time frame, wheat (excluding durum) receipts rose over 58 percent.

The sharp drop in 2018 realized net income was not due to a drop in cash receipts. Rising expenses led by machinery depreciation, wages, fertilizer, seed and land rental were the main culprits.

Depreciation was up due to the purchase of larger, more expensive equipment. One of the reasons for the increase in wage costs was more farm incorporation, which allows owner/operators to claim a wage expense. The growth in fertilizer expenses was related to increased use rather than price.

The 2018 farm income decline marked the end of a seven-year period with strong returns. Most analysts aren’t expecting a return to the boom years any time soon.

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