It is a myth that rising input costs have negated the gains realized through strengthening grain prices, according to farm income statistics.
The ratio of operating expenses as a percent of total cash receipts has been on the decline for western Canadian farmers since 2006.
Stephen Boyd, an analyst with Statistics Canada, said that is because crop prices have risen faster than input costs.
“Crop receipts were up over 20 percent both in 2007 and 2008,” he said.
It’s a different story for livestock producers, who have seen far more modest increases in their cash receipts. That’s why the expense-receipt ratio has fallen a lot more in a grain-dependent province like Saskatchewan than it has in Alberta, which has more of a livestock focus.
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Farm groups contend producers are no better off today than they were prior to the grain price rally that began in 2007 and re-ignited this fall.
“If we see a rise in commodity prices, the input prices seem to follow immediately, negating any net benefit that we could realize on the farm,” said Greg Marshall, president of the Agricultural Producers Association of Saskatchewan.
Saskatchewan farmers spent 70 cents out of every $1 of revenue on operating expenses in 2009, down from the 10-year high of 86 cents in 2003. By contrast, Alberta farmers spent 83 cents in 2009 as opposed to 89 cents in 2003.
But Marshall said the spread between returns and the cost of production is narrowing.
“Margins are getting thinner.”
He doesn’t put much stock in the Statistics Canada numbers.
“When farmers say they have got less dollars in their jeans now than what they used to have, those are the real numbers to me.”
In a pre-budget 2011 consultation document filed to the Standing Committee on Finance this fall the Canadian Federation of Agriculture contends farmers are experiencing “significant pressures” on the expense side of their balance sheets.
“Fertilizer, animal feed, fuel, utilities and other costs have eroded margins for all farmers across Canada,” the group stated in the document.
Ron Bonnett, CFA president, said the statistics could be skewed by anomalies such as the massive drop in fertilizer prices that occurred in 2009. But that doesn’t explain why the ratio has been trending lower year after year.
He also pointed out that grain farmers have been forced to upgrade their outdated equipment in recent years. Those huge capital expenditures are not included in the operating cost figures.
“The overall trend is still a declining net farm income,” Bonnett said.
