Canadian farmers likely earned their second-highest net cash income ever in 2016, down slightly from the 2015 record, says the federal government’s annual agricultural outlook.
However, 2017 is not likely to be as rosy.
Officials predict net cash income of $14.8 billion for 2016, down from $15.2 billion, and a further fall of $1 billion, or seven percent, in 2017. They said that would still be above the five-year average.
“Weakness in global commodity markets is expected to put downward pressures on Canadian prices, leading to forecast declines in net cash income in the short term,” an official said during a technical briefing.
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“In particular, a decline in livestock receipts is forecast to be the primary driver of the drop in farm income.”
The drop in cattle and hog prices in 2016 is expected to continue through 2017 as U.S. expansion in those sectors continues, leading to sharp income declines.
The forecast suggests crop prices will also decline as global production and stocks remain high.
Western Canadian farmers will be insulated somewhat as they continue to market the large 2016 crop through this year, leading to flat income projections.
Canadian Federation of Agriculture president Ron Bonnett said the outlook points to the need for caution but not panic.
“It does reinforce that we need to make sure we have risk management programs that carry us through the bumps.”
Bonnett said the forecast has to be measured against longer-term outlooks and increasing trade opportunities through the agreement with Europe.
The outlook notes that program payments are likely to be 24 percent higher in 2016 and up 22 percent in 2017 because of lower grain quality and softening markets.
Average net operating income per farm is pegged at $78,000 for 2016 with a drop to $73,000 this year.
The impact of decreasing international commodity prices is more significant this year because of the exchange rate. Significant depreciation of the Canadian dollar boosted farm cash receipts in 2014 and 2015 and offset declining U.S. prices. That’s not likely to continue, and a stable Canadian dollar increases exposure to declines elsewhere.
The Conference Board of Canada suggests the dollar will stabilize at US82 cents by 2022, which would affect export competitiveness for Canadian farmers.
Oil prices also affect the situation. The Conference Board projects a West Texas Intermediate crude price of $71 per barrel by 2022; it currently sits at $52 and the outlook uses a $50 price.
“For every $1 increase in oil prices beyond $50 per barrel, fuel costs for Canadian farmers could increase by almost $46 million,” the official said.
Meanwhile, the 2016 income number is $1.2 billion higher than was predicted in last year’s outlook. Officials said that was due to the large western harvest.
“In particular, canola, soybeans and dry peas have had much higher receipts than what we forecast last year,” said the official.
Livestock receipts and expenses were both lower than forecast then.
