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Good times uncertain until arrival

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It goes without saying the calculated gamble we call farming is not a job for the faint of heart.

But the latest data on the farm sector's financial performance strongly suggest Canada's farmers could be in for some of their best times in history amid growing global demand for agricultural products, good harvest returns and historically high prices.

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Total net cash returns for the sector in 2013, which reflect the money farmers have available for debt repayment, investment or withdrawal for personal expenses, are expected to drop below the record set in 2012, but at $13.2 billion, they are above long-term averages.

"In inflation-adjusted terms, this level is the second-highest in more than a generation, surpassed only by the previous year and by the period of the commodity boom in the 1970s," says Agriculture and Agri-Food Canada's recently released farm-income forecast.

By almost every measure -- net operating income, net worth, total family income --the balance sheet for Canadian farmers is growing stronger.

The fact the value of farm assets will grow six per cent while liabilities are expected to be up four per cent is another good sign. However, it's also important to recognize that according to Statistics Canada, land makes up approximately 60 per cent of the value of farm assets.

Land values have been rising about 10 per cent per year since 2008. While it's unlikely farmers will see land values crash, it is also unlikely these double-digit increases will continue.

The point is, farmers' status as real estate owners isn't a good measure of how well they are doing at the business of farming. And to the extent high land values are great for a farmer nearing retirement, they aren't so good for the shrinking number of young farmers trying to get started.

Average total farm family income might be a more accurate measure. It, too, is looking stronger than in the past, with projected total family income of $128,517 in 2013 rising three per cent to $132,579 in 2014, a level that is 22 per cent higher than the average over 2008-12.

Not bad, if all that income was coming from the farm. But Agriculture Canada says that in 2014, net operating income will decrease and the share of total family income from the farm will drop to 24 per cent from 26. So despite near-record commodity prices, record production and a significant investment in assets, farm families in Canada average only one-quarter of their income from the farm.

Granted, that statistic does not factor in wages the farm pays to family employees, and it does not include incorporated farms. But it is still a surprisingly low percentage given unincorporated farms still dominate the farm scene in Canada.

In other sectors, Statistics Canada data show that self-employment income represents 37 per cent of total income for households of unincorporated, self-employed individuals. The proportion is higher but the incomes are lower, averaging just under $74,000.

By that measure, farm families lag behind other owner-operators in Canada for being able to live off the proceeds of their business. The sector's performance over the past few years suggests they are making progress catching up, and the department's 10-year outlook points to continued progress.

But the department's outlook assumes no radical shifts in domestic or foreign trade policy, incremental technological advancements and no unusual weather.

Plus, this income forecast belies an untold number of Prairie grain farmers facing cash shortfalls in the coming months due to their inability to move grain to market.

From a balance-sheet perspective, that unsold grain is inventory that will move eventually, something the railways have been accused of factoring into their trickle-through approach to this year's export program. But that's not much help to a highly leveraged farmer dependent on cash flow.

In other words, rosy economic outlooks are all well and good. In farming, however, you don't bet on it until it's in the bank.

 

Laura Rance is editor of the Manitoba Co-operator. She can be reached at 204-792-4382 or by email: laura@fbcpublishing.com.

Republished from the Winnipeg Free Press print edition March 8, 2014 B6

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