Farm income increase cloaks danger signals

Tuesday, May 31, 2011

by PAT CURRIE

Despite a muscular boom in farm income in 2010 accompanied by a sharp drop in expenses, the farm picture "isn’t as rosy as it seems," Canadian Federation of Agriculture Ron Bonnett said last week. Ontario Federation of Agriculture general manager Neil Currie described prices as "volatile" with "wild swings" threatening stability.

After studying two end-of-May reports from Statistics Canada, Bonnett said rising prices and a recovery in the livestock industry "look like good news" but the reality is that farmers sold off inventory – "stuff they had in storage" – and input costs dropped last year "because a lot of crop was never planted, especially in Western Canada, so it didn’t need fertilizer" and the price of fertilizer also fell.

"What’s of great concern is that the farm debt-load also increased and a spike in interest rates will threaten the viability of many farm operations," Bonnett said.

On Tuesday, the Bank of Canada announced it was maintaining its overnight rate target at one per cent but warned in a news release that “some of the considerable monetary policy stimulus currently in place will be eventually withdrawn, consistent with achieving the two per cent inflation target.”

On May 25, StatsCan reported that realized net farm income in 2010 soared to $4.5 billion (46.1 per cent) and the upward trend continued into the first quarter of 2011, hitting a record high of $12.1 billion, an increase of 8.8 per cent over the first quarter of 2010.

At the same time the price of fertilizer dropped abruptly (30.9 per cent in Ontario, 22.2 per cent nationally) after rising sharply in 2007-2009.

Noting that StatsCan’s revised 2009 income report "shows a net loss of about $1.5 million while the 2010 forecast was reduced to a positive net income of $627 million," Currie said: "Income volatility such as this cannot be managed by farmers themselves. These wild swings reinforce the need for pragmatic and bankable risk management programs that work for farmers across commodities.

"We anticipate continued volatility in the coming years due to significant weather impact and market reactions," Currie added.

StatsCan said realized net farm income (the difference between a farmer's cash receipts and operating expenses, minus depreciation plus income in kind) rose in every province except Alberta and New Brunswick. The increase in 2010 followed a 16.6 per cent drop in 2009.

The slight drop in farm cash receipts for the first quarter of 2011 follows a 7.5 per cent decline between the first quarters of 2009 and 2010.

For 2010, farm cash receipts, which include crop and livestock revenues plus program payments, increased in every province except Manitoba (-4.0 per cent) and British Columbia (-2.2 per cent). Ontario, Quebec and Prince Edward Island all recorded double-digit increases in receipts, StatsCan reported.

Market receipts from the sale of crops and livestock this year amounted to $11.3 billion, up 8.6 per cent from 2010. Crop receipts rose 9.7 per cent to $6.4 billion, while livestock receipts were up 7.3 per cent to $5.0 billion.

Firm grain prices are expected after the International Grains Council reported that
global carryover grain stocks are set to fall to their lowest level in three years. In addition, estimates for oilseed stocks tightened, fuelled by growing demand from emerging economies and for biofuels.

Cattle and calf receipts rose in the first quarter of 2011 by 9.5 per cent to $1.6 billion, while hog receipts increased 10.8 per cent to $926 million. In the supply-managed sector (dairy, poultry and eggs), farm cash receipts from the first quarter rose 4.3 per cent over the same period in 2010. BF