Agriculture's net worth increased from 2003 to 2011 says bank analyst

Thursday, April 18, 2013

by SUSAN MANN

The Canadian agricultural sector’s net worth increased by 78 per cent since 2003 mainly due to solid farm profitability and significant appreciation of farmland, says economist Aaron Goertzen of BMO Capital Markets Economics.

He says the net worth increase is from 2003 to 2011, which is the year with the most recent data.

As for future net worth growth, Goertzen says “my sense is that it won’t continue to grow at the rate that it has. Commodity prices aren’t likely to rise quite as quickly as they have over the last number of years.” But there will be strong commodity prices over the next decade “and that’s always a big positive for the sector.”

Also, with interest rate increases expected to begin in a year or two, land price increases will slow down, he says.

There aren’t official statistics on the breakdown in net worth increases by commodity sectors, but Goertzen says his sense is there was more of an increase on the crop side “because crop prices have risen so much, particularly in grains and oilseeds.”

But on the livestock side, farmers on average “would hold less land so they’d get less of that capital gain as land appreciates and also they’ve been a little bit more squeezed for profitability because feed costs have been so high due to crop prices.”

Historically, the farm net worth increase since 2003 is a pretty substantial increase compared to what has occurred on average at other times. “Farmland appreciation has really been pretty rapid and commodity prices have been pretty high,” he says. “That’s not the norm.”

In an April 19 press release, BMO Economics says the Canadian agricultural industry is expected to show steady production growth following a good harvest last year with exports to emerging markets providing a growing source of revenue for this year. BF