Input costs to chip away at farmers’ shrinking income

CNS Canada — An anticipated downturn in farm income and higher input costs mean Canadian producers will be in a tough financial position this year, the head of the National Farmers Union (NFU) predicts.

Farmers’ net cash income is expected to move lower in 2016, declining nine per cent to $13.6 billion in 2016, according to the 2016 outlook from Agriculture and Agri-Food Canada.

It’s lower than the record-high net income seen last year, but the anticipated income for 2016 is still 14 per cent higher than the 2010-2014 average.

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Despite the relatively strong income projection, NFU president Jan Slomp said 2016 will be a hard year for producers.

“I really expect big trouble,” he said. “We are really in a tougher position than ever before.”

AAFC’s outlook noted farmers’ net incomes have recently benefited from lower fuel expenses, but Slomp cited higher input costs for equipment, fertilizer and chemicals as causes of financial stress for farmers.

In Alberta, a combine that cost about $380,600 in January 2015 is now about $451,000, as of January this year, according to research from Alberta Agriculture and Forestry.

A tractor that cost $120,000 in 2015 will now run farmers about $139,000, the same research shows.

“Our equipment is very costly, and it has been handling more acres,” said Slomp, a dairy producer who recently moved from Alberta to farm at Courtenay on Vancouver Island.

While losses in the Canadian dollar against its U.S. counterpart have benefited farmers in some aspects, such as boosting the competitiveness of Canadian commodities, it also increases the cost of fertilizer produced in the U.S.

“It’s going to be very hard because the input costs have shot up,” Slomp said. “Fertilizer costs, chemical costs, and we have become way more dependent on doing way more acres with the same man hours.”

Phosphorus-based fertilizer and herbicides are marginally more expensive now than they were in January 2015, according to Alberta provincial research.

Prices for phosphorous- and nitrogen-based fertilizers tend to increase into the spring.

Continuing with the Alberta example, AAFC’s 2016 outlook calls for the province’s total farm cash receipts to shrink by about four per cent from 2015 levels.

Alberta farms’ net operating expenses, however, are expected to remain at about the same level overall, leading to a seven per cent drop in the province’s total net farm income.

On average, net operating income per Alberta farm is expected to drop 18 per cent, to $65,548, on farm cash receipts of $458,902.

On the other hand, farmers this year may be in a better position to deal with volatility in commodity prices, and the associated income fluctuation, as the debt-to-asset ratio of farmers has narrowed in recent years.

As of Dec. 31, 2014 — the end date for the most recently reported data from Statistics Canada on farm debt — farmers had taken on $5 billion more in liabilities, but also narrowed the debt-to-asset ratio to 15.2 per cent, the lowest recorded since 1997.

However, as analysts have pointed out, a large amount of farmers’ assets are land, which is not a liquid asset.

“If you look at land appreciation, we’ve done very well, but you can’t live off that,” Slomp said. “A lot of farmers have bought extensive land, and we’ll be in a crunch.”

Jade Markus writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting. Includes files from AGCanada.com Network staff.

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