No one does really, but farmers seem to have a particular disdain for sending money to Ottawa.

I think there are a few reasons for this.

One is cash basis income tax treatment which means farmers can often defer paying income tax. Farmers can benefit from deferring income tax, although I would argue it’s more of a necessity than a benefit.

The only alternative would be taxing the farmer on his or her production inventory before it’s sold, estimating production and a selling price.

Other business owners and professionals are taxed on their receivables, but for farmers, the inventory is often not yet contracted or sold.

There are two main strategies to defer income taxes. One is to pre-buy next year’s input expenses; the other is to defer grain ticket settlements to the next fiscal year. In the 2017 budget the Liberal government considered changes to the Canadian grain ticket income tax deferral rules. I responded to the government consultation that grain ticket deferral doesn’t cost government anything directly and I argued taking it away would only further increase farm support payments.

Fortunately, the rules remained unchanged.

There are two ways to record income taxes on accrual financial statements. One is the taxes payable method which is just as it sounds: simply report income taxes owing as a payable.

The other method is the future income taxes method. This method recognizes the future taxes owing on your unsold inventory and, in some cases, the difference between accounting net book value and tax net book value of assets such as farm machinery.

I prefer the income taxes payable method for its simplicity. I find the future income taxes method only relevant if operations were to wind down next year — which almost never happens.

Another reason farmers don’t like paying taxes is perceived government waste. Farmers work hard for their profits and like everyone, want to see good return for their tax dollars.

Most of my working career I’ve been a T4 income earning employee. Taxes withheld since my first pay cheque never hit my bank account. If you never see the money, it’s harder to envision it as your own.

Then I started my fractional CFO firm where I source and execute the work, pay the bills and have to send a chunk of profit away in taxes. It’s a different mindset when the money physically hits your bank account and then you have to send a large portion away each quarter.

The same is true for farm business owners who must acquire land and livestock, purchase supplies and inputs and then execute on a farm business plan. Hopefully, weather cooperates and they’re able to squeak out a profit. And then, hopefully, politicians put their taxes paid to good use.

One advantage Canada has over the U.S. is the absence of personal property taxes on farm machinery. (Although significant exemptions exist.) Some states, such as Montana, levy a tax for the value of farm machinery on hand at the end of every year.

Canadian farmers also benefit from a tax-free rollover of farms to the next generation and may it always remain this way. Any introduction of a wealth or estate transfer tax would be as popular as last year’s attempted capital gains tax increase.

So, between start-up years, money-losing years and deferring tax, farmers aren’t used to paying taxes. Many farm accountants tell their clients they should want to pay income taxes, because it means that the farm has been profitable long enough to exhaust the usual tax deferral strategies.

Just remember that farmers will never like it.

Craig Macfie, CPA, PAg, provides fractional CFO services to growing farms and agribusinesses. Find out more at springcfo.com

The post Why do farmers hate paying taxes? appeared first on Country Guide.

Well, the tide is going out in primary producer agriculture. Who will be left with clothes on?

Is the shifting tide due to the highest cost of production ever? The changing policy discussions? The geopolitical factors that come with trade wars? Or just the fact that weather events are becoming more common?

Whatever it is, there’s definitely a shift.

Growing up I never realized how much agriculture was trailing other industries in terms of financial acumen. We could once obtain loans with looseleaf net worth statements and personal tax returns. The words “accrual,” “debt service” or “working capital” were not words frequently thrown around, much less understood by most famers. 

In my early years agriculture was not profitable, and land was traded for property taxes. 

How things have changed.

As 2025 progresses, indicators of change have appeared. Banks are tightening up on reporting and covenants. Farms are starting to see cracks in their financial foundations. Even agricultural educational institutions are taking notice. 

A colleague of mine once commented that he had to be careful when discussing financial acumen with farmers during his presentations as it was a “touchy” subject. Well, guess what? Touchy doesn’t pay the bills.

As farmers move into a new reality of financial requirements, let’s break down the non-negotiables when it comes to running your business.

Accrual financial statements

For the first time, this spring I had a conversation with a lender who refused a restructure due to lack of historical accrual reporting. 

It was almost a breath of fresh air. 

For years the industry has been trying to push producers towards understanding and using accrual reporting over cash. Accrual allows the farm to identify if it’s profitable, not just if there’s money in the bank to pay the next bill. This is not to say that cash doesn’t have a place in key performance indicators, it just cannot be the only conversation.

Our partners to the south have been trying to push this standard for 30 years. Ever since the 1980s agriculture crisis, U.S. regulators and standards boards made it a key objective. But they have made little headway. 

I would like to think that Canada is closer but let’s say its efforts are the “best of the worst.” Over half of the primary producer industry has still not adopted accrual reporting and does not know if they are profitable year over year.

Call it the Holy Grail, but a true business requires accrual information throughout the year. Many of the farms we consult for now have internal controllers, monthly accrual reporting and know exactly where they stand in terms of profitability. 

This is how you can make decisions with no emotion, just data.

Budgets and projections

Budgeting is more of a spectrum than a destination. 

There are many factors that need to be considered when preparing a true projection that most fail to execute. The key areas of focus should be the following:

• Cost of production: The need to identify a farm’s true cost of production has never been greater. To move a step further you need to identify both an accrual and a cash number to appropriately market your product. One requires amortization (yes, this is a true cost as you are losing equity in your machines at a rapid pace per hour); the other needs debt payments as they are a cash drain and, depending on your leverage model, may be material. Overall, you need to identify a marketing plan that shows a sustainable return per bushel and per acre.
• Monthly burn rate: Without a monthly cash flow (preferably planned over an eighteen-month period) your ability to market falls only on price. For most farms, cash flow, logistics and many other factors go into when and how you market your products — even more so on livestock operations where you don’t have steady cash flow throughout the year. Knowing your monthly cash out-flows will help you make longer-term decisions.
• Capital planning: The time to decide on equipment and infrastructure is not when the salesperson sits down for a coffee. Most progressive farms create capital plans years in advance and stick to them. In the past, operations bought equipment in good years and then held tight when times got tough. This doesn’t allow for any future strategy or plan; it is purely emotional buying. Know what you can afford, when machinery requires replacement and how this affects your profitability and banking.

Key performance indicators

It still amazes me how many producers have never read a commitment letter from their lenders. 

On many farms, financial institutions are the only thing between them affording to put a crop in and calling the auctioneers. Agriculture is an equity rich-cash poor business and, as such, the ability to understand your key banking and internal ratios is more important than ever.

Following are the three indicators every operator should know at any point in their day:

• Working capital: How much cash you have available to cover future costs. This could be working capital cash in a bank account or grain in the bin that can be easily converted to cash. Working capital is calculated by your current short-term assets less your obligations due over the next year. This ratio determines how easily you can make sales and procurement decisions and whether you can take the family out for dinner on a Sunday night.
• Debt service: The indicator of whether you can make enough cash to pay your debt. For non-farm individuals this would be your employment income compared to your mortgage and car loans. For farms, this is whether over a three-to-five-year period the farm creates enough cash to cover the current debt obligations. This determines whether your banker will give you more money or shut the tap off.
• Debt to tangible net worth: Are your assets larger than the debt you maintain? This is the least important indicator with your lenders, but often a covenant, nonetheless. This indicates whether you have left enough of your personal wealth in the business in comparison to the bank’s risk. This often only becomes a broader conversation if land values decline or if you are slowly taking large amounts of cash out to buy personal assets.

Every time agriculture enters a down cycle the industry pushes primary producers into positive change.

It is an interesting trend as it follows the concept that good times create soft people, and hard times create hard people. 

Whether 2025 continues to be the year where we see the industry force change, only time will tell. But as an individual who speaks with a significant number of farms every year, I sometimes hope for short-term pain to force a long-term change.

The post Shifting tides bring change to agriculture  appeared first on Country Guide.

So, if grain farming is back to squeaking out a profit for the foreseeable future, what can we do about it?

1. Confront the facts, but don’t lose faith

In his book, Good to Great, Jim Collins shares a quote from Vietnam prisoner-of-war Admiral Jim Stockdale who was tortured over 20 times during an eight-year imprisonment.

Stockdale said, “You must never confuse faith that you will prevail in the end — which you can never afford to lose — with the discipline to confront the most brutal facts of your current reality, whatever they might be.”

What are the brutal facts of your current reality? How is your cash-flow situation? What loan payments are coming due? What’s your net worth or equity level? How realistic are your internal valuations for inventory, machinery or land? How good is the relationship with your lender?

2. Up-to-date reporting

If you can’t answer the questions above, you likely have a financial reporting issue. The days of doing an entire year of bookkeeping annually in the winter months is increasingly problematic.

This is especially true for operations with significant debt. Banks, advisors and the dollars invested every spring require more up-to-date information. Once the financial reporting issue is solved, better budgeting is possible. Remember, though, that all bookkeepers are not created equal. Find a good bookkeeper or become one.

3. Zero-base budgeting

As farms grow larger, winters get shorter and next year’s planning begins earlier. The annual budget should be set once crop rotation, crop inputs and acres have been finalized.

Instead of taking last year’s budget and using that as your starting point, zero-base budgeting starts with a blank page and validates every line item on your budget based on your goals and priorities. Everything is fair game including acres, machinery, labour, inputs and consultants.

Crop mixes, machinery purchases and evaluating land options are examples where zero-base budgeting “decision packages” can be developed.

Decision packages should include costs and benefits, budgets, alternative options that were considered and recommended decisions.

Zero-base budgeting also allows more members of your farm and advisory team to become involved with the annual budgeting process.

4. Off-farm employment

As the old saying goes, behind every successful farmer or rancher is a spouse who works in town. Off-farm employment was normal in the rural Saskatchewan I grew up in and I don’t think that’s ever changed. Farming is usually a low-margin business and I’ve witnessed impressive farm growth achieved with off-farm employment.

If you’re finishing high school, some of the best advice is still to go to college or university or get a trade. Additional education and skills can always be brought back to the farm.

5. Think outside the box

Confirmation bias, or seeking out information that confirms our existing beliefs, is a common problem. This bias underlies the “we’ve always done it this way” mentality. I’m a big fan of peer groups and Texas A&M’s TEPAP program which emphasizes continuous improvement. Challenge your assumptions and beliefs. In commodity agriculture, the competition includes our neighbours and producers from around the globe. The competition is brainstorming how to become more efficient and a lower-cost producer — and so should you.

The post 2022-Level Farm Profits are Over. What’s Next? appeared first on Country Guide.

“It has been a volatile few years for dairy producers but 2024 is shaping up to be calmer – a return to a more normal environment, if you will,” wrote Graeme Crosbie, a senior economist with the ag lender, in a Feb. 8 article.

He named feed prices and availability; butter stocks; and retail demand and inflation as the top economic trends likely to impact the sector this year.

“Feed availability and pricing will be the ultimate determinant of profitability in 2024,” Crosbie wrote.

A large U.S. corn crop in 2023 lowered prices and put downward pressure on feed wheat and barley, despite drought that limited production, he said. Record imports of U.S. corn to Western Canada has continued to keep a lid on feed prices, though prices remain elevated.

FCC forecasts feed costs to be lower in 2024 but trend higher throughout the year.

Hay prices, meanwhile, will likely be “stickier” in the west, Crosbie said, and producers will be hoping for spring moisture.

At present, low snow levels look to exacerbate already dry conditions in much of the west.

Butter stocks are relatively low compared to recent history, Crosbie wrote.

“Low butter stocks leave little room for error should production not meet anticipated demand,” he said.

More incentive day announcements may be forthcoming for producers, he added.

Demand for dairy appears to be holding up fairly well despite stressed consumer budgets. One reason, Crosbie wrote, is that dairy price increases were lower than many other major food products.

For instance, overall beef prices rose nearly 11 per cent year over year, chicken rose by almost five per cent year over year, and fresh fruit rose more than three per cent.

Butter rose over six per cent, Crosbie said, however milk rose less than two per cent, and cheese prices rose a bit more than two per cent year over year.

While farm gate dairy prices are set to rise in May, dairy product prices are forecasted to increase a fairly modest 1-3 per cent, Crosbie wrote.

Interest rate cuts are anticipated in the second half of the year, he added. However, profitability in the west will likely be contingent on growing season conditions.

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