Farm income slips in 2009: StatsCan

Farmers’ cash receipts and operating costs both declined in 2009 compared to 2008, leading to a $10 million (0.3 per cent) drop in realized net farm income, according to Statistics Canada.

Realized net farm income — the difference between a farmer’s cash receipts and operating expenses, minus depreciation plus income in kind — amounted to $3.6 billion in 2009, the federal statistics agency reported this week.

The slight drop in 2009 (*) followed increases in both 2007 and 2008.

Realized net income fell in four provinces: Nova Scotia, Quebec, Ontario and Alberta. In all four, declines in receipts exceeded declines in expenses. Realized net income increased in the remaining provinces.

Nationally, farmers last year paid roughly 80 cents in operating expenses for every $1 in receipts they earned, down from 81 cents in 2008. During the past decade, this expenses-to-receipts ratio has fluctuated between about 78 cents in 2001 and 85 cents in 2003. (The ratio is calculated by dividing operating expenses by total farm cash receipts.)

When depreciation charges are taken into account, the 2009 ratio rises to 92 cents for every $1 of receipts.

Farm cash receipts

Market receipts (revenues from the sale of crops and livestock) declined by $883 million to $40.9 billion in 2009.

Livestock receipts fell $900 million to $17.9 billion, while crop receipts remained virtually unchanged from 2008 levels and amounted to $23.0 billion.

The 4.8 per cent drop in livestock receipts was due largely to a sharp decline in the number of animals exported, as mandatory country-of origin labeling (COOL) legislation came into effect in the U.S. Another factor was lower demand for livestock products resulting from the global recession. The numbers of cattle  and hogs shipped across the border in 2009 were down from 2008 levels by 33.3. and 31.7 per cent respectively.

While slaughter cattle prices were relatively stable, slaughter hog prices resumed their decline after increasing slightly in 2008. In 2009, slaughter hog prices fell 4.7 per cent. Since 2004, they have declined by 28.8 per cent.

A 1.6 per cent rise in receipts in the supply-managed sector (dairy, poultry and eggs) cushioned the decline in livestock receipts.

The slight rise in crop receipts in 2009 (0.1 per cent) followed increases of 24.7 per cent in 2008 and 25.4 per cent in 2007.

Grain and oilseed prices have fallen from their peak in 2008, in part because of above-average world production in 2008 and resulting high stock levels. The decline in prices was offset by an increase in the quantities sold of most of the major grains and oilseeds in 2009, as producers drew down their stocks from the bumper crop in 2008.

In the case of potatoes, the reverse occurred. A decline in North American potato production in 2008 pushed prices up 22.8 per cent in 2009, resulting in a 16.4 per cent increase in potato receipts.

Farm cash receipts, including both market receipts and program payments, fell by $1.7 billion (3.7 per cent) to $44.2 billion in 2009.

A 20.1 per cent decline in program payments accounted for almost half the decrease in total receipts. The decline largely reflected lower payments from the AgriStability program due to the strength of the grain and oilseeds sector, and the winding down of several programs.

Farm expenses

Farm expenses fell four per cent in 2009 to $40.6 billion, the first decrease since 1986. This decline followed increases of 9.1 per cent in 2008 and 7.6 per cent in 2007.

Strong decreases in machinery fuel, interest, and fertilizer expenses more than offset a moderate increase in depreciation charges. Prices of several important inputs fell after spiking in 2008 during the latter stages of the boom in commodity prices.

Depreciation charges were up 5.1 per cent. Both building and machinery depreciation increased at similar rates.

Farm expenses were down in all provinces in 2009, with the largest decline (6.6 per cent) in Saskatchewan. In 2008, Saskatchewan farmers had the strongest increase (13.5 per cent) in expenses.

Total net income

Total net income amounted to $2.7 billion in 2009, down $4.1 billion from 2008.

Total net income adjusts realized net income for changes in farmer-owned inventories of crops and livestock. It represents the return to owner’s equity, unpaid labour, and management and risk.

Although farmer-owned inventories of crops remained at high levels at the end of 2009, they were below the 2008 levels. This decrease, together with the continuing decline in livestock inventories, helped push the value of inventories down $918 million.

Net value added

Agriculture’s net value added fell $4.6 billion to $11.1 billion in 2009, primarily as a result of a drop in the total value of production. Prince Edward Island, New Brunswick and British Columbia were the only provinces to record increases in net value added in 2009.

Net value added measures agriculture’s contribution to the national economy’s production of goods and services. It is derived by calculating the total value of agricultural sector production, including program payments, and subtracting the related costs of production (expenses on inputs, business taxes and depreciation).

Farm cash receipts

Farm cash receipts (**) for Canadian farmers totalled $10.5 billion during the first quarter of 2010, down 12.3 per cent from the same period in 2009, StatsCan reported this week.

Farm cash receipts, which include crop and livestock revenues plus program payments, declined in every province. The biggest decline occurred in Alberta, where receipts fell 17.3 per cent.

Market receipts from the sale of crops and livestock amounted to $9.8 billion, down 11.9 per cent from the first quarter of 2009. Crop receipts fell 17.4 per cent to $5.3 billion, the first decrease since 2006, while livestock receipts declined 4.4 per cent to $4.5 billion.

The decrease in crop receipts was due primarily to lower prices for the major grains and oilseeds, coupled with reduced sales of canola, soybeans and corn. The slide in grain and oilseed prices has persisted since they peaked in 2008, as world grain and oilseed supplies continued to grow.

As prices continued to decline, producers chose to receive payment for more of their grains and oilseed crop in 2009 rather than defer payment into the first quarter of 2010. This was a reversal of the situation in 2008 when prices were stronger. Farmers deferred about $520 million less in receipts into the first quarter of 2010 than they did into the first quarter of 2009.

On the livestock side, both the number of animals sold and the prices received for cattle and hogs were lower. During the first quarter, Canadian farmers exported 9.2 per cent fewer cattle and 18 per cent fewer hogs compared with the same quarter in 2009. Livestock receipts declined in every province, ranging from 0.6 per cent in Prince Edward Island to 11.5 per cent in Saskatchewan.

In the supply-managed sector (dairy, poultry, eggs), farm cash receipts rose 0.9 per cent in the first quarter, as prices for milk and eggs rose. Poultry receipts fell 2.5 per cent. Supply-managed commodities accounted for more than 45 per cent of total livestock receipts.

Program payments amounted to $703.1 million in the first quarter, down 17.9 per cent from the same quarter in 2009. Farmers were required to make their final withdrawals from the Net Income Stabilization Account by the end of the first quarter of 2009. Program payments fell in every province except Manitoba, Nova Scotia and Alberta.

* — Preliminary farm income data for the previous calendar year are first released in May of each year (five months after the reference period), providing timely information on the performance of the agriculture sector. Revised data are then released in November of each year, incorporating data received too late to be included in the first release.

Realized net income can vary widely from farm to farm because of several factors, including commodities, prices, weather and economies of scale. This and other aggregate measures of farm income are calculated on a provincial basis employing the same concepts used in measuring the performance of the overall Canadian economy. They are a measure of farm business income, not farm household income.

Financial data for 2009 collected at the individual farm business level, using surveys and other administrative sources, will be available later in 2010. These data will help explain differences in performance of various types and sizes of farms.

** — Farm cash receipts measure gross revenue for farm businesses. They do not represent their bottom line as farmers have to pay expenses and loans and cover depreciation.

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