Farmers’ cash income, equity up: StatsCan

Rising grain prices boosted cash income for Canadian farms in 2007, while rising farm real estate values improved the farm sector’s equity, Statistics Canada reported Tuesday.

Cash income for Canadian farm businesses increased 14.5 per cent in 2007, the federal agency reported. The impact of rising grain and oilseed prices more than offset large increases in operating costs and lower receipts for hog and cattle producers.

Cash income for the year rose to $8.1 billion, following two consecutive years of decline. The level was four per cent above the previous five-year average (2002-06), which included the BSE period and some years of low grain prices.

Farmers in Quebec, Ontario and the Prairie provinces recorded gains in cash income. Cash income dropped to extremely low levels in the Atlantic provinces and British Columbia. This divergence was largely a result of the wide range of crops and livestock produced across Canada.

Cash available to producers through borrowing increased in 2007, resulting in a $1.7 billion net increase in loans outstanding. Loans outstanding have increased for 14 consecutive years. The 2007 net increase in loans outstanding was below the previous five-year average increase of $1.8 billion.

The amount of cash available for investment or withdrawal (cash income plus the net change in loans outstanding) increased 12.5 per cent to $9.9 billion in 2007. This was 2.5 per cent above the average of the previous five years.

The loans outstanding:cash income ratio fell to 5.6 in 2007 from a record high 6.2 in 2006. However, the 2007 ratio remained above the previous five-year average of 5.3. This ratio indicates the burden of farm debt on farm cash income.

Meanwhile, farm sector equity in Canada increased 2.7 per cent in 2007 to $198.9 billion, as assets rose more rapidly than liabilities. The 2007 equity level was 6.2 per cen above the previous five-year average (2002-06). Provincially, farmers in Quebec, Ontario, Saskatchewan, Alberta and British Columbia recorded increases.

Total farm assets grew by three per cent to $248.6 billion in 2007, 7.3 per cent above the previous five-year average. The value of farm real estate, which accounts for almost two-thirds of total farm assets, was the primary contributor, increasing 3.8 per cent to $154.7 billion and continuing the long-term upward trend seen since 1988.

In addition to the increases in farm real estate and machinery, current assets edged upward as the increase in the value of crop inventories offset the decline in the value of livestock inventories. Assets grew in all provinces except Prince Edward Island and New Brunswick, where the value of crop and livestock inventories decreased significantly and land values were relatively flat.

Farm liabilities at the end of 2007 reached $49.7 billion, up 3.9 per cent from 2006 and the 14th consecutive annual rise. Current liabilities advanced 6.3 per cent, while long-term liabilities recorded an annual increase of 3.2 per cent. Prince Edward Island was the only province to record a decrease in liabilities in 2007.

The assets and liabilities in the balance sheet of the agricultural sector include those of farm businesses and non-operator landlords (for farm real estate assets leased to farm operators and the corresponding liabilities); they exclude the personal portion of farm households. This most closely reflects the assets and liabilities employed in the production of agricultural products, StatsCan said.

The debt: asset ratio progressed for a 12th consecutive year, climbing to a record 20 per cent in 2007, above the previous record of 19.8 per cent reached in 2006. This ratio measures the dependence of farm businesses on debt.

The current ratio (current assets divided by current liabilities) edged down in 2007 to 1.996, compared with 2.100 in 2006. The lower ratios recorded since 2003 mean that operators within the agriculture sector have a reduced ability to pay short-term debts compared with earlier periods. The previous 10-year average (1997-2006) of the current ratio was 2.465.

The interest coverage ratio assesses the ability to cover interest charges with the net income being generated (before interest and taxes). This ratio increased slightly to 1.670 in 2007, compared with the record low of 1.519 in 2006. The 2007 level remained below the previous 10-year average of 2.510.

Return on equity rose slightly to one per cent in 2007. This was following two consecutive annual decreases after an eight-year high in 2004 (2.9 per cent). The 2007 level remained below the previous 10-year average of two per cent.