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Farm Income Forecast Highlights
Table of Contents
1.0 2008 Farm Income Forecast
1.1 Crop Sector
1.2 Livestock Sector
1.3 Program Payments
1.4 Operating expenses
1.5 Provincial highlights
2.0 2009 Farm Income Forecast
2.1 Crop Sector
2.2 Livestock Sector
2.3 Program Payments
2.4 Operating expenses
2.5 Provincial highlights
3.0 Technical Notes
4.0 Forecast by province
Agriculture and Agri-Food Canada has finalized its farm income forecast for 2008 and 2009.This forecast is produced in consultation with the provincial governments and Statistics Canada.
The farm income forecast is a federal-provincial consensus on the outlook for 2008 and 2009. Actual farm income may differ from this forecast for a number of reasons. The unprecedented volatility of commodity markets, the global credit crisis and the extent of the global economic slowdown add uncertainty to the forecast. Unanticipated changes in the economy could affect farm income and therefore result in actual farm income differing from the forecast.
This farm income outlook is based on information available up to the end of December 2008, and is established using the same concepts and methods adopted by Statistics Canada for the purpose of farm income. The forecast is recorded on a cash accounting basis for the calendar year. Some of the more important assumptions, upon which the forecast was based, include:
- Preliminary estimates of principal field crop areas published by Statistics Canada on December 4, 2008;
- An average USD-CAD exchange rate of 0.93 (1 CAD=0.93 USD) for calendar year 2008 and 1.169 for calendar year 2009;
- An average West Texas Intermediate crude oil price of US $102 per barrel in 2008 and US $64 in 2009;
- Information available as of December 2008 on U.S. Mandatory Country of Origin Labelling (MCOOL) legislation, which is expected to come into full enforcement in spring 2009.
Aggregate farm income measures provide the agricultural sector with overall performance indicators by province. The data collected and used in these calculations are aligned with the concepts used in measuring the performance of the overall Canadian economy. Data are also collected at the individual farm business level, which include all revenues and expenses associated with the farm business. Important revenues and matching expenses at the farm level that are not incorporated in the aggregate data include, but are not limited to, custom work receipts and sales to other farms. These data help explain differences in performance of various types and sizes of farms. Due to these differences in concepts, the trends in the aggregate and farm level performance indicators may differ.
1. 2008 Farm Income Forecast
Aggregate farm income is expected to increase due to strong gains in the crop sector
The strong rise in crop receipts is expected to offset the increase in operating expenses and the slight drop in livestock receipts and program payments. Driven mainly by performance in the grains and oilseeds sector, market receipts are expected to be up 13%, reaching $41.5 billion in 2008. Net cash income is expected to be up 6% in 2008 over the previous year, to $7.5 billion, and realized net income is projected to rise 16%, to $2.5 billion, both due to strong crop receipts. Total net income is projected to increase substantially from $1.2 billion in 2007 to $5.1 billion in 2008, due to a combination of continued strength in crop receipts and a large increase in the value of crop inventories. Total net income in Canada for 2008 is expected to be far above the previous five-year average (2003-07) of $2.1 billion. As a result of substantial increase in sales of agricultural products and positive value of inventory change, agriculture's net value added to the Canadian economy is expected to reach $14.5 billion in 2008, which represents a 49% increase over the previous year.
At the farm level, net operating income for the average farm in Canada (which does not include adjustments for changes in inventories and depreciation) is forecast at $34,035 in 2008, a 5% decline compared to 2007, partly due to high input prices and low livestock prices. Net operating income for the average farm with sales between $250,000 and $499,999 is expected to go down 2% over 2007, to $67,679. Other family income is estimated at $60,516 per farm family in 2008 and average farm family income is expected to be up 2% in 2008 compared to 2007, reaching $92,859. The average farm family with sales under $250,000 is expected to earn most of their income from off-farm source in 2008, while family farms with over $250,000 in sales are forecast to receive a greater portion of family income from the agriculture operation.
1.1 Crop Sector
Crop sector receipts are forecast to rise to a record level of $23.3 billion. This represents an increase of 28% over 2007 and 57% above the previous five-year average. Record receipts in 2008 are the result of strong prices for the major grains and oilseeds in Canada during much of the first three quarters. Strong international demand and production problems in major exporting countries also contributed to the high prices during much of 2008.
In 2008, record yields for spring wheat, barley, canola and oats helped contribute to record Canadian grain production. Total supply is not expected to be burdensome as farmers entered the 2008 crop year with low carry-in stocks. Despite record grain production, declining prices in late 2008 caused farmers to hesitate slightly in marketing their crop.
At the farm level, the average grains and oilseeds farm is expected to earn $51,940 in net operating income, up 31% compared to 2007. The average vegetable farm is expected to earn $57,452, a 6% increase over 2007, while other horticulture and potato farms are expected to earn less than 2007's level.
1.2 Livestock Sector
The Canadian livestock and red meat industry is currently facing many challenges: increased competition, high input costs and market access challenges such as U.S. Mandatory Country of Original Labeling (MCOOL) legislation.
In 2008, total livestock receipts are expected to be down $100 million, to $18.2 billion, from 2007. Hog and cattle prices have been negatively affected by the high value of the Canadian dollar during the first three quarters of 2008 and the uncertainty surrounding MCOOL. In 2008, total cattle and calf receipts are expected to fall by about 4%, to $6.2 billion, while total hog cash receipts are expected to decrease 5%, to $3.1 billion, compared to 2007. In the supply managed sector, receipts are expected to rise 4%, moving from $7.9 billion in 2007 to $8.2 billion in 2008, mostly due to improved prices.
Hog inventories continued to decline in 2008 as rising input costs for feed, coupled with declining hog commodity prices, cut into producers' profit margins. Structural changes, along with barn and farm closures, have taken place in the industry, with almost 16% of hog producers leaving the industry since October 2007. Plant closures in Saskatchewan and the Atlantic region have lead to steep declines in hog inventories in these regions over the past year, leading to high exports of weanling pigs to the U.S. along with an increase in interprovincial shipments. In 2008, soft prices and high feed costs lead to greater exports of feeder cattle and cows early in 2008.
At the farm level, expenses are expected to outpace the receipts for the average livestock producer. For the average hog farm, net operating income is forecast to drop by 6%, moving from $64,447 in 2007 to $60,657 in 2008. Net operating income is projected to become negative for the average cattle farm in 2008. Dairy net operating income is projected to decline by 11% in 2008 to $92,900 per farm, compared to 2007.
1.3 Program Payments
Overall, program payments are expected to reach $3,975 million in 2008, which represents a 3% drop from 2007. This translates into a 2% drop in program payments per farm.
The expected decline in aggregate program payments in 2008 is mainly driven by the termination of the Canadian Agricultural Income Stabilization (CAIS) Inventory Transition Initiative and a decrease in crop payments from provincial stabilisation programs. In 2008, the new AgriStability and AgriInvest Kickstart programs sustained support to producers in sectors that were most affected by adverse economic conditions. AgriRecovery and the Cull Breeding Swine Program (CBSP) also provided additional support in 2008.
1.4 Operating expenses
In 2008, farm operating expenses are expected to increase by about 13%, due mainly to higher machinery fuel and fertilizer costs. Fuel prices in Canada reached record highs in 2008. The prices paid by Canadian farmers for machinery fuel are forecast to increase by 28% in 2008 over 2007. Fertilizer prices also increased significantly in 2008 due to strong world demand, supported by favourable crop prices, and coupled with higher energy prices and limited fertilizer supplies. Labour costs are expected to reach $4.2 billion in 2008. However, $1.7 billion of these wages are expected to be paid to family members of farm operators and as such, form part of a farm family's overall income. Interest rates declined in late 2008 in Canada, which is expected to reduce interest expenses paid by farmers.
1.5 Provincial highlights
Results of the aggregate farm income measures vary greatly by province, depending on the importance of the different sectors in each province and how these sectors responded to the many challenges and opportunities they faced in 2008.
In the Atlantic Provinces, net cash income and realized net income are expected to rise in Nova Scotia and New Brunswick. In Prince Edward Island and Newfoundland and Labrador, net cash income is expected to decline, as is realized net income which is falling due to higher depreciation.
In Quebec and Ontario, the increase in expenses is projected to outpace growth in crop receipts, causing net cash income and realized net income to decline. Higher crop receipts in both provinces are largely due to better prices for corn and soybeans in 2008.
In Western Canada, Manitoba's net cash income and realized net income are expected to decline in 2008, compared to 2007, as crop receipt growth is not expected to be larger than the rising expenses and declining livestock receipts. In Saskatchewan and Alberta, net cash income and realized net income are both expected to rise due to strong crop receipts outpacing a large increase in expenses caused by the high prices farmers received for the major grains and oilseeds. In British Columbia, net cash income and realized net income are both forecast to decline as a result of expected expenses increasing more than cash receipts.
For the average farm, net operating income in 2008 shows improvement in Saskatchewan, Alberta, Quebec and New Brunswick, compared to 2007. Net operating income for the average farm in Manitoba, British Columbia, Ontario, Prince Edward Island and Newfoundland and Labrador is expected to be lower than the Canadian average.
2. 2009 Farm Income Forecast
Despite downward pressure on crop receipts in 2009, little change is expected in overall farm income as a result of improved livestock receipts and declining expenses.
In 2009, an expected drop in crop prices is forecast to put pressure on the sector's receipts, which is projected to outpace the increase in livestock receipts and program payments. Therefore, total market receipts are expected to decrease 2% to $40.7 billion, but this is still 26% above the 2003-07 five-year average. Despite the expected fall in market receipts, net cash income and realized net income are both expected to rise by 4% in 2009, to $7.8 billion and $2.6 billion respectively, mostly due to a decrease of 3% in total expenses. Total net income is projected to fall to $1.2 billion, which is below the 2003-07 five-year average of $2.1 billion. This result is mainly driven by the expected fall in the value of crop inventories. Due to a decrease in total value of production, agriculture sector's net value added is expected to drop by 27% in 2009, to $10.5 billion.
At the farm level, net operating income for the average farm in Canada is forecast upward by 11% in 2009, to $37,863, partly due to lower input prices. Net operating income for the average farm with sales between $250,000 and $499,999 is expected to go up 8% over 2008, to $72,872. Other family income is estimated at $62,742 per farm family and average farm family income is expected to be $98,723 in 2009, which represents a 6% increase over 2008.As in 2008, the average farm family with sales under $250,000 is expected to earn most of their income from off-farm sources in 2009, while family farms with over $250,000 in sales are forecast to receive a greater portion of family income from the agriculture operation.
2.1 Crop Sector
Total crop receipts are expected to decline by 5% to $22.2 billion, but remain 50% above the 2003-07 five-year average. Stronger marketed production in 2009 is projected to help offset the prices decline expected for all the major grain and oilseed crops.
The record Canadian grain production in 2008 will help support marketed production in 2009. Although grain prices are expected to decline, lower prices for important expense items, such as fuel and fertilizer, are expected to sustain profit margins. Weather conditions will continue to play a major role in supporting prices.
At the farm level, the expected net operating income for the average grains and oilseeds farm is expected to be $45,076, a 13% decline from 2008. The average potato, vegetable, and fruit farms are expected to see an increase in net operating income compared to 2008. Net operating income per farm in the horticulture sector is forecast to remain well above the average farm in Canada in 2009, with the exception of fruit farms.
2.2 Livestock Sector
In 2009, total livestock cash receipts are expected to be slightly higher, at $18.5 billion, compared to 2008, due mostly to improved prices for cattle and hogs. In 2009, production is expected to fall slightly as producers have been liquidating herds recently, and the productive capacity of both herds is expected to be much smaller than it was a few years ago. Total cattle and calf receipts are expected to remain flat, at $6.2 billion, while hog receipts are expected to rise by almost 5%, to $3.3 billion over 2008, as a result of prices projected to improve. Conditions in the supply managed sector are expected to remain fairly stable.
Lower expected feed costs are expected to provide some incentive to feed and background more cattle in Western Canada, leading to lower expected exports in 2009. The new MCOOL legislation will likely contribute to lower exports as well.
Net operating income for the average cattle farm is expected to increase to $3,799 per farm in 2009. Net operating income for the average hog farm is expected to be $46,146 per farm, a decline of 24% compared to 2008.For supply managed sectors, poultry and egg net operating income is projected to be $138,880 per farm while net operating income for the average dairy farm is expected to be $106,006 per farm.
2.3 Program Payments
Overall, program payments in 2009 are expected to increase by 2% over the previous year, totalling $4,046 million.This will be reflected in the program payments at the farm level, which are projected to go up 4% per farm. The implementation of the new AgriInvest program should further maintain the level of support to the sector in 2009.
2.4 Operating expenses
In 2009, the farm operating expenses are forecast to decrease by 3% due mainly to lower fuel and fertilizer prices. The current crisis in the world financial markets, combined with recession fears, is having a significant impact on the energy and fertilizer industry. The fuel and fertilizer prices have declined significantly since October 2008. As a result, fuel prices are forecast to decrease by 28% while fertilizer prices are expected to decrease by 14% in 2009. In addition, the interest expenses are also forecast to decrease further in 2009 due to lower interest rates under the expectation of poor global economic conditions in 2009.
2.5 Provincial highlights
In the Atlantic Provinces, net cash and realized net income in 2009 are expected to continue to rise. In Quebec, net cash income and realized net income are forecast to be similar to 2008 as total receipts decline similar to expenses. In Ontario, net cash income is projected up slightly but realized net income is expected to decline due to increasing depreciation.
In Western Canada, Manitoba's net cash income and realized net income are forecast to increase as cash receipts are projected to increase due to rising program payments and increasing livestock receipts while expenses are expected to decrease. In Saskatchewan, net cash income and realized net income are both expected to rise as the magnitude of projected increases in program payments and declining expenses more than offset declining receipts for the crop and livestock sectors. In Alberta, net cash income and realized net income are both projected to decrease as total receipts decline due to lower crop revenues and program payments. In British Columbia, net cash income and realized net income are both forecast to improve as a result of projected decrease in operating expenses.
For the average farm, net operating income is expected to improve in all provinces in 2009, with the exception of Alberta as a result of factors like declining input prices. Alberta is facing several challenges because of the importance of the livestock sector in the province.
3. Technical Notes to accompany the 2008 and 2009 Farm Income Forecast
- The farm income forecast was prepared by the department in collaboration with provincial governments and reflects information and policies in place up until the end of December 2008. Agriculture and Agri-Food Canada is responsible for preparing a preliminary forecast based on a set of quantity and price assumptions and for consulting the provinces to obtain their input and to reach a consensus on the forecast and its release to the public.
- In the aggregate, Net Cash Income measures farm business cash flow (gross revenue minus operating expenses) generated from the production of agricultural goods. It represents the money available for debt repayment, investment or withdrawal by the owner. Realized Net Income measures the financial flows, both monetary (cash income) and non-monetary (depreciation and income-in-kind), of farm businesses. It represents the net farm income in a given year regardless of the year the agricultural goods were produced. Total Net Income measures the financial flows and stock changes of farm businesses. It values agriculture economic production during the year that the agricultural goods were produced. It represents the return to owner's equity, unpaid labour, management and risks.
- In the aggregate, Net Value Added represents the value of economic production from agricultural establishments. Economic production can be defined as any process which creates value or adds value to existing goods.
- For an individual farm, Farm Type indicates that 50% or more of sales must come from that commodity or commodity group. Farm type definitions are consistent with North American Industry Classification System (NAICS).
- For an individual farm, Net Operating Income measures cash flow (revenue minus expenses) of farm operations. Revenues include sales of agricultural commodities and services, as well as direct payments. This includes rebates and inter-farm sales along with other activities performed by the farm operation, such as custom work. The expenses will include the business costs associated with these activities. Neither a capital cost allowance nor a value of inventory adjustment have been included in the calculation. Net operating income represents the amount of money the farm operation has available for debt repayment, investment or withdrawal by the owner. These differences in activities/definitions mean that the average farm will not necessarily follow the same trend as the aggregate farm income measures.
- Although the forecast is presented as a single number, each number is in fact a consensus forecast and the true value may be found to differ considerably. A minor change in cash receipts or expenses can have a significant impact on net income levels. For example, a 1% increase in farm cash receipts of $30 billion would result in a 11% increase in realized net income of $2.8 billion.
- The reference year (2007) represents the estimates released by Statistics Canada on November 24, 2008.
4. Forecast by province
- Newfoundland and Labrador
- Prince Edward Island
- Nova Scotia
- New Brunswick
- Quebec
- Ontario
- Manitoba
- Saskatchewan
- Alberta
- British Columbia
- Canada
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