A great year for the bottom line of grain farmers

Farm income rose by half a billion in Alberta last year — although our neighbour did even better

Canola was the star, but grains and pulses also propelled farm incomes on the Prairies last year.
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Farm income in Alberta took a hefty jump last year, but nothing compared to our next-door neighbour.

Net cash income rose by 15 per cent in Alberta to $3.9 billion, which is a $447-million increase from 2019. But in Saskatchewan, net cash income skyrocketed to $6.4 billion — a whopping 78 per cent increase of $2.8 billion.

In fact, Saskatchewan accounted for nearly half of the gain in net cash income in the country, which grew by 37 per cent to $18.1 billion, says Statistics Canada.

And there was no surprise about what drove the increase.

“Higher export demand for most Canadian grains and oilseeds boosted receipts,” StatsCan said. “Exports of crops also benefited from greater rail capacity to ship these commodities, as demand weakened for petroleum products as a result of the COVID-19 pandemic.”

Canola sales were up 19 per cent as both seed exports and crush soared, wheat receipts were up more than 10 per cent, income from pulses more than doubled, and feed grains were strong, too.

The numbers look even better in terms of realized net farm income (the difference between cash receipts and operating expenses, minus depreciation and plus income in kind).

That amounted to $9.9 billion nationally (up 84 per cent from 2019) and $1.4 billion in Alberta (up 39 per cent) with Saskatchewan mopping the floor with everyone ($4.5 billion, a 258 per cent increase).

But this figure is a more nuanced measure and not the key one for Farm Credit Canada’s chief agricultural economist, who prefers the net farm income figure.

“That’s what you have left at the end of the day to reinvest in your business,” said JP Gervais.

But that means there will be even less of that for livestock producers.

Nationally, their income dropped 1.1 per cent to $26.3 billion — and down 4.2 per cent in Alberta — as the pandemic shut down meat packers and created a huge backlog in unprocessed cattle. Overall cattle receipts were down five per cent (with four-fifths of that from lower prices).

But it might have been worse. Cattle receipts fell off a cliff in the second quarter of the year, dropping 19 per cent before clawing most of that back later in the year. Hog receipts were slightly higher but a 5.7 per cent gain in marketing was mostly offset by a 4.4 per cent drop in hog prices, StatsCan said.

Land outlook

One factor that floated all boats was lower interest costs.

“Debt has gone up in 2020, but because of lower interest rates, interest payments on that debt actually came down $100 million,” said Gervais.

But higher land prices won’t necessarily follow, he added.

Average Canadian land prices have been rising for some time, including between 2015 and 2018 when net farm income declined, he noted.

“To understand where we’re going, we need to understand where we’re coming from,” he said.

“If you look at the share of income allocated to land payments, we’re almost at the top of what historically it has been, so there’s not as much room for land values to go up as in the past.

“I still think there will be a strong demand for land, but despite the rise in income, I think businesses will be more careful about the price they are paying.”

That would be a wise strategy as the good times don’t last forever, he said.

“It’s good to play offence and grow your business, but also keep an eye on that first line of defence — which is cash, basically — your working capital for those unexpected things that you know will be there,” he said.

And 2020 was one of those rare years when grain farmers not only got paid more for their crops but spent less growing them.

It wasn’t a great deal less — just $6.9 million less in Alberta, which is only 0.1 per cent of the $12 billion they spent. (Saskatchewan was once again blessed, with expenses dropping $330 million or 3.1 per cent.)

“Machinery fuel prices fell sharply as demand for fuel used in transportation plummeted in the wake of measures taken to curb the spread of COVID-19,” said StatsCan. “Machinery fuel expenses decreased 16.4 per cent in 2020, the largest decline since 2015.”

Fertilizer costs fell six per cent.

“Oversupply issues had nitrogen prices trending downward before the pandemic,” said StatsCan. “The 2020 decrease in fertilizer expenses was the largest since 2010.”

But those are operating costs and when you add in a key capital cost — depreciation on machinery — it’s a different story.

“Total farm expenses, which include operating expenses and depreciation, increased 1.6 per cent to $62.3 billion in 2020 as depreciation charges were up 4.1 per cent,” the federal agency said. “Total expenses rose in every province except Saskatchewan and Manitoba.”

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