Canada's farm income forecast for 2010 and 2011 began to be calculated

Canada's farm income forecast for 2010 and 2011 began to be calculated

Canada's Farm Income Forecast is a measure of the financial strength of the agriculture sector and its contribution to Canada's economy. It represents a federal-provincial consensus on the outlook for farm receipts, expenses and net incomes.

2010
For 2010, Canadian farmers will see net incomes rise due to a decline in operating expenses and renewed strength in output markets, neither of which was foreseen at the beginning of the year.

In the second half of 2010, grains and oilseeds prices increased to levels that approached their peak of 2007-08, as a result of sustained growth in world feed demand for animal feed and supply constraints such as the imposition of export restrictions by Russia and Ukraine during the summer. This price jump helped mitigate a drop in receipts driven by reduced seeded acreage and lower production resulting from flooding on the Prairies. On the livestock side, cattle and especially hog prices rebounded in 2010 as North American producers marketed fewer animals in response to the low prices they faced in 2009, and as an economic recovery helped demand.

2011
For 2011, our preliminary forecasts indicate that farm income will decline somewhat as increased expenses and reduced programme payments will more than offset increased crop and livestock receipts.

Crop receipts are expected to be slightly higher, as the price spikes in grains and oilseeds that took place in the second half of 2010 will still be felt in 2011. Livestock receipts are forecast to be higher in 2011, with prices for cattle and hogs having largely recovered from their lows in 2009. Nonetheless, net incomes of red meat producers will go down, as higher feed costs are felt.

Overall expenses will increase in 2011, in particular costs related to field crops. Unit costs for fertiliser, seeds and pesticide are expected to rebound while quantities purchased will increase as unseeded/flooded acres on the Prairies are put back into production. Programme payments will decrease in part because AgriRecovery assistance related to flooding was paid only in 2010.
Although aggregate net cash income and average net operating income in 2011 are forecast to drop by 13 per cent and 11 per cent, respectively, they follow a record year and in both cases will remain higher than the average for 2005-2009.

Besides net farm income, the Farm Income Forecast contains other indicators that measure producers' economic well-being. Those indicators suggest a positive situation. Average total income of farm families, which includes-non farm income, is forecast to reach $109,216 in 2011. At the same time, average net worth per farm is expected to reach $1.6 million, a 44 per cent increase over five years.
Methodology

Agriculture and Agri-Food Canada has finalised its farm income forecast for 2010 and 2011. This forecast is produced in consultation with provincial governments and Statistics Canada.

The farm income forecast is a federal-provincial consensus on the outlook for farm receipts, expenses, incomes and balance sheets in 2010 and 2011. This farm income outlook is based on information available up until mid-December 2010, and is established using the same concepts and methods adopted by Statistics Canada for the purpose of farm income reporting at both the farm and aggregate provincial levels. The forecast is recorded on a cash accounting basis for the calendar year. Some of the more important assumptions, upon which the forecast is based, include:

November estimates of field crop production published by Statistics Canada in December 2010
An average USD-CAD exchange rate of 0.96 (C$1 = US$0.96) for calendar year 2010 and 1.01 for calendar year 2011
An average West Texas Intermediate (WTI) crude oil price of US$79 per barrel in 2010 and US$85 per barrel in 2011
Preliminary data for 2008 from the Taxation Data Program forms the baseline for 2010 and 2011 farm level estimates
Data and forecasts reflect information obtained up until mid-December, 2010

2010 Farm Income Forecast
The year began with declining trends in grain and oilseed prices, a hog sector in crisis, stagnation in the cattle industry and fears of input price increases because of volatile international markets. However, abrupt turnarounds in several areas have resulted in a sharp improvement in expectations and the forecast for 2010 is better than anticipated. This is mainly due to a decline in overall input prices, a recovery in the hog industry, rising grain and oilseed prices in the second half of 2010 and expected growth in off farm income and net worth.

Net operating income for the average Canadian farm (which does not include adjustments for changes in inventories and depreciation) is forecast to be a record high of $50,077 in 2010, 31 per cent above the 2005-2009 average of $38,238.
Aggregate total cash receipts are forecast to be $43.4 billion in 2010, six per cent above the 2005-2009 average. Both crop receipts (-7 per cent) and programme payments (-9 per cent) are expected to decrease while livestock receipts are expected to increase five per cent.

Crops 2010
The average grain and oilseed farm in 2010 is expected to earn $62,062 in net operating income, 42 per cent above the 2005-2009 average, and three per cent below the 2009 record high.

Excessive amounts of precipitation throughout the growing season adversely affected the production in western provinces and subsequently lowered crop quality. However, strong grain and oilseed prices in the second half of 2010 as a result of tightening global supplies and record production of corn and soybeans in Eastern Canada helped mitigate the drop in production faced by grain and oilseed producers in Western Canada. Also propping up incomes for grain and oilseed producers, were declining input prices and increases in programme payments, which included $318 million in Prairie Excess Moisture Initiative pay-outs through the AgriRecovery framework.

Livestock 2010
The many challenges still present in the livestock industry, including herd reductions, the strong Canadian dollar and Country of Origin Labelling (COOL) regulations in the US, are expected to continue to adversely affect livestock marketings. However, rebounding hog prices, which have been spurred by the global economic recovery and supply constraints in North America along with strong cattle prices, have helped the sector's bottom line along with low interest rates and feed costs.

Net operating income for the average cattle farm is forecast to remain stable at $11,608 in 2010, two per cent up from the 2005-2009 average. Tighter supplies and severe winter storms in US cattle feeding country in the early part of 2010 have helped prop up cattle prices in Canada despite a strong Canadian dollar.

Programme Payments 2010
In 2010, programme payments are forecast to be $3.0 billion, a drop of nine per cent from 2009. This decline in programme payments is mainly due to a better-than-anticipated performance of the grains and oilseeds sector. As a result, lower payments to this sector are being triggered through the AgriStability programmes. Lower payments through AgriInvest are also forecast in 2010.

Increased payments through AgriInsurance and Waterfowl Damage Programme, along with higher support through the Agricultural Disaster Relief Programme under the AgriRecovery Framework (Pasture Recovery Initiative, Prairie Excess Moisture Initiative) will help to offset those lower payments mentioned earlier.

Operating Expenses 2010
In 2010, farm operating expenses are forecast to drop for the second straight year, declining $1.5 billion or four per cent compared to 2009. Fertiliser, feed, pesticide, interest and commercial seed costs are expected to drop significantly. Fertiliser prices are expected to decrease 19 per cent in 2010 relative to 2009 in response to low natural gas prices and the weak worldwide fertilizer demand due to the continuing struggling global economy. Also, interest rates paid for farm debts are projected to be down 11 per cent, as rates remain lower in an effort to maintain economic recovery.

2011 Farm Income Forecast
The forecast for 2011 remains relatively strong; however, some uncertainty remains. The productive capacity of the excess moisture afflicted areas in the Prairie Provinces, rising interest rates and commodity price variability are all factors that are expected to contribute to the uncertainty in 2011.

Net operating income for the average farm in Canada is forecast to be $44,171 in 2011, an increase of 16 per cent in 2011 compared to the 2005-2009 average but below the 2010 estimate of $50,077.
For the average farm, net worth is expected to increase by eight per cent from 2010, to $1.6 million in 2011. In 2011, total assets are expected to increase seven per cent from 2010 to $2.0 million, with the growth of long-term assets surpassing that of current assets. Long-term and total liabilities are expected to increase five per cent in 2011, from 2010.

Aggregate total cash receipts in Canada for 2011 are forecast to increase two per cent relative to 2010, to $44.3 billion, which is eight per cent above the 2005-2009 average of $41.1 billion. Both crop receipts (+4 per cent) and livestock receipts (+3 per cent) are forecast to increase while direct payments are expected to drop 20 per cent.

Crops 2011
Low crop carry-over levels are expected into 2011 due to 2010 crop production constraints stemming from the flood in the Prairie Provinces. Average grain and oilseed farms are expected to earn $51,645 in net operating income as producers hold back marketings to build inventories. This is 17 per cent below the average net operating income in 2010 but still 18 per cent above the 2005-2009 average. In addition, larger harvested areas are expected for canola, soybean and corn crops in the medium term, as oilseed crushing capacity expands.

The decline in income in 2011 is compounded by an expected increase in input prices and a decrease in programme payments; however, commodity prices are expected to rebound slightly, stimulating market receipts.

For the average potato farm, net operating income in 2011 is expected to climb 26 per cent to $211,835 from 2010, which is 42 per cent above the 2005-2009 average. In 2011, increased demand and tighter supplies is expected to boost potato prices, driving an 11 per cent increase over 2010 in average market receipts.

In 2011, the average vegetable farm net operating income is expected to be $56,288, 15 per cent above the 2005-2009 average. Market receipts are expected to increase in 2011 relative to 2010, while expenses and programme payments increase by two per cent and 10 per cent, respectively.

Livestock 2011
The factors expected to adversely impact livestock producers in 2010 are anticipated to continue in 2011. Herd reductions, the strong Canadian dollar and Country of Origin Labelling (COOL) are expected to continue to negatively affect livestock marketings. Cattle breeding herds are expected to be restocked, leading to increased marketings by 2012. However, the strong prices seen in 2010 are expected to continue into 2011, as supply is expected to continue to be squeezed and demand continues to rise. The recent strength of livestock prices will be tamed by the continued strength of the Canadian dollar.

Programme Payments 2011
In 2011, programme payments are expected to reach $2.4 billion, a 20 per cent decrease from 2010. This can be mainly explained by a decrease in payments through AgriRecovery, AgriInsurance and ASRA. The lower payments under AgriRecovery ($19 million in 2011 compared to $416 million in 2010) can be explained by the nature of the programme itself. Considering that the next disaster cannot be predicted, AgriRecovery payments are not forecasted.

Operating Expenses 2011
In 2011, farm net operating expenses are forecast to increase six per cent relative to 2010, due mainly to forecasted higher interest, energy, fertiliser and pesticides costs. The price of crude oil is forecast to average US$85 per barrel in 2011, eight per cent higher than the 2010 average as the global economic recovery continues. The prime business rate charged by the major banks in Canada is expected to be 3.79 per cent on average in 2011, up from 2.59 per cent in 2010, which is expected to increase interest expenses.

Pesticide and fertiliser prices are forecast to be higher in 2011 driven by rising global grain requirements. In addition, the use of fertiliser, fuel, pesticides and seeds are expected to rise to their normal levels in 2011 as the large area of unseeded acreage in the Prairies returns to production.

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