AAFC Says Market Income Up, Program Payments Down

Higher grain and livestock prices pushed Canadian farm income higher than originally projected in 2010 and, by contrast, 2011 won’t look as rosy, says an Agriculture Canada forecast.

But for the foreseeable future, prospects look bright for Canadian agriculture.

“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 2005-09,” said the forecast released Feb. 28. Net cash income, which doesn’t include expenses or depreciation, will reach $8.9 billion in 2010 while farm-level average net operating income will be $50,077, 31 per cent above the 2005-09 average of $38,238. Both measures show farm income slightly surpassing the peak levels seen in recent years.

“For 2011, our preliminary forecasts indicate that farm income will decline somewhat as increased expenses and reduced program payments will more than offset increased crop and livestock receipts,” the forecast said. “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,” it said. “Nonetheless, net incomes of red meat producers will go down, as higher feed costs are felt.”

EXPENSES HIGHER

Expenses will also be higher this year as fertilizer, seed and pesticide cost “are expected to rebound while quantities purchased will increase as unseeded-flooded acres on the Prairies are put back into production,” the department said. “Program payments will decrease in part because AgriRecovery assistance related to flooding was paid only in 2010.”

The outlook is bright because with off-farm earnings, the average total income of farm families is forecast to reach $109,216 in 2011, the department predicted. At the same time, average net worth per farm is expected to reach $1.6 million, a 44 per cent increase over five years.

The forecast for 2011 remains relatively strong. However, some uncertainty remains related to the productive capacity of the excess moisture-afflicted areas, rising interest rates and commodity price variability.

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 2005-09 average, but below the 2010 estimate of $50,077, the forecast noted.

“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 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.”

A GOOD YEAR

Last year turned out well for farmers “due to a decline in operating expenses and r e n ewe d

s t reng t h in output markets, neither of which was

foreseen at the beginning of the year,” the

forecast noted.

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,” it said. “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.”

FARM INCOME

The average family farm with sales under $250,000 is expected to earn most of its income from off-farm sources in 2010, while family farms with over $250,000 in sales are forecast to receive a greater portion of family income from

the agriculture operation, the department said.

In 2010, program payments are forecast to be $3 billion, a drop of nine per cent from 2009. This decline in program 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 programs. Lower payments through AgriInvest are also forecast in 2010.

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

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