Despite low rates, farm interest costs ballooned in 2019

Farm income may have been up in 2019, but expenses kept pace, according to government figures.

Both cash receipts and operating expenses after rebates for Canadian farmers were up six per cent to $66 billion and $53 billion, respectively, according to Statistics Canada.

One of the biggest increases in expenses was interest, up almost $600 million or 16 per cent totalling $4.2 billion — despite low interest rates.

Farmers only spent more on commercial feed ($7.3 billion), cash wages ($6.6 billion), and fertilizer ($5.7 billion).

Depreciation was an $8-billion expense.

Interest costs exceeded individual spending on pesticides, seed, fuel and cash rent.

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“That (interest) for sure has an impact on net cash income,” J.P. Gervais, Farm Credit Canada’s vice-president and chief agricultural economist told reporters during a telephone conference May 27.

Machinery fuel and stabilization premiums were the only expenses that went down in 2019. Farmers spent $2.7 billion on fuel, down five per cent, or $154 million.

Family wages totalling $2.5 billion were up 19 per cent.

“It’s overall expenses I believe that are challenging overall profitability,” Gervais said. “We had tremendous growth all the way up to 2014 and then we have been stagnant in terms of overall cash receipts, and yes, overall operating expenses have continued to grow. That needs to be continually monitored.

“The price of inputs has gone up and businesses are under a lot of pressure to maximize their production. It’s hard for them to cut back on any inputs when they know this is going to have a positive return on their output. Expenses have been going up and that’s what has been challenging profitability for sure.”

Manitoba farmers collectively saw their net cash income fall 11 per cent to $1.3 billion in 2019. While cash receipts of $6.6 billion were unchanged from 2018, operating expenses after rebates rose three per cent, or $171 million to $5.3 billion.

Canadian and Manitoba farm debt increased by eight and seven per cent to $114.8 billion and $10.5 billion, respectively.

While debt can be burdensome when net cash income declines, borrowing to become potentially more profitable makes sense so long as it can be repaid, Gervais said.

Farmers are generally facing tougher times now, he said.

But there are some promising signs, including stronger canola exports and pork exports to China doubled during the first three months of 2020.

Since then cattle and hog farmers have seen prices decline because of reduced packing plant capacity, but over time Gervais expects more normal market conditions.

“I believe in the long-term viability of Canadian ag, I really do,” Gervais said.

About the author

Reporter

Allan Dawson

Allan Dawson is a reporter with the Manitoba Co-operator based near Miami, Man. Covering agriculture since 1980, Dawson has spent most of his career with the Co-operator except for several years with Farmers’ Independent Weekly and before that a Morden-Winkler area radio station.

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