Farm Income Has Some Bright Spots, Says TD Economics

Net farm incomes will fall across the country this year but the picture for 2011 appears promising, according to a report from TD Economics.

While 2010 wasn’t the roller-coaster ride of 2008, “the unanticipated events of recent months have continued to put the planning and risk management capabilities of Canadian farmers to the test,” said Derek Burleton, vice-president and deputy chief economist of the TD Financial Group.

Farm cash receipts are expected to rise three to six per cent this year, except in Saskatchewan and Manitoba. Saskatchewan will see a five per cent drop, while Manitoba will see a slight drop of about one-half per cent. Burleton expects farm incomes to increase next year, led by a seven per cent rise in Saskatchewan.

“Production and income performances have varied widely from coast to coast this year, driven by factors such as differing industry mixes and growing conditions,” he said. “While floods have hurt the wheat crop in the Saskatchewan, favourable weather conditions have been supporting a good year for soybeans and other crops in Ontario and Quebec.”

The rising loonie, U.S. COOL regulations, and the rising costs of wages, transportation and potash are also challenging farmers, he said, while floods in Western Canada, droughts in Eastern Europe, price swings and gyrating currency markets are also affecting producers.

“Prices for key benchmark agriculture commodities have moved significantly higher (since the summer),” he said. “For wheat and barley, several factors have been providing a boost to prices, such as expectations that wheat supplies will tighten owing to the drought in Russia and the Black Sea region of Eastern Europe; the subsequent embargo on grain exports from Russia; a slowdown in shipments from Ukraine; and a subpar production level of wheat in Canada, Ukraine and Kazakhstan.”

Even with the prospect of shortages, commodity prices “have remained well below their 2007 peak levels, when fears of food shortages were rampant,” he said. “This is because increased output from countries such as the United States and Australia has helped to take up some of the slack in world supplies. Indeed, year-end stocks for wheat and barley are expected to run moderately above their five-year averages this year.”

On the livestock side, cattle and hog herds in North America continued to shrink, lending a further helping hand to prices, and low interest rates are also positive, he said.

“Borrowing rates will remain unusually low over the near to medium term. A low interest rate environment, combined with a high Canadian dollar, will provide farmers with an opportunity to replenish their stock of machinery and equipment, and thereby improve their level of competitiveness.”

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