Farmers have a positive outlook, for good reason

A recent survey by Farm Credit Canada found 80 per cent of farmers feel positive about the future and Agriculture Canada’s latest income forecasts will add to the rosy outlook.

Net farm cash income for 2011 was $11.7 billion, Agriculture Canada said in a report. Factoring in depreciation cuts that number in half, but it was still well above the 2006-10 average.

“Despite difficult growing conditions last year in parts of the country, and higher operating expenses driven by fertilizer, fuel and feed costs, 2011 saw an increase in overall farm income levels due to higher prices for hogs, grains and oilseeds,” the department added. “Disaster assistance and production insurance payments to Prairie farmers dealing with a second year of excess moisture also contributed to income levels.”

The preliminary forecasts for 2012 look promising even though incomes are expected to drop slightly because of lower program payments and modest increases in expenses that will outweigh projections of continuing high market prices.

The period to 2021 “is characterized by high international grain and oilseed prices compared to the pre-2006 period, something that analysts expect will lead farmers to increase their production of these crops.” Grain and oilseed incomes were above the average among producers.

Livestock farmers should see continued strong prices while supply-managed commodities are projected to continue stable growth.

The projections, delivered to reporters by senior Agriculture officials, said the net worth of farmers grew by five per cent last year and will rise by another five per cent this year. The average total income for farm families was $119,000 last year, but only 26 per cent of that came from the farm operation.

Predicting the future is always a risky venture. But short-term economic forecasts suggest farmers remain cautious. The Bank of Canada forecasts a two per cent growth rate for 2012 compared with 2.4 per cent last year and with better prospects for 2013. The U.S. economy should also be in the two per cent range, it says.

Except for Europe, which is in reverse, the rest of the world will match or exceed the North American figures.

RBC offers a comparable projection and notes that Canada is returning to a modest trade surplus thanks to both growth in exports and decline in imports.

BMO Capital Markets warns the economic drag created by European uncertainty and the tensions in the Middle East could drive up oil prices. The value of the loonie could drop to U.S. 94 cents by mid-year, which would help Canadian exporters.

Higher expenses in 2011 were driven by international energy and grain costs, the department said. Expenses will rise again during 2012, as many input prices follow the general rate of inflation, the department says. “In addition, there should be greater purchases of inputs related to grains and oilseeds, as seeded acres return to normal levels.”

Other predictions include:

  • Average net worth per farm is expected to reach $1.6 million in 2011 and $1.7 million in 2012,
  • Main influences on farm income will continue to be the world demand for feed grains, a rising price of petroleum, slow-moderate Canadian population growth, and a Canadian dollar near par with the U.S. dollar,
  • Emerging economies are recovering faster than OECD countries,
  • Increased grain production in response to higher prices is expected to moderate cereals and oilseeds prices in 2012,
  • The largest area increases are expected for canola in Western Canada, and corn and soybeans in Eastern Canada,
  • Canola-crushing capacity is expected to expand given relatively high vegetable oil prices and continued expansion in protein meal demand in developing countries,
  • Increased canola production will also be able to satisfy rising export demand for canola seed,
  • While domestic biofuel production will likely continue to expand, imports of both ethanol and biodiesel will be necessary to meet the domestic consumption mandates,
  • After several years of high feed prices and declining breeding herds, the projected increase in cattle prices is expected to stimulate rebuilding of Canadian cattle breeding herds,
  • Beef net exports are projected to increase as slaughter and average carcass weight are both expected to increase over the medium term,
  • Hog prices should increase, but relatively high feed prices will put pressure on producers and slaughter marketings are expected to increase only modestly,
  • Per capita consumption of most dairy products is expected to either be stable or fall, while demand for yogurt is expected to grow.

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