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Canadian farms’ 2012 net income to hit record

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‘Strong levels’ of net cash income expected for 2013 

Gauging farmers’ receipts against rising expenses, the federal ag department’s latest forecasts of farm net incomes point to “record” levels in 2012 and “continued strong” levels in 2013.

Agriculture Minister Gerry Ritz on Wednesday released his ministry’s farm income forecast and medium-term outlook for the ag sector, noting a 2012 forecast which “reflects that farm incomes are once again at an all-time high.”

For 2012, crop prices “exceed the optimistic forecasts made earlier in the year” and a “moderate” recovery in the livestock sector continues, Agriculture and Agri-Food Canada said.

Net cash income at the sector level is expected to reach $13.1 billion in 2012, AAFC said. Farm-level average net operating income — which doesn’t include changes in the value of inventories, nor any deductions for depreciation — is forecast to be $74,190.

Grazed fall wheat/rye/triticale plots in Medicine Hat, AB

The markets are forecast to boost farm receipts “more than enough” to offset higher operating expenses and declining government program payments, the latter due mostly to “favourable production conditions.”

Grain and oilseed prices, already at historically high levels, reached new peaks during the late summer of 2012 “as the extent of the drought in the U.S. became apparent,” AAFC said. “Fears of low supplies were further compounded by dry growing conditions in Eastern Europe and Australia.”

Cattle producers, meanwhile, are expected to benefit from higher prices for slaughter animals while both cattle and hog producers show “cautious optimism” by keeping herd numbers stable in 2012.

Operating costs are expected to rise in 2012, partly on “significant increases” in the prices of feed and fertilizer, but also partly due to the crop inputs needed for an additional seven million acres of cropland, brought back into production on the eastern Prairies following a waterlogged 2011.

AAFC’s preliminary forecast for 2013 net cash income and average net operating income remains strong, with receipts and expenses both rising “modestly.”

Grain and oilseed prices are expected to moderate this year, based on the “promising” spring harvest in South America and a “normal” fall crop in major producing areas in the Northern Hemisphere.

Much of the above-average 2012 crop remained to be marketed after Dec. 31, given “ample” carry-in stocks, and Canadian production conditions for 2013 are also forecast to be normal, AAFC said.

The department also predicts a “modest” increase in livestock receipts, on higher cattle prices. Cattle and hog producers’ downsizing of herds over recent years is expected to lower the number of animals available for slaughter.

Lower feed costs, as North American feed grain production conditions return to normal, are expected to help drive 2013 income gains for hog farms, “in the order of 25 per cent.”

Given farm prices and incomes and assuming normal weather conditions, government program payments are expected to be down slightly in 2013, AAFC added.

Average total income of farm families, including net farm operating income as well as other family income, is projected to reach $127,106 in 2012 and $131,947 in 2013, AAFC said.

Average net worth per farm, meanwhile, is expected to reach $1.8 million in 2012 and $1.9 million in 2013.

Medium-term

AAFC’s medium-term outlook, meanwhile, suggests many of the drivers of farm income over 2012 and 2013 “will also be felt over the next 10 years.”

Said drivers include continued growth in world demand for food grains and oilseeds, for animal feed as incomes rise around the world and boost demand for meat, and for biofuel feedstocks to meet mandatory minimums on biofuel content.

The medium-term outlook also assumes “slow-to-moderate” Canadian population growth and a loonie “near par” with the U.S. dollar.

Global demand for ag commodities is expected to continue to be “strongly influenced by emerging economies,” AAFC said, listing Brazil, Russia, India and China, as well as Bangladesh, Egypt, Indonesia, Iran, South Korea, Vietnam, Turkey, Mexico, Nigeria, Pakistan and the Philippines.

However, the European Union’s debt crisis and sustainability of the U.S. fiscal path “continue to be a drag on overall growth.” The medium-term outlook assumes the EU holds together and uncertainty over a sustainable U.S. fiscal path is “resolved.”

Energy prices are also expected to continue to rise, with world crude oil prices expected to hit about US$145 per barrel by 2022.

The Canadian dollar is also expected remain at par or slightly above the U.S. dollar over the medium term, which suggests “no relief from a strong dollar for Canada’s export-oriented industries.”

Crop prices will moderate from their high levels, AAFC said, but the medium term outlook calls for commodities to remain on a “higher price plateau” well above pre-2006 levels.

Hog and cattle exports are both expected to benefit from a revision of U.S. mandatory country-of-origin labelling (COOL) in 2013, AAFC said, but “it is not anticipated that slaughter hog and weanling exports will return to historically high levels.”

Poultry consumption will continue to increase, but “domestic market maturity” will slow the sector’s expansion to consumption growth rates of only about 1.5 per cent per year.

Canada’s per capita consumption of most dairy products will either be relatively stable or decline modestly. “Yogurt will be the exception as continued growth is anticipated, but at a slowing rate.”

Related story:
Canadian farms’ net, gross, expenses all rise in 2011, Nov. 27, 2012


Created March 26, 2013 | Category: Industry

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