Net farm income

After reaching a historical low in 2003 following back-to-back droughts and the closure of the US border to live cattle exports, realized net farm income was 3.5% under the average of the previous five years (1999 to 2003) at $2.1 billion in 2004.

Canadian producers saw their realized net incomes (the difference between a farmer's cash receipts and operating expenses minus depreciation plus income in kind) rise by $1.8 billion from the low received in 2003.

All provinces recorded increases over 2003, except Prince Edward Island, New Brunswick and Ontario. However, compared to the previous five-year average, six provinces experienced decreases in realized net income in 2004.

Total farm cash receipts rose 6.3%, driven by higher revenues for crops and livestock, while farm operating expenses rose 1.6%. Inputs, such as machinery fuel, cash wages and machinery repairs, contributed to the higher expenses. After recording steady increases during the previous 16 years, depreciation went down slightly (-1.4%), due mainly to a decrease in new farm machinery purchases.

Realized net income can vary widely from one farm to another because of factors such as commodities produced, prices and weather. It does not take into account the value of on-farm inventory changes. For details on farm cash receipts in the first three quarters of 2005, see today's "Farm cash receipts" release in The Daily.

Market cash receipts up after a 10% drop in 2003

After a drop of almost 10% in 2003, market cash receipts, or revenues from the sale of crops and livestock, increased by 6.9% in 2004. Higher revenues for crops and hogs pushed market cash receipts up to $31.6 billion.

In total, farmers received $36.5 billion from all three sources, livestock and crop receipts and program payments. The 2004 total was slightly higher than the previous record set in 2001.

Livestock receipts rose 6.1% to $17.2 billion in 2004, but this was just marginally higher than the previous five-year average of $17.1 billion. While receipts for hog producers hit a record high, revenues from cattle and calves fell to their lowest level since 1996 as the industry's BSE-related problems continued.

Crop receipts staged a solid rebound in 2004 from one of the lowest levels in a decade. Production of grains and oilseeds returned to more normal levels in 2003 following consecutive droughts in Western Canada (2001 and 2002).

Two main factors contributed to this gain: substantially higher deliveries for most major crops between January and June 2004; and higher Canadian Wheat Board (CWB) payments.

Receipts for wheat (excluding durum) increased 30.0% to $2.4 billion in the wake of both higher CWB payments and marketings. Average prices were lower than 2003 levels due to higher production in most major exporting countries.

Farmers received $2.1 billion for canola, up 13.1% from 2003. Deliveries in 2004 increased 12.6%, while prices rose steadily in the first half of the year.

Hog producers led the growth in livestock revenues as their 2004 receipts reached a record $4.3 billion, up 25.4% from 2003. This jump was due mainly to a 26.3% growth in revenue from domestic slaughter. Hog prices strengthened throughout 2004 as a result of robust exports and strong domestic demand.

Revenues from cattle and calves decreased slightly from 2003 to $5.1 billion, the lowest level since 1996. Despite an increase in marketings, cattle and calf receipts were 24.9% below the previous five-year average. Prices plummeted with the discovery of BSE during the spring of 2003, and despite some gains, the average 2004 price remained 13.1% below that of 2003.

Receipts from international trade in live cattle and calves tumbled to zero in 2004 from the $593 million posted in 2003. Since the US border remained closed to live cattle and calves during 2004, producers responded by sending a record 4.0 million head of cattle for domestic slaughter. This 27.6% increase more than compensated for an 8.1% decline in price, leading to a 16.3% rise in revenues for slaughter cattle.

After rising substantially in 2003, program payments grew by 2.5% in 2004 to a record $4.9 billion. Payments remained well above the previous five-year average of $3.3 billion.

Canadian farmers received over $1.1 billion through BSE-related programs in 2004. The largest contributor was the Transitional Industry Support Program (TISP) which delivered almost $806 million. The TISP was designed to provide assistance to producers in meeting the financial challenges resulting from the market impacts of BSE.

Withdrawals from the government portion of the Net Income Stabilization Account (NISA) reached record levels in 2004. Farmers withdrew $934 million from their government accounts, a 29.2% increase over 2003. The majority of this increase may be attributed to the scheduled completion of the NISA program. It was replaced by the Canadian Agricultural Income Stabilization (CAIS) program.

Implemented in 2004, CAIS program delivered $777 million. The CAIS program was designed to provide assistance to producers who have experienced a loss of income as a result of BSE or other factors.

Crop insurance delivered $885 million in 2004, an $841-million decline from the record payments in 2003. Higher levels of crop insurance in 2003 were the result of two consecutive years of drought in Western Canada in 2001 and 2002.

The increase of crude oil prices is being felt on farm operating expenses

Despite soaring energy prices, farm operating expenses recorded the second smallest increase since 1990. Operating expenses rose 1.6% nationally in 2004 and were 9.1% above the previous five-year average.

Expenses increased in all provinces, except in Alberta where they dropped marginally. For the other provinces, the increases varied from 1.2% in Saskatchewan to 4.3% in New Brunswick.

More than one-third of the increase in gross operating expenses came from machinery fuel which was 11.2% above the 2003 level. Higher machinery fuel costs reflected higher crude oil prices that peaked at over US $50 per barrel in late 2004. Markets reacted to tight oil supply concerns and expectations of increased global demand by ratcheting up prices throughout the year.

Cash wages continued their steady long-term increase by reaching a record $3.8 billion in 2004. This represented an increase of 2.5% from 2003 and was 11.1% above the previous five-year average. Higher labour prices were the main reason for the increase from 2003 to 2004.

Higher prices also led to an increase of 3.1% for machinery repairs.

In contrast, continued lower interest rates were the driving force behind the decrease of interest expenses over the past four years despite a continuous increase of the farm debt outstanding during the same period. In 2004, they were at $2.3 billion, a decrease of 2.4% from 2003.

Livestock purchases fell for the third year in a row. The closure of cattle export markets caused by BSE led farmers to reduce their purchases of livestock. In 2004, livestock purchases stood at $1.1 billion, which represented a 4.6% decrease from 2003 and a 25.2% drop compared to the previous five-year average.

Higher receipts and farm inventories bump up total net income

After reaching an extremely low level in 2002, total net income rebounded in the following two years to reach $3.8 billion in 2004, which was 64.1% above the previous five-year average. Total net income adjusts realized net income for changes in farmer-owned inventories of crops and livestock.

The increase in receipts after two consecutive years of decreases in 2002 and 2003 and the value of farm inventories explained a large part of this increase. Receipts went up by $2.2 billion between 2003 and 2004, while the value of inventory change increased by $1.8 billion.

Back-to-back droughts in Western Canada sharply curtailed farm grain and oilseed inventories by the end of 2002. Consequently, the return to more normal production levels in 2003 and 2004 helped increase inventories. In the same way, the BSE crisis forced producers to keep their livestock on the farm, causing an increase in inventories.

The largest increases of the value of inventory were recorded in Saskatchewan and Alberta. Saskatchewan led with the total value of inventory change reaching $835 million, while Alberta recorded $544 million.

Available on CANSIM: tables 002-0001, 002-0003, 002-0005, 002-0007 to 002-0009, 002-0012 and 003-0025.

Definitions, data sources and methods: survey numbers, including related surveys, 3436, 3437, 3439, 3471, 3472, 3473 and 3474.

The publications Net Farm Income: Agriculture Economic Statistics, Vol. 4, no. 2 (21-010-XIE, free), Farm Cash Receipts: Agriculture Economic Statistics, Vol. 4, no. 2 (21-011-XIE, free), Farm Operating Expenses and Depreciation Charges: Agriculture Economic Statistics, Vol. 4, no. 2 (21-012-XIE, free), Value of Farm Capital: Agriculture Economic Statistics, Vol. 4, no. 2 (21-013-XIE, free) and Farm Debt Outstanding: Agriculture Economic Statistics, Vol. 4, no. 2 (21-014-XIE, free) are now available online. From the Our products and services page, under Browse our Internet publications, choose Free, then Agriculture.

For more information, contact Marco Morin (613-951-2074, marco.morin@statcan.gc.ca) or Gail-Ann Breese (204-983-3445, gail-ann.breese@statcan.gc.ca), Agriculture Division.