Net farm income

Canadian producers saw their realized net income fall for the second consecutive year in 2006 and hit its lowest level since 2003. Rising interest, wage and fuel costs, together with falling hog receipts and program payments, more than offset increases in revenue from crops and cattle.

Realized net income (the difference between a farmer's cash receipts and operating expenses minus depreciation, plus income in kind) dropped to $844 million in 2006. This figure was also below the previous five-year average between 2001 and 2005. New Brunswick and Saskatchewan were the only provinces to record gains in realized net income in 2006.

Total farm cash revenue from livestock and crop receipts, as well as program payments, edged up 0.5% to $36.9 billion. Meanwhile, higher interest rates as well as higher energy and labour costs drove up farm operating expenses 3.5% to $31.6 billion.

Realized net income can vary widely from farm to farm because of several factors, including commodities, prices, weather and economies of scale. This and other aggregate measures of farm income are calculated on a provincial basis employing the same concepts used in measuring the performance of the overall Canadian economy. They are a measure of farm business income, not farm household income. For details on farm cash receipts for the first three quarters of 2007, see today's "Farm cash receipts" release.

Financial data, collected at the individual farm business level using surveys and other sources, will soon be tabulated and made available for 2006. These data will help explain differences in performance of various types and sizes of farms.

In recent years, for example, data from Statistics Canada's Whole Farm Data Base have shown that net operating income of farms with revenues of $250,000 and over has been trending upwards. On the other hand, net operating income of smaller farms has not, even though many of these smaller operations still have positive net farm incomes.

Higher crop revenues boost market cash receipts

Market cash receipts, the revenues from the sale of crops and livestock, increased 1.9% to $32.4 billion in 2006. Crop receipts jumped 7.9% to $14.5 billion as prices began to recover from their 2005 levels. Tempering the increase in market receipts were weak hog prices, which pushed livestock receipts down 2.5% in 2006.

Increases in both deliveries and prices helped the recovery of crop receipts. There were strong increases in the deliveries of canola and wheat in 2006, as farmers made use of the record or near-record stocks gleaned from the harvests of 2005 and 2006.

Prices gained strength during 2006 as the biofuel industry expanded and adverse growing conditions were experienced by some of the major grain-exporting countries. Late in the year, prices also benefited from the improved harvest conditions in 2006 that resulted in the marketing of higher quality crops.

A 31.0% jump in marketings helped canola revenues soar 37.0% to $2.5 billion. Producers of wheat (excluding durum) saw their receipts climb by 16.4%. Both stronger prices and marketings supported this growth.

The gain in crop revenues was also aided by a 13.7% rise in potato receipts as prices jumped 17.0%.

Plunging hog receipts drove down revenue in the livestock sector. The 13.2% drop left hog receipts at $3.4 billion in 2006, 8.7% below the previous five-year average. The main factor was prices, which were on average 12.9% below those of 2005.

Increased cattle and calf receipts moderated the drop in livestock revenues, climbing 1.8% to $6.4 billion. Cattle exports regained strength following the reopening of the American border to live cattle under 30 months of age on July 18, 2005.

The 1.0 million cattle and calves exported in 2006, while almost doubling the figure from the previous year, remained 40.0% below the pre-BSE (bovine spongiform encephalopathy) peak in 2002. Canadian exports were hampered by a strengthening Canadian dollar and reduced US demand for Canadian cattle as drought-stricken US ranchers shipped cattle early to feedlots.

In the supply-managed sector, receipts declined a marginal 0.8%, the first decrease since 2002. A 4.3% drop in chicken receipts was more than enough to counteract small increases in egg and turkey receipts. Dairy receipts remained virtually unchanged from 2005.

Program payments fall from record levels

Program payments decreased for the first time in three years, falling to $4.5 billion in 2006, 8.1% below the record level of 2005. Despite the drop, the 2006 level was 3.7% above the previous five-year average.

Certain programs linked to cash flow problems and difficulties in the cattle sector were terminated in 2006, including the Farm Income Payment Program and BSE-related programs. However, new programs helped to prevent a precipitous fall in payments. These included the Grains and Oilseeds Payment Program and the Canadian Agricultural Income Stabilization (CAIS) Inventory Transition Initiatives, as well as other CAIS enhancements.

Crop insurance payments also played a role, declining 21.1% as a result of better growing conditions in 2006.

Operating expenses: Producers hit by increased interest charges, labour costs and fuel prices

Farm operating expenses were up 3.5% from 2005, the highest annual increase since 2001. Increases in interest rates, fuel prices and labour costs contributed, pushing up operating expenses to $31.6 billion in 2006. However, this rise was marginally below the average percentage increase in expenses over the previous 10-year period (1996 to 2005).

Interest expenses shot up 16.4%, the largest increase since 1981. Prime business rates jumped by over 30%, while one-year mortgage rates rose by more than 20% from their recent lows in the past couple of years. Farm debt continued to rise, increasing 4.3% in 2006, slightly below the average increase of 5.1% over the previous five-year period.

Although fuel price increases did moderate in 2006, price rises in diesel and gasoline were the major contributors to a 5.6% climb in machinery fuel costs. Labour costs continued their ascent, rising by 3.0% in 2006. Farm operators struggled to find workers in an increasingly tight labour market.

Manitoba producers incurred a 6.8% rise in operating expenses, the largest percentage increase in Canada. Added to factors already mentioned was an increase in crop expenses linked to a return to more normal levels of seeded acres. In 2005, seeded acres of field crops had declined by 9.3% as a result of excessive moisture that prevented planting in much of southeastern Manitoba.

Declining farm inventories drag down total net income

The value of inventories fell by $849 million in 2006, largely due to the conversion of on-farm stocks of canola and durum wheat into market deliveries, and lower stocks of feed grains. Increases in on-farm stocks of potatoes and soybeans helped moderate these declines.

While droughts in 2001 and 2002 had caused on-farm stocks of grains and oilseeds to drop to levels not seen since the late 1980's, bountiful harvests in recent years had brought stocks up to record or near-record levels in 2005. And despite the large value of inventory change in 2006, on-farm stocks remained at very high levels.

Declining on-farm stocks of livestock were also a major contributor to the drop in the value of inventories. Cattle inventories fell 3.6% in the wake of renewed live cattle exports to the United States, while hog inventories declined 1.3%.

The reduction of on-farm inventories were a major factor in the decline of total net income, which fell from $2.3 billion to -$6 million in 2006, well below the previous five-year average of $2.7 billion. Total net income adjusts realized net income for changes in the value of farmer-owned inventories of crops and livestock.

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. 6, no. 2 (21-010-XWE, free), Farm Cash Receipts: Agriculture Economic Statistics, Vol. 6, no. 2 (21-011-XWE, free), Farm Operating Expenses and Depreciation Charges: Agriculture Economic Statistics, Vol. 6, no. 2 (21-012-XWE, free), Value of Farm Capital: Agriculture Economic Statistics, Vol. 6, no. 2 (21-013-XWE, free) and Farm Debt Outstanding: Agriculture Economic Statistics, Vol. 6, no. 2 (21-014-XWE, free) are now available online. From the Publications module of our website, under Free Internet publications, choose Agriculture.

For more information, or to enquire about the concepts, methods or data quality of this release, contact Stephen Boyd at 613-951-1875 (stephen.boyd@statcan.gc.ca), or Gail-Ann Breese at 204-983-3445 (gail-ann.breese@statcan.gc.ca), Agriculture Division.

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