Analysis

Realized net income higher in 2008

Realized net farm income (the difference between a farmer’s cash receipts and operating expenses minus depreciation, plus income in kind) rose for the second consecutive year in 2008, reaching $3.6 billion. (All data are in current dollars.)

Realized net income was $1.6 billion higher (+79.2%) than it was in 2007. The impact of high grain and oilseed prices more than offset large increases in operating expenses.

Realized net income increased in Quebec, Ontario, Saskatchewan and Alberta. The remaining provinces all showed decreases over 2007 levels as increases in expenses outpaced gains in receipts.

Market receipts (revenues from the sale of crops and livestock) increased 13.7% to $41.7 billion in 2008. Crop receipts increased 24.2% to $22.9 billion, while livestock receipts rose 3.1% to $18.8 billion.

On average, grain and oilseed prices remained well above 2007 levels as strong demand and tight global supplies continued to fuel prices throughout the first half of 2008. However, prices fell from their summer-time highs as production increases in 2008 partially replenished global stocks.

Meanwhile, many livestock producers were adversely affected by higher feed costs and reduced prices resulting from the strong Canadian dollar vis-à-vis its American counterpart in the first part of 2008. There was also uncertainty over the Country of Origin Labelling law in the United States.

Revenue from hogs declined 2.8%, the fourth consecutive annual decrease, as both price and quantity sold fell from 2007 levels. Market receipts for cattle and calves increased 2.8% in 2008 as more cattle were exported into the United States; exports were up 13.2% over 2007.

Receipts for supply-managed commodities (dairy, poultry and eggs) rose 5.7% as increases in production costs pushed prices higher.

Total farm cash receipts, which include both market receipts and program payments, rose in all provinces in 2008. The largest increases occurred in Saskatchewan (+21.4%) and Alberta (+17.2%).

Overall, producers saw their operating costs increase 10.1% to $37.2 billion in 2008, the strongest annual rate of growth in expenses since 1981.

Prices for fertilizer, machinery fuel, and feed rose throughout much of the year, and as a result, expenses increased in every province. These three inputs accounted for more than two-thirds of the increase in operating expenses.

Total net income amounted to $6.6 billion in 2008, up $5.6 billion from 2007, despite declines in six provinces. Net income increased in Ontario, Manitoba, Saskatchewan and Alberta.

Total net income adjusts realized net income for changes in farmer-owned inventories of crops and livestock. It represents the return to owner’s equity, unpaid labour, management and risk.

An increase in the farmer-owned inventories of crops was the primary factor behind the rise in total net income as inventories of cattle and hogs declined.

The value of inventory change was $3.0 billion in 2008 as record yields for many crops boosted production in Ontario and the Prairie provinces. Year-end stocks of canola, dry peas and oats were at record highs in 2008, while stocks of most other grains and oilseeds also increased.