Farm fi­nan­cials in good shape de­spite chal­lenges, FCC re­ports

The Southwest Booster - - OPINION - FCC

Cana­dian agri­cul­ture con­tin­ues to show strength and re­silience against a back­drop of higher in­ter­est rates, trade un­cer­tainty and volatile com­mod­ity prices, ac­cord­ing to Farm Credit Canada’s lat­est anal­y­sis of farm as­sets and debt.

“Our lat­est tem­per­a­ture check shows the in­dus­try is well-po­si­tioned to thrive in the cur­rent eco­nomic and fi­nan­cial en­vi­ron­ment,” said FCC’S Chief Agri­cul­tural Econ­o­mist JP Ger­vais, in high­light­ing the find­ings of the two-part re­search se­ries.

To­tal farm debt in Canada re­cently ex­ceeded the $100 bil­lion, ac­cord­ing to Sta­tis­tics Canada. But most Cana­dian farms con­tinue to be in a good fi­nan­cial po­si­tion and the ma­jor­ity of pro­duc­ers have used debt to make strate­gic in­vest­ments in im­prov­ing their op­er­a­tion’s pro­duc­tiv­ity.

“The cur­rent debt-to-as­set ra­tio in agri­cul­ture re­mains lower than the 10-year av­er­age, both na­tion­ally and in most prov­inces, and farm liq­uid­ity re­mains healthy, de­spite fac­ing chal­lenges in the cur­rent eco­nomic en­vi­ron­ment,” Ger­vais said. “Th­ese are just some of the key in­di­ca­tors we mon­i­tor to as­sess the over­all health of the in­dus­try.”

For in­di­vid­ual farm op­er­a­tions, a rel­a­tively low debt-to-as­set ra­tio pro­vides fi­nan­cial flex­i­bil­ity and rep­re­sents lower risk, while liq­uid­ity re­flects the abil­ity of pro­duc­ers to ab­sorb fluc­tu­a­tions in farm in­put prices, demon­strate pa­tience with their mar­ket­ing plans or take ad­van­tage of un­ex­pected op­por­tu­ni­ties.

“Over­all liq­uid­ity is still healthy, but it has taken a small hit in 2017 thanks to lower com­mod­ity prices and in­creas­ing in­ter­est rates,” Ger­vais said, not­ing the in­dus­try ra­tio (cal­cu­lated by di­vid­ing cur­rent as­sets by cur­rent li­a­bil­ity) re­mains well within the range to cover un­fore­seen cir­cum­stances.

FCC’S first ar­ti­cle in the two-part re­search se­ries also shows that prof­itabil­ity in Cana­dian agri­cul­ture de­creased slightly in 2017 when mea­sured against the value of farm as­sets, which have con­tin­ued to in­crease. The pace of farm­land value ap­pre­ci­a­tion has ex­ceeded that of in­come over the past few years.

The sec­ond ar­ti­cle fo­cuses on the im­pact of ris­ing in­ter­est rates on eq­uity of farm op­er­a­tions. In­ter­est rates are ex­pected to in­crease be­fore the end of 2018, while prices of farm in­puts, such as fuel and fer­til­izer, must be mon­i­tored.

Cur­rent pro­duc­tion chal­lenges across the coun­try could re­sult in 2018 crop re­ceipts to be lower than in 2017, how­ever, the fore­cast still shows for­eign de­mand for Cana­dian com­modi­ties re­mains strong, sup­port­ing cash re­ceipts. Over the past decade, farm cash re­ceipts have in­creased by an av­er­age of $2 bil­lion per year, re­sult­ing in higher prof­its and sig­nif­i­cantly in­creas­ing the net worth of Cana­dian farms over the same time­frame.

“The over­all bal­ance sheet for Cana­dian agri­cul­ture is healthy,” Ger­vais said. “But pro­duc­ers need to un­der­stand their fi­nan­cial sit­u­a­tion and build re­silience into their busi­ness plans so they can thrive in this dy­namic op­er­at­ing en­vi­ron­ment.”

By shar­ing agri­cul­ture eco­nomic knowl­edge and fore­casts, FCC pro­vides solid in­sights and ex­per­tise to help those in the busi­ness of agri­cul­ture achieve their goals. For more in­for­ma­tion and in­sights, visit the FCC Ag Eco­nom­ics blog post at­co­nomics.

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