Protect profitability: Key tools for farm financial fitness

Farm income statements facing pressure

Canada’s farm economy slowed down in 2023, so what’s ahead for farm income statements?

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Canadian farm cash receipts totalled C$99.6 billion in 2023. That’s a year-over-year increase of 4.4%, partially explained by an increase of roughly 10.0% in livestock and animal product prices paired with a decline of 8.7% in crop prices. Overall farm operating expenses grew in 2023: the farm input price index for crops fell 1.1% while the animal products index increased 8.0%. Farm net cash income (revenues minus operating expenses) increased in 2023, to $24.8 billion, an 11.3% increase over 2022.

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Looking ahead, farm cash receipts are projected to drop 3.2% in 2024, the first decline since 2010 as crop prices retreat to near their long-term averages. While crop receipts decline, livestock prices and livestock receipts will still grow in 2024, led by strong cattle prices due to a small North American herd size. Globally, agricultural commodity prices have been under pressure as markets have found global supplies to be sufficient for most crops while input costs remain stubbornly high causing profitability in some sectors to face pressure.

Knowing this can help you anticipate the changes you may see in your income statement and identify efficiency gains to protect profitability in 2024.

Analysis: overall asset values and debt increased

The upward trend in Canadian land values continued in 2023 with an 9.4% annual increase. Strong demand for farmland, with fewer available listings, strengthened farmland values through 2023. Land value appreciation will slow slightly due to elevated interest rates and forecasted lower farm cash receipts. We project a 5.5% average increase in farmland values in Canada in 2024.

Agricultural sector assets grew 7.2% in 2023, with liabilities up 5.5%. Canadian agriculture’s asset values have been stronger than liabilities since 2020; growth in assets is higher than growth in liabilities. This means that the agriculture sectors net worth (owners’ equity, or assets minus liabilities) continued to grow to C$784 million in 2023 (+7.6% over 2022).

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Farm debt outstanding grew 5.1% in 2023. We expect it to grow a further 5.7% in 2024, as Canadian farms record higher borrowing costs, even with easing interest rates. Investments on Canadian farms have slowed amid higher interest rates. Despite reduced investments on equipment and buildings, demand for farmland remains strong for well capitalized producers who are seeing opportunities to enhance the efficiency of their operations.

While the sector is facing more challenges this year, overall, the industry is in a good financial position to endure a year of lean profitability.

Are you comfortable using financial statements to better manage your operation? A good place to start is by visiting your accountant or an FCC Relationship Manager.

Article by: Amanda Norris, Senior Economist