Question Period Note: Farm Income situation for 2023 and 2024

Q1 – Many farmers have seen large increases in expenses in recent years. How has this impacted their bottom line? Q2 – Some farm groups are saying their provinces or sectors are facing significant challenges. How can this be explained when AAFC says incomes have reached record levels? Q3 – Which expenses have seen the largest increases in recent years? Q4 – How have the recent weather and climate challenges impacted farmers’ economic stability in 2023, and what is the outlook for 2024?

R.1 - Generally, despite significant increases in farm expenses in both 2021 and 2022, overall income has remained strong, as increasing crop prices and revenues helped offset the higher input prices.

Expense growth is estimated to have been much more modest in 2023, which has helped counterbalance lower crop prices and contributed to a new record income in 2023 as crop marketings and farm revenues also increased. Expenses are expected to continue having below-average growth in 2024. R.2 - In any given year there can be significant variability from one region or farm type to another. There can be many factors contributing to this, but it is often due to the difference in the production mix and growing conditions between regions. Depending on which way markets are heading for different commodities, some producers in some regions may see either improvements or challenges with their financial situation that are not reflected across the country. The same is true for growing conditions, where drought or excessive precipitation can impact some regions more than others.

The government understands that, despite record national income, producers do not all experience the same reality and some may be experiencing financial hardship. The business risk management programs are available to help producers manage risks. R.3 - Fuel, fertilizer, and feed expenses saw sharp increases in 2021 and 2022, as the economy recovered from the pandemic-related supply chain issues, higher global inflation and input prices and, later on, Russia’s war against Ukraine which significantly disrupted global commodity markets. These expenses have moderated in 2023 as more supplies have returned to global markets.

Conversely, interest expenses are estimated to have increased further in 2023 as rates continued to increase, and additional increases are expected in 2024. Recent increases in interest expenses began in 2022 as the Bank of Canada raised rates to fight inflation. R.4 - Impacts of the recent weather and climate challenges have been varied across the country. Data indicates that the 2023 production of principal field crops decreased 8 percent from 2022, as large portions of Western Canada suffered continued precipitation deficits throughout the growing season. As a larger portion of the 2023 crop will be sold in 2024, most of the impacts will be felt in 2024. This is partly reflected in lower crop marketings and receipts in the first quarter of 2024 compared to the same period in 2023, as crop prices continued to decline in 2024.

Drought conditions prevailed across Western Canada over the past several months into 2024. However, abundant precipitation over the past few weeks in May have improved moisture conditions in the region significantly. The government continues to monitor growing conditions closely, but it is too soon to say to what extent the 2024 growing season will be impacted by weather and climate challenges.

• Net cash income (NCI) is the primary measure used by AAFC to assess the short-term outlook for farm income for the sector, and is the difference between all cash receipts and operating expenses. It represents the amount of cash generated by the farm sector that is available for debt repayment, investment or withdrawal by operators.
• In its May 29th, 2024 release, Statistics Canada estimated 2023 NCI at $24.9 billion (B), rising 11.3 percent from the previous record of $22.3 B in 2022 and 48.4 per cent above the previous five-year average. Farm cash receipts (FCR) saw a much more modest growth (4.4 per cent to $99.6 B) in 2023 compared to 2022 (14.8 per cent) and 2021 (15.8 per cent), however farm operating expenses saw even slower growth of 2.3 per cent, pushing NCI higher in 2023.
• Supporting the increase in 2023 FCR, which includes market receipts from crop and livestock sales, as well as program payments, were strong cattle prices and higher crop marketings, mitigating the negative impacts of lower global crop prices, which have been pressured by abundant supplies in 2023.
o Crop receipts rose 3.1 per cent from the previous year to reach $55.7 B, primarily due to higher wheat (including durum) receipts. While remaining above the previous five-year average, prices for all major grains and oilseeds fell year over year in 2023, causing farm cash receipts for most crops to decline, despite increased marketings. However, for all wheat the increase in marketings was large enough to more-than offset the price decline, resulting in a 10.5 per cent rise in farm cash receipts to $12.5 B in 2023. Growth in 2023 marketings was mostly the result of larger carryovers from the production recovery in 2022 as 2023 production of principal field crops fell 8 per cent to 89.8 million tonnes (MT) from 2022 and 2 per cent below the previous 2018-2022 average of 91.9 MT, due to drought in large portions of Western Canada.
o Livestock receipts increased 9.8 per cent in 2023 over 2022, totaling $37.3 B, the major contributor being cattle receipts, while higher receipts for supply managed commodities (milk, poultry and eggs) also contributed. Cattle and calves receipts rose 26.0 per cent to $15 B, from significant price increases due to reductions in the North American cattle herd and supported by strong demand. Higher feed costs and tight supplies following drought conditions in recent years have encouraged herd liquidation. Moderating the growth in livestock receipts were lower hog receipts, which were down 10.3 per cent to $5.9 B in 2023 due to weaker prices compared to 2022.
o Program payments for 2023 are estimated to be $6.6 B, representing a decrease of 10.3 per cent compared to 2022, as much improved growing conditions in Western Canada in 2022 reduced AgriInsurance payouts in 2023 while payments from AgriStability and AgriRecovery also declined.
• Following large increases in 2021 (+9.5%) and 2022 (+19.4%), farm operating expenses are estimated to have increased only 2.3% in 2023 to $74.7 B, driven by notable declines for fuel and fertilizer expenses owing to improved global supplies and a slowdown in demand, while commercial feed expenses were stable. Interest expenses, which began rising in 2022, continued to climb in 2023 in response to higher interest rates. Livestock purchase expenses are estimated to have increased as a result of strong cattle prices. Labour expenses grew a further 3.8% as the tight labour market combines with higher provincial minimum wages. • Also on May 29th, 2024, STC released preliminary FCR data for the first quarter of 2024. The data indicated FCR fell 8.7 per cent during the first quarter of 2024 relative to the same period in 2023, to $24.9 B, as a sharp cut in crop receipts more than offset increases in livestock receipts and program payments. Compared to the same quarter in 2023:
o Crop receipts decreased significantly 20.1 per cent to $13.2 B in 2023, largely the result of a 28.1 per cent reduction in grain receipts on the combination of lower global prices and lower marketings from the production shortfall in 2023. Leading the decline were lower receipts for canola (-$1.5B or -30.6 per cent) and all wheat ($-1.1 B or -29.8 per cent).
o Livestock receipts were up 8.1 per cent to $9.6 B in the first quarter of 2024, primarily as a strong 20.5 per cent receipt increase for cattle and calves, and marginally higher receipts for supply-managed commodities (+0.8 per cent) more-than offset lower hog receipts (-1.5 per cent).
o Program payments totalled $2.2 B and were 11.7 per cent higher than 2023 levels for the same period, as significant increases in AgriInsurance, AgriStability and AgriInvest payments were offset for the most part by a sharp reduction in other payments.
• AAFC’s farm income which was released in February, and based on conditions as of last December, forecasted a decline in NCI for 2024. Since that forecast was completed, the outlook for the agriculture sector has evolved, but it is not yet possible to say to what extent the farm income outlook will change. AAFC is continuing to monitor markets and growing conditions to understand how the economic outlook of the sector will change throughout the year.

• A financially healthy agriculture sector is important for Canada’s economic well-being.
• Despite lower global crop prices, higher cattle prices and crop marketings helped net cash income reach a new record in 2023, rising 11 per cent to $25 billion, as expense growth was modest.
• The 2024 outlook for farm income is expected to moderate due to further declines in crop prices and a small but continued increase in expenses. The latest data indicates farm cash receipts for the first quarter of 2024 declined 9 per cent relative to the same period in 2023. Still, the farm financial situation is expected to remain solid.
• There are several risks to the 2024 outlook, including unpredictable weather due to changing climate, ongoing geopolitical conflicts in the Black Sea and the Middle East, general uncertainty around economic growth and inflation, and the continuing threat of ASF and other animal diseases.
• Federal and provincial governments will continue to support the sector through business risk management programs to help producers manage risks.