|
|
Farm Income Forecast for 2003
FEBRUARY 2004 FORECAST
SUMMARY
Note to readers:
While the Department normally releases a two-year forecast in January,
given the high level of uncertainty that prevails in North American
cattle markets, the preparation and release of the 2004 forecast is
postponed until the market and trade implications of the US Bovine
Spongiform Encephalopathy (BSE) situation become more clear. Agriculture and Agri-Food Canada, in collaboration with the provincial
governments and Statistics Canada, has revised its April forecast for
2003 (see notes). The compounding effects of Bovine Spongiform Encephalopathy
(BSE), the increase of the Canadian dollar and droughts in Western Canada
in 2002 and 2003 have resulted in a significant drop in farm income in
2003. Realized Net Income (RNI) at the Canada level is expected to be
$-13.4 million for 2003. In response to these difficulties federal and
provincial governments issued an all time record high of nearly $5.0
billion in program payments during 2003, with significant payments yet
to come during 2004.
The impacts of these factors on farm income are as follows:
- The Canadian dollar that appreciated by 17 percent against
the weaker U.S. dollar has resulted in significant commodity price
pressures.
Farmers faced high priced inputs (from the low dollar in the Spring)
and low priced outputs (from the high dollar with Fall marketings)
- a large part of Canadian production is closely tied to the U.S. market
situation. Prices for hogs, cattle and most crops are heavily affected.
- BSE has resulted in significantly lower marketings and prices
in 2003 for cattle. This means there is a shortage of cash flow and
a build up of inventories (which are not reflected in cash income).
- There was extreme drought across much of the Prairies in 2002 and continuing
in Saskatchewan in 2003. This has adversely affected marketings
and cash receipts from crops.
FORECAST HIGHLIGHTS FOR 2003
Farm Income
- In 2003, RNI for Canada is forecast to decline by 100 percent
which will result in negative income at the national level for the
first time in history (see Tables - Farm Cash Receipts, Expenses and
Income and NISA Forecast). This poor result can be attributed to the
combined effects of BSE, a rapidly appreciating Canadian dollar, and
successive droughts in western Canada.
- RNI is expected to decline in
all provinces except Newfoundland and Quebec where the beef industry
represents a smaller portion of
the agricultural economy. RNI is expected to be negative in New
Brunswick, Ontario, Saskatchewan and Alberta, with RNI in the latter
two provinces
being extremely negative.
- Both crop and livestock receipts in 2003
were dealt a major blow by the strengthening Canadian dollar. The
Canadian dollar
began 2003 at US$0.638 and finished the year at US$0.771. Since
most agricultural
commodities are valued in US dollars, this appreciation of our
currency adversely affects farm gate prices. All other factors
held constant,
this increase in the value of the Canadian dollar would tend
to result in a 17 percent decline in Canadian agricultural commodity
prices
over the course of 2003.
- Income from individual farm operations
can vary greatly because of the commodities they produce, the weather
in the area
and many other factors.
Crop Receipts
- Crop receipts are expected to decline by 8 percent in 2003, with
the most serious losses occurring in the prairie provinces. Severe
drought during 2002 in Saskatchewan and Alberta and moderate drought
in Saskatchewan during 2003 resulted in reduced marketings of grains,
oilseeds and special crops.
- Prices of major grains and oilseeds were
lower in 2003 due mainly to the rapidly appreciating Canadian dollar,
as well as
larger supplies of coarse grains in western Canada.
- Horticulture receipts
are expected to show moderate growth in 2003, with a strong increase
in fruit and floriculture and nursery receipts
more than offsetting lower potato receipts caused by lower prices.
Livestock Receipts
- Livestock receipts are forecast to decline by 12 percent in 2003
due almost entirely to difficulties in the beef sector. Cattle marketings
and prices in Canada were drastically reduced as a result of the BSE-induced
border closure, with the most significant impacts being felt in the
prairie provinces. With the partial re-opening of beef trade in September
2003, the number of cattle slaughtered and prices began to pick up
in the later part of 2003. Total domestic cattle slaughter is expected
to be off by about 12 percent for the year. International cattle exports
ceased as of May 20, 2003, resulting in live cattle exports for 2003
being only about one-third of the previous year’s level.
- Hog receipts
are expected to increase by 5 percent in 2003 due to a small increase
in both prices and marketings. While the
market registered strong growth of about 13 percent in US hog prices,
the majority of this increase was offset by a stronger Canadian
dollar, resulting in a hog price increase of only 1.5 percent in Canadian
dollar terms.
- Receipts from the supply-managed commodities are projected
to increase in 2003 due to higher dairy and poultry receipts.
Dairy marketing is expected to be up in 2003 due to relatively higher
dairy demand while dairy prices should continue to rise due to
higher
support
prices. Poultry receipts should increase in 2003 due mainly to
higher chicken prices. Egg marketing and prices will continue to
increase
for most of the provinces as demand for eggs continues to rise
with a steady growth rate.
Program Payments
- Program payments from the federal and provincial governments are
expected to total a record of nearly $5.0 billion. This includes Crop
Insurance ($1.8B), BSE Recovery Program ($426M), Net Income Stabilization
Accounts (NISA) ($759M), Federal Transition Funding ($446M), Producer
Assistance Program 2003 - CAIS interim payments ($22M), Canadian Farm
Income Program (CFIP) ($402M)
- Large payments under CAIS for the program
year 2003 will be paid in 2004 as well as the payments under the
BSE Cull Animal
Program announced on November 21st. In addition, there is $4 billion
in NISA accounts which will be available for withdrawal in 2004
as the program winds down.
Expenses
- In 2003, operating expenses are expected to increase as major crop
input, farm labor and fuel costs are rising. Fertilizer and pesticide
expenses are expected to increase in 2003 as result of higher fertilizer
prices and pesticides usage, particularly in the prairies because of
higher natural gas prices and grasshopper infestation. Seed prices
are forecast to be higher as the dry conditions in western Canada severely
reduced the quality and quantity of seeds for 2003.
- Farm labor and machinery
fuel expenses are expected to increase due to higher prices and usage.
On the other hand, livestock
purchases are expected to be reduced significantly due to the closure
of beef export markets caused by a single cattle carcass infected
with BSE. Feed prices are also expected to decline as a result
of relatively large feed supplies and stronger Canadian dollar. Depreciation
charges should increase slightly in 2003.
NOTES:
- The farm income forecast was prepared by the department in collaboration
with provincial governments and reflects information and policies in
place up until the end of December. AAFC is responsible for preparing
a preliminary forecast based on a set of quantity and price assumptions
and for consulting the provinces to obtain their input and to reach
a consensus on the forecast and its release to the public.
- The results
for 2003 differ from the April forecast as they better reflect the
actual production, price and trade environment that currently
prevails. Briefly, the January forecast indicates that farm income
will be drastically lower compared to the April forecast due to
the combined effects of BSE, an unexpectedly strong Canadian dollar,
and an unanticipated drought in Saskatchewan in 2003.
- NET CASH INCOME
measures farm business cash flow (gross revenue minus operating expenses)
generated from the production of agricultural
goods. It represents the money available for debt repayment, investment
or withdrawal by the owner. REALIZED NET INCOME measures the financial
flows, both monetary (cash income) and non-monetary (depreciation
and income-in-kind), of farm businesses. It represents the net
farm income in a given year regardless of the year the agricultural
goods
were produced. TOTAL NET INCOME measures the financial flows and
stock changes of farm businesses. It values agriculture economic
production during the year that the agricultural goods were produced.
It represents the return to owner’s equity, unpaid labour,
management and risks.
- Although the forecast is presented as a single
number, each number is in fact the mid-point of a forecast range
or confidence interval
which is implicit but not stated. A minor change in cash receipts
or expenses can have a significant impact on net income levels.
For example, a 1% increase in farm cash receipts of $30 billion
would result in a 12% increase in realized net income of $2.8 billion.
- NISA
payments only represent the producers’ withdrawals
from Fund 2 (governments’ fund). The large amounts accumulated
in Fund 1 (producers’ fund) and unrealized triggers in
Fund 2 are not included. The program is designed on a whole farm
and individual
basis and the producers are not obliged to withdraw triggered
payments from the account.
- The reference year (2003) represents
the estimates released by Statistics Canada on November 25th,
2003.
TABLES
- Click here to view the February
2004 Forecast Farm Cash Receipts, Expenses and Income for
2002 and 2003
- Click here to view the February
2004 Forecast Net
Income Stabilization Account (NISA) for 2003
For further information, please contact Lambert Gauthier at (613) 759-7414
or by e-mail at gauthil@agr.gc.ca.
|