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Alberta farms in good shape despite early snowfall

This fall proved to be a bit of a heartbreaker for farmers, but the overall news from Alberta's agriculture sector is good

Dec 16, 2016

by Alberta Venture Staff

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This fall proved to be a bit of a heartbreaker for many in Alberta’s agricultural sector, as what looked to be a great season turned sour when a wet fall and some early snowstorms flattened crops and buried canola fields.

But, according to a recent report from Farm Credit Canada, the overall news for Canada’s agricultural sector – and for Alberta’s, which was about average on most of the indicators – is good. The FCC found that Canada’s farms are in a strong position to meet their financial obligations, as asset values climb while debt remains at manageable levels. “At the national level – and Alberta is right in the mix – we’re in very good shape,” says J.P. Gervais, vice-president and chief agricultural economist with the FCC. “There are some headwinds coming in, and we need to be aware of this, but they’re not that strong at the moment.”

Gervais points to the ratio of assets (cash, accounts receivable and inventory) to liabilities (debts and accounts payable) for evidence. Nationally, it stands at 2.38 per cent. In Alberta, it’s 2.58 per cent, second only to Saskatchewan’s 3.5 per cent. “A high asset to debt ratio is not necessarily a wealth indicator, but it’s more of a sign of flexibility in the business,” Gervais says. “If there’s an opportunity to expand, they have the ability to stretch themselves out a bit more.”

In terms of headwinds, Gervais points to the low prices being paid for cattle, a result of an overbuild of North American herds in recent years. “We’re going to have to see prices come down at the retail level to see things improve,” he says. “They’ve already started, to some extent. It’s the timeline I’m not certain of.”

Cash Cows

A few years ago, drought and disease saw U.S. herds plummet in size. Things are getting back to normal

Livestock prices (per hundredweight)
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But you can’t sell your land!?

Well, you can, but probably don’t want to

Land accounts for most of the average farm’s assets, and the proportion is growing, from 54 per cent in 1981 to 67 per cent in 2015. Net income is not seeing similar growth. “Ideally you’d like to see it keep up because that provides you with a return on assets, and that’s a measure of profitability,” Gervais says. “At the same time, the more troubling thing would be if net income was not keeping pace with debt levels.” And, overall, debt is in tune with net income. The problems might come down the road. “We do predict that net incomes will remain flat,” Gervais says. “Inputs are not going to be coming down, so cash income will remain flat. If debt continues to climb, producers will have to keep an eye on that.”

What’s an acre worth?

The FCC estimates that the value of farmland increased an average of 19.5 per cent in 2012, 22.1 per cent in 2013 and 14.3 per cent in 2014, making Vancouver’s housing market look like a poor investment.

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