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Farm Leaders Wary of Bleak Forecast

Agriculture and Agri-Food Canada has predicted a drop in income for poultry and egg farmers in 2010


June 24, 2010
By Jim Knisley


Topics

Leaders of Canada’s poultry industry are wary of Agriculture and
Agri-Food Canada’s (AAFC) forecast for a dramatic drop in farm income
for poultry and egg farmers this year.

Leaders of Canada’s poultry industry are wary of Agriculture and Agri-Food Canada’s (AAFC) forecast for a dramatic drop in farm income for poultry and egg farmers this year.

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Income drop?
Agriculture Canada’s forecast for a dramatic drop
in farm income for poultry and egg farmers this year has
left industry officials scratching their heads.

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According to the AAFC forecast, net operating incomes for poultry and egg farmers in 2010 are expected to be 29 per cent lower than they were two years ago in 2008. Incomes fell 20 per cent in 2009 and are expected to fall an additional 10 per cent this year. This year’s net operating incomes are also expected to be 18 per cent below the average for 2004 to 2008.

The forecast drop in income is the result of operating expenses rising faster than revenues. From 2004 to 2008 expenses rose 27 per cent while revenue rose 22 per cent. In 2009, expenses were up three per cent while revenue rose 1.7 per cent.

The average family net operating income for poultry farmers is expected to be $38,563 this year. That compares to $43,156 in 2009, $54,185 in 2008 and an average of $48,971 in 2004 to 2008.

Meanwhile the net operating income per poultry and egg farm is expected to be $93,496 in 2010. This is down almost 11 per cent from 2009 and is 29 per cent lower than 2008. It is also 18 per cent lower than the 2004 to 2008 average.

Agriculture and Agri-Food Canada says: “Poultry production and prices are expected to continue to soften in 2010, due to price competition from red meats, leading to relatively stable market receipts.”

However, the forecast figures indicate that increasing production costs will eat away at the bottom line, resulting in lower net income.

Laurent Souligny, chairman of the Egg Farmers of Canada, said he’s not sure how AAFC came up with its forecast and can see no reason for the drop in net income.

Egg producers have a cost of production formula that ensures the price received for eggs rises when production costs rise.

“I can’t see why egg producers’ net income would be lower,” he said in an interview.

However, egg producers are in the midst of retooling. Many are replacing equipment inside their barns and that can cost about $300,000, he said.

The interest charges on money borrowed to retool the barns could result in lower income after expenses.

Analyzing the AAFC income figures is difficult because it includes eggs, broilers and turkey.

Phil Boyd, general manager of the Turkey Farmers of Canada, said a bit of a drop in operating income is anticipated this year because of a drop in production as the turkey sector reduces the amount of turkey in storage. A moderate change in pricing may also occur. But this is expected to result in a three to four per cent change in farm revenues, not the 10 per cent forecast by AAFC.

Meanwhile some reduction in input costs (especially feed) is anticipated and that could improve net incomes. “We’re anticipating a profitable year,” he said.

Without more detail than is provided in the AAFC forecast the numbers are hard to understand, he said.

Agriculture and Agri-Food Canada cautions: “It is important to point out that farm level and aggregate sector income forecasts are sensitive to market volatility, particularly in regards to prices. Conditions may change during the 2010 production year, resulting in a divergence in net incomes from those forecasted.”

The forecast is similar, or worse, for other farm sectors.

The average net operating income for all farms is forecast to fall 35 per cent to $29,027 in 2010 from $44,558 in 2009.

Some farms will be particularly hard hit. For example, the average cattle farmer is expected to see red ink this year. Net operating income per cattle farm is forecast to be -$5,195 in 2010. The negative income is despite an average of almost $10,000 in payments from government programs.

Hog farms are expected to eke out an average net operating income of $1,719. However, hog farms are expected to receive an average of $167,854 from government programs. Without payments from the government programs the average hog farm would lose more than $166,000 in 2010.

In its executive summary of the forecast AAFC says: “The 2009 and 2010 farm income forecast reveals that Canada’s farm sector was not immune to the global economic downturn – in fact, global economic conditions have a far reaching effect on farm income. The global recession has left producers facing lower consumer demand for their products – red meats in particular.”

“The livestock sector has faced a number of challenges in recent years. High feed costs and Country of Origin Labeling (COOL) regulations in the U.S. have been compounded by worldwide trade disruptions. Specifically, the beef industry has continued to battle trade barriers imposed after the discovery of BSE in 2003 and for the pork sector, false links drawn between the H1N1 flu virus and the safety of pork have resulted in market closures and lower consumer demand. As a result, the livestock sectors are expected continue to struggle in 2009 and 2010.”

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Provincial Breakdown
On a provincial basis four of 10 provinces are forecast to see positive realized net farm incomes (which includes depreciation) in 2010. The four provinces generating black ink are Saskatchewan, Manitoba, New Brunswick and Quebec. However, Quebec and Manitoba are pulled into positive territory by payments from government programs. Only Saskatchewan and New Brunswick would have positive realized net incomes without payments from government programs. The other six provinces are forecast to have negative realized net incomes even with payments from government programs included.

Realized net farm income in Alberta is forecast to be -$516 million in 2010. This is down a stunning 254 per cent from 2009 and 305 per cent below the 2004-2008 average.

In British Columbia, realized net farm income is forecast at -$174.4 million for 2010. In 2009, B.C. realized net farm income was -$79.2 million and the average for 2004-2008 was -$29 million.

In Saskatchewan, realized net farm income is forecast to be down 55 per cent in 2010 to $979.7 million from $2,194 million in 2009. Total net farm income, which includes changes in inventories, is forecast to be down 80 per cent to $487.9 million in 2010 compared to $2,495 million in 2009.

In Manitoba, realized net farm income is forecast to be down 57 per cent in 2010 to $233.4 million from $547.5 in 2009. Total net income is forecast to be down 93 per cent to $39.1 million in 2010 from $542.1 million in 2009.

In Ontario, realized net farm income is forecast to fall to -$457.5 million in 2010 from -$321.9 in 2009. This is 268 per cent below the 2004-2008 average. Total net income is forecast to be -$499.6 in 2010 compared to -$330.5 in 2009. Total net income in 2010 in Ontario is forecast to be 311 per cent below the 2004-2008 average.

In Quebec, realized net farm income is forecast at $231.4 million in 2010 down 47 per cent from $432.7 million in 2009. The 2010 forecast income is 68 per cent below the 2004-2008 average.

In New Brunswick, realized net farm income is forecast to fall 10 per cent to $29.2 million from $32.6 million in 2009. This is 51 per cent higher than the 2004-2008 average.

In Prince Edward Island, realized net farm income is forecast to fall 125 per cent in 2010 to -$6.1 million from $24.3 million in 2009. The 2010 is 195 per cent below the average for 2004-2008.

In Nova Scotia, realized net farm income is forecast to be -$31.6 million, down from -$23.7 million in 2009 and 223 per cent below the $25.6 million average for 2004-2008.

In Newfoundland and Labrador, realized net farm income is forecast to be $100,000 up from -$5.4 million in 2009.

For Canada as a whole realized net farm income is forecast at $291.5 million down 91 per cent from 2009. Total net income is forecast at -$164.3 million, 106 per cent lower than 2009.