China snub, drought and debt shake finances of Canada's
farmers
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[June 19, 2019] By
Rod Nickel and Kelsey Johnson
WINNIPEG, Manitoba/OTTAWA (Reuters) - For years, the financial stability
of Canadian farmers was the envy of their American counterparts, but
rising costs, drought and a dispute with China have weakened their
bottom lines.
Net incomes plunged last year, and that setback was followed in March by
China's halting purchases of canola, Canada's biggest crop. Now farmers
are turning to government aid to avert disaster, lenders are extending
the term on loans and machinery dealers are seeing declining sales.
Prime Minister Justin Trudeau's Liberals hold only a handful of rural
western seats to potentially lose in the October election, but they have
also angered eastern dairy farmers for surrendering greater market
access in recent trade deals.
Agriculture is not as directly important to Canada's economy as the
service sector, for example, said Brett House, Scotiabank's deputy chief
economist. But farm spending indirectly underpins other sectors, said
Alberta Agriculture Minister Devin Dreeshen.
"Farmers reinvest every dollar they get. (The pullback) reverberates
throughout the entire economy," he said.
Shaun Dyrland, who farms near Kyle, Saskatchewan, said conditions are
the toughest in about 20 years, forcing the farm to make its first claim
from AgriStability, a federal government program that helps farmers
weather losses due to poor crops, rising costs or market disruptions.
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"Things were running along pretty good and now we’ve had to make some
changes just to make ends meet and make the numbers continue to work,"
he said.
Dyrland, 40, has eliminated two hired positions on his fourth-generation
farm and cut chemical and fertilizer purchases.
"It’s definitely reminding me of the late '90s, early 2000s, where we
had to really squeeze every penny and make sure every decision was the
right one."
Canadian farmers' net income plummeted 21% last year to C$11.6 billion
($8.6 billion) due to soaring debt and labor costs, marking the lowest
income level in seven years. Farmers owed a record-high C$106 billion.
Payments from AgriStability have jumped 37% year over year, a spokesman
for the federal agriculture department said.
"(Farmers') stress level is extremely high," said Wendy McDonald, an
agronomist at Manitoba farm consultancy 360 AG. "They need this crop to
do well and it's not off to a great start."
Canadian farmers have fared relatively better under low commodity prices
than U.S. growers in recent years due to a low dollar that helped
exports and greater crop diversity, said Ryan Riese, national director
of agriculture at Royal Bank of Canada. Now amid harder times, interest
in buying farmland is tapering off, he said.
In Ottawa, there is still hope that farmers can withstand a short-term
decline.
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![](../images/061919pics/busine31.jpg)
Corn ripens in a field near a barn adorned with a Canadian flag on a
farm near Minesing, Ontario, Canada July 30, 2017. REUTERS/Chris
Helgren
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"They had a good number of years with significant increases (before the
downturn). I'm still optimistic," said Canadian Agriculture Minister
Marie-Claude Bibeau, whose government has increased limits on interest-free farm
loans.
But farmers are already making adjustments.
"They're not buying new equipment. They're fixing what they have," said Steve
McCabe, executive director of Agricultural Manufacturers of Canada, whose
members include Ag Growth International and Buhler Industries.
"Buying is really down from last year."
Farm supplier Nutrien Ltd is "particularly concerned for the financial health of
Canadian farmers" who are shut out of China, their best export market, said
spokesman Will Tigley.
BANKERS 'HOPING FOR SOFT LANDING'
Lenders are anxiously penciling out farmers' growing risk.
"There is a significant amount of nervousness in both the cattle and cash crop
sector at the moment," said Glen Snyder, agri business manager for Bank of
Montreal in Saskatchewan, Canada's main canola-growing province.
"I'm hoping for a soft landing, and not a hard one that we experienced in the
late 1980s early 90s."
The prospect of soft crop prices and potential for lower yields raises concerns
about farmers’ debt service coverage ratio (DSCR) – a metric closely watched by
lenders that indicates a farm’s profitability and ability to manage debt, Snyder
said.
Even a well-managed farm could see its DSCR slip into a worrisome range this
year if crop receipts decline by 10%, a realistic scenario given Saskatchewan's
drought, Snyder said.
The drop in net income "is a big deal for sure," said Jean-Philippe Gervais,
chief agriculture economist at government lender Farm Credit Canada. "Producers
are going to have to be a little bit more careful."
Gervais said some farmers are spreading their debt over longer periods of time.
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"I always felt the good times couldn’t roll forever," said Dyrland, the
Saskatchewan farmer. "Nobody likes to see it come. But I think in agriculture,
it’s bound to happen."
(Reporting by Rod Nickel in Winnipeg, Manitoba and Kelsey Johnson in Ottawa)
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