China snub, drought and debt shake finances of Canada's farmers
19/06/2019 06:00
By Rod Nickel and Kelsey Johnson
WINNIPEG, Manitoba/OTTAWA, June 19 (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 farm, 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.
"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.
urn:newsml:reuters.com:*:nL2N2340TH 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
RY.TO . 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.
"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 AFN.TO and Buhler Industries BUI.TO .
"Buying is really down from last year.
Farm supplier Nutrien Ltd NTR.TO 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 BMO.TO 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.
"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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