Balance sheet for Ag up slightly, cash flow down
By Statistics Canada
According to figures from Statistics Canada, farm sector equity across the country increased 1.6 percent in 2006, to $192.9 billion. Farm assets also rose 2.1 percent to $241.0 billion, with the value of farm real estate accounting for nearly two thirds of the increase. At the same time, the federal agency reports cash flow decreased by 9.2 percent to $7.2 billion.
BALANCE SHEET FOR AGRICULTURE MARGINALLY HIGHER, CASH FLOW DOWN
January 16, 2008
From StatsCan – Farm sector equity in Canada increased 1.6% in 2006 to $192.9 billion, as assets rose more rapidly than liabilities. The 2006 equity level was 4.5% above the previous five-year average for the period between 2001 and 2005. Quebec was the only province to record a decrease in equity in 2006.
Farm assets rose 2.1% to $241.0 billion at the end of 2006. The value of farm real estate, which accounts for almost two-thirds of total farm assets, was the primary contributor, increasing 3.1% to $148.7 billion and continuing the long-term upward trend seen since 1988. The value of farm inventories was also a factor, up $653 million in 2006, as higher values for crop and input inventories more than offset declining values of poultry and market livestock inventories.
Farm liabilities reached $48.0 billion, up 4.4% from 2005, the 13th consecutive annual rise. Current liabilities declined 1.0%, while long-term liabilities recorded an annual increase of 6.0%. Prince Edward Island and New Brunswick were the only provinces to have had declining liabilities in 2006.
The debt-to-asset ratio rose for the 11th consecutive year, climbing to a record 19.9% in 2006. This ratio measures the dependence of farm businesses on debt. The previous record was 19.5% set in 2005.
After reaching a record low in 2005, the current assets-to-current liabilities ratio edged up in 2006, reaching 2.075, compared to 1.944 in 2005. The lower ratios recorded since 2003 mean that operators within the agriculture sector have a reduced ability to pay short-term debts compared to earlier periods. The previous 10-year average of the current ratio was 2.656.
The interest coverage ratio assesses the ability to cover interest charges with the net income being generated (before interest and taxes). This ratio decreased to a record low 1.543 in 2006, as producers faced record debt loads and higher interest rates. The ratio was 2.604 in 2005 while the 10-year average (1996 to 2005) was 2.719.
Return on equity also fell to a record low of 0.8% in 2006, the second consecutive annual decrease after reaching an 8-year high in 2004 (2.9%). Both the previous 5-year average and the previous 10-year average were 2.2%.
StatsCan also announced that cash income for Canadian farm businesses decreased by 9.2% to $7.2 billion in 2006, the second consecutive annual decline and 14.0% below the previous five-year average. Although stronger crop revenue helped offset declines in livestock receipts and program payments, producers were hit by higher interest charges and fuel prices, which drove farm operating expenses higher.
All provinces recorded decreases in cash income, except Newfoundland and Labrador, New Brunswick and Saskatchewan. For these three provinces, the increase in the cash sources between 2005 and 2006 exceeded the increase in the cash uses.
The amount of cash available for investment or withdrawal decreased by 0.5% to $9.0 billion in 2006. This is the lowest level it has been since 1996 and 11.4% below the previous five-year average.
The decrease in cash available for investment or withdrawal occurred in spite of a $1.8 billion net increase in loans outstanding in 2006. Loans outstanding have increased for 13 consecutive years. The $1.8 billion net increase in loans outstanding in 2006 was essentially the same as the previous 5-year average, but below the 10-year average of $2.0 billion.
The loans outstanding to cash income ratio rose to a record 6.1 in 2006 from 5.3 in 2005. This ratio indicates the burden of farm debt on farm cash income. The previous record was 6.0 set in 2003.