Crop farmers grapple with record-high farm debt, expenses, and input cost

By Tom Collins
PEMBROKE — Some Eastern Ontario grain farmers say diversification is key to survive the rough downturn in the market coupled with tighter margins. Others say sound management decisions are required to pencil out a profit.

The last two years have seen have seen expenses go up while livestock prices and crop prices went down.

Fifteen years ago, it was often said a farmer could survive on 500 acres. But costs have gone up so much now they say you need 2,000 acres to make a go of it.

“My kids couldn’t make a living if they only had 500 acres,” said Renfrew County cash crop farmer Darcy Smith. “They would starve to death. If you have a 1,000-acre farm, you still need a part-time job. How sad is that?”

Every successful farmer has other sources of income, Smith said, adding that diversification is necessary to survive. Besides cash cropping, Smith runs a sweet corn operation, a trucking business, mini-storage, an excavation business, sells firewood and does custom planting and harvesting. His wife has an off-farm job as a nurse. In lean years he takes on more trucking jobs.

“You can’t have all your eggs in one basket, especially in farming,” he said.
Lanark cash crop farmer Andrew Dawson agrees. Dawson, who farms 2,000 acres, also has a five-acre strawberry patch, a 35-40-head beef herd and does some custom work. The extra work means less down time and adds to the struggles for a better work-family balance.

Dawson has increased direct marketing of beef to consumers. He now no-tills more acres to minimize wear and tear on the machines and he walked away from a land rental opportunity last year when he pencilled out that the crop wouldn’t cover the input and rental costs.

Grain Farmers of Ontario Chair Markus Haerle, at St. Isidore, said two straight tough years are forcing farmers to draw on their equity and borrow themselves further into short-term debt and banks will start looking at agriculture as a high-risk venture. In 2018, 80 per cent of soil crop inputs were purchased with cash but it is expected that 80 per cent of 2020 are going to be financed, he said. “That’s a big shift.”

Haerle wouldn’t say that farmers are in a crisis but one is getting closer every day.

Joe Hickson, of Midnight Acres at Lindsay, is not as optimistic. Hickson, who grows 2,500 acres of non-GMO corn and IP soybeans, figures that a crisis is at the door thanks to increasing costs, including last year’s extra costs for drying corn.

“Even when things were good, there wasn’t that much margin left over for the rainy-day fund,” he said. The year 2020 will decide how bad things really are, he said. “We’re in a hole, but we’re not spiralling just yet. If we have a decent year, I think we’re in a position where we can dig ourselves out. A third year like the last two years, we’re pooched.”

Statistics Canada reveals that farm debt, expenses and farm taxes all hit record highs in 2018. In five years from 2014 to 2018, Ontario farm debt increased from $20.85 billion to $27.7 billion, expenses increased from $11.61 billion to $13.6 billion, and business taxes increased from $137 million to $186 million. The tax upside, if you can call it that, is that if you’re paying more taxes you’re earning more money.

Farmers are certainly tightening their belts. Last year, Canadian farmers purchased 3.9 per cent fewer tractors than in 2018. Large 100-plus horsepower tractor sales dropped 18 per cent to 3,226 and combine sales dropped 19 per cent to 1,695 combines from 2,102 sold in 2018.

Farmers are also cutting back on improvements. Hickson said he needed to upgrade his corn planter last year but put it off to save money.

The financial headaches are also impacting mental health, Hickson said. “Any kind of financial insecurity is stressful.”

As far as cash cropping goes, Lanark County farmer John Vanderspank says every farmer’s situation is different. Some got land given to them, others paid for it and some paid too much. Financial problems are caused mostly by bad management decisions, he says. The two most important things a farmer can do is tile drain the land and sell crop at a target price, he said. Too many farmers aren’t doing either.

He recalls that a year ago he was sick to his stomach when he sold corn at $4.70 per bushel. “I’ve got debt like everyone else,” he said. He has one big combine payment to make every fall so “I always like to sell enough beans at a profit so that I can make my payments on Nov. 1.”

That $4.70 turned out to be a near high for the season. Too many farmers wait for the price to go higher and then it doesn’t, he said. He added that after he talked a farmer into tile draining three years ago, his yields now are phenomenal.

Vanderspank recalls that when he was 10 years old, the late seed dealer Garnet Ralph told him two things he has hung onto: “Never buy land you can’t tile and feed the land and it will feed you.”

Diversifying, cutting costs and making good decisions are only part of the story. Al Mussell, of the Guelph-based think-tank Agri-Food Economic Systems, says yield improvements have played a large role in keeping farmers afloat. In 2018, corn yielded 166 bu/ac, whereas it yielded 142.8 bu/ac in 2008. Even if corn prices hovered around $5 an acre in both 2008 and 2018, the extra 20-plus bushels per acre on 1,000 acres is an extra $115,000 and helps offset extra costs. The same goes with extra production from genetic improvements for cattle and hogs.

Mussell also pointed out that the StatCan offers figures that are estimated aggregates and can make things look worse than they are. “If that number reflected each and every farm, then you would say, ‘How on earth do these people get by?’ But it doesn’t parse itself out that way.”

Debt is not necessarily a bad thing and usually means more people were invested when things were going well, he said.

Nevertheless, last year was a difficult year for crops, while a trade war impacted canola, soybeans, hogs and beef exports. Some say cattle farmers are losing as much as $200 per head, while pork producers are dealing with an increase in U.S. pork production increasing the amount of supply in North America. Meanwhile, soybeans hovered around $11 per bushel with 3 million acres planted in Ontario and a glut of U.S. soybeans still out there. “I don’t think anybody is getting rich on 11 bucks,” Mussell said.

Farm Credit Canada chief agriculture economist J.P. Gervais said Canada is now in a downturn after a spectacular decade. He said 2005 to 2015 saw overall growth that allowed farmers to build up working capital.
Net income reached a record high around 2015 but has been declining ever since.

About five years ago, margins were positive. “Everybody was making money,” he said. “Very efficient producers were making a lot of money.”
From 2015 to 2018, the value of the Canadian dollar dropped, which shielded Canadian farmers from some of the pain and financial stress that U.S. farmers endured. Gervais is not a doom and gloom kind of guy. Sure, profits are smaller now, he said. But there’s still money to be made.