Some substantial reading

[chuckChuck]

Then why did you propose that as your primary solution in your first thread?

Government intervention is a broad category that could include price controls, regulations, subsidies, tariffs and supply management where appropriate. We currently already use all these options to some degree in some sectors.

Obviously there is great resistance to having the government intervene more to help farmers if the input sector and grain handling and transportation sector don't agree or don't want it.

What are you proposing to help farmers with bad weather, low commodity prices and high input prices?

[grassfarmer]

AB5, I don't think for a minute we should accept that the total farm economy of a country should produce permanently declining, or negative net farm incomes. To have a situation as demonstrated on the graph where net farm income was lower from 1986 to 2006 than it was during the height of the great Depression is appalling. When you think of all the farmers that just sc****d through the Depression (and the many that didn't) then 50 years later for all our investment in increased scale, technology, better farming practices we are worse off but that's somehow Ok??
I guess that should end all the bitching on here about farmers being hard up, wanting Government aid or just struggling - get used to it, you deserve it - according to this line of thinking!

Why is it Ok that only the primary producer works for nothing? As an example the beef processing giants don't. The AB Government paid to bring them to AB, continues to fund investment in their processing equipment while running a covert operation preventing any competitive start up companies getting into the same business. Despite having some of their startup costs and upgrades paid by the taxpayers why haven't they become more efficient? With the increased head killed/plant, faster turnaround, greater efficiency and consolidation that sector should be retaining a lesser % of the retail beef dollar than ever before - in fact they are enjoying the opposite.

[malleefarmer]

Agriculture seems focused on maximizing production even if it means lower prices and reduced profits.

So chuck your advocating the govt get into how much farmers should produce?

Just won’t happen won’t work if you go down that path they have to control pice of land as well.

It’s a slippery slope the level of govt intervention you suggesting in my opinion.

[AlbertaFarmer5]

So the two train engineers who now control a 4 or more engine unit train running non stop, with almost no maintenance crews along the way, compared to the steam era where there would moving that amount of freight would have required dozens of engineers, firemen brakemen etc, and dozens more workers along the route, deserve to make as much as those dozens would have? (The unions made sure it was so for quite a while, not allowing any less staff to operate a train) Erasing all efficiency gains due to new technology?

The few remaining workers on an automotive assembly line deserve to make as much as all the workers replaced by robots and automation, and all the other efficiency gains over the decades?

The feller buncher operator should get paid as much as 100 men with buck saws who would have done the same job?

What is the purpose of making gains in productivity, if we are going to be Luddites and not take advantage of those gains by lowering the cost of production, and passing that all the way through to the consumer?

The 95% that Darrin keeps repeating as all going to big corporate agribusinesses is completely false. He is taking gross revenues, and comparing to net income. You as a cattle farmer should see that, what percent of your expenses goes to big agribusinesses? On a year like last year, I'm going to guess that your biggest inputs were feed from your fellow farmers? Custom work from fellow farmers? So many other expenses are being lumped in there that have nothing to do with Monsanto or JD, property taxes, labor, land rent to our neighbors, mortgage interest on owned land( in our case, to a credit union), gas and electricity, (in our case, both are coops), many get their fuel through a coop, breeding stock, or feeders, grain, straw, hay, seed(legal) from our neighbors.

Do you think the average feedlot spends 95% of their revenues at big agribusinesses, or does the majority of what they spend end up directly in another farmers pocket when they buy their calves, grain, straw, silage, hay etc? Then they hire local labor, support the local veterinary clinic, pay disproportionate property taxes, hire local manure spreaders, and custom silage cutters. Might spend a few percent of their expenses on veterinary products, and feed supplements that came from big corporate agribusinesses, but no one forced them to, they did the math and discovered that it was cheaper than dead cattle.

Until land prices drop to zero, and land goes unrented, there is no income crisis in agriculture. Farmers apparently have decided that 5% profit is enough to live on, and are spending the remainder on land, or rent, or shiny paint, in many cases because they would rather do that than pay taxes of any kind. Unless you advocate for price controls on everything, you likely can't change that 5% number by much, we will spend our way back to it.

I happen to be doing my 2018 year end lately, so I checked the 2017 numbers. I added up my seed( not from another farmer), fertilizer, chemical, diesel, salt and mineral, a portion of veterinary expenses, a portion of my repairs that would be parts from a dealer, and come up to 26% of my total expenses going to big agribusiness. The vast majority of that being fertilizer. Seed and fuel being a very very distance 2nd and 3rd. Chemical 4th. My equipment expenses are so far removed from the manufacturer, that I don't know how one would reasonably include them, but they still wouldn't materially change the fraction.

And another note on that. These analysis really need to differentiate between those who make their living from farming, and those who are spending their income on farming. Almost every one of my neighbors falls into the second category. Full time job or business, which subsidises a farm which has equipment, and facilities, and shops, etc that are worth more than the farm will ever gross. And that is their expectation. Lumping them all in together is meaningless. All I can tell from this statistic, is that there sure are a lot of people willing to pay for the privilege of being able to farm.

[grassfarmer]

AF5, You seem to be confusing net farm income with unit cost of production. Sure with efficiency gains etc the cost of a bushel of grain or a pound of beef on the hook may be less - we raise more of them and make up the losses on volume as bucket likes to say. To suggest that wheat or beef producers should expect to have ever declining net farm incomes is just crazy - if that's the outcome why would anyone try to improve their efficiency - better just stay in the 1950s.

The argument that agribusiness doesn't make money from me because I pay other farmers for feed, custom work etc doesn't hold water. I'm paying the costs of fertiliser, machinery etc by proxy.

You say there is no income crisis in Agriculture - that graph shows a different picture - when net farm income across all of agriculture drops into negative territory I'd say that denotes a farm income crisis.

I agree the picture is clouded as to who makes their living from agriculture alone. In many cases that's not a choice the farmer can make - off farm work being a necessity for many. Many farm wives work off farm - even on huge scale operations - does that mean their economics don't count in evaluation of farm profitability?

[AlbertaFarmer5]

Maybe I am just wording this poorly, can someone else chime in and let me know if I am making sense?


I'll try it a different way. If in 1900, it took 100 farmers to farm 100 quarter sections, and each of them made an inflation adjusted profit of $100,000, it would be a total income of $10,000,000. If in 1960, there were 10 farmers farming 10 quarter sections each, and they each made $100,000, that would be a total of $1,000,000 dollars. If in 2019, 1 farmer is farming all 100 quarter sections, and still making $100,000, that is a total of $100,000. The farmer didn't get poorer, his net income didn't drop, it was his productivity that went up. If you take the chart, and also draw a line indicating the number of farmers, you will find that it drops at a much steeper rate than the net profit, because net profit per producer has been going up, albeit with bumps and potholes along the way.

Now, if government were to orchestrate or fund a program to boost net farm incomes to the same level they were in some period of the past, and arrange it so the single farmer now makes $10,000,000 per year in profit( equal to the 100 farmers from 1900 who he replaced), I think the tax payers and consumers will up in arms about it. And everyone and his dog will desire to become a farmer themselves to earn a piece of that windfall, and unless you also place price controls on land, and rent, and restrict new entrants, the lone farmer is going to find out that everyone else is willing to do it for a fraction of that, and they will compete to outbid themselves until the profit is right back to the bare minimum it takes to make a living.

[AlbertaFarmer5]

AF5, You seem to be confusing net farm income with unit cost of production. Sure with efficiency gains etc the cost of a bushel of grain or a pound of beef on the hook may be less - we raise more of them and make up the losses on volume as bucket likes to say. To suggest that wheat or beef producers should expect to have ever declining net farm incomes is just crazy - if that's the outcome why would anyone try to improve their efficiency - better just stay in the 1950s.

The argument that agribusiness doesn't make money from me because I pay other farmers for feed, custom work etc doesn't hold water. I'm paying the costs of fertiliser, machinery etc by proxy.

You say there is no income crisis in Agriculture - that graph shows a different picture - when net farm income across all of agriculture drops into negative territory I'd say that denotes a farm income crisis.

Except it is not negative today, Darrin repeats over and over that it is positive 5%. That may not be adequate if you have a 5 digit gross. It might be a windfall if you have an 8 digit gross. Anecdotally, ( and I may have this completely wrong in many cases) seeing the houses and vehicles, and holidays, and toys, that most of the more or less full time farmers are flaunting, I'm guessing their numbers are higher than 5%. And by extension that there are an awful lot of hobby operations who qualify as farmers for tax purposes, but have no intention of showing a profit. I know of many who see the farm as a way to lower the tax bill on their main source of income, the farm will lose money in perpetuity, it makes no sense to me, but it does to them.

[AlbertaFarmer5]

And a comment on the debt. He provides a big scary number, and compares it to a previous date, but otherwise it is without context. The proper context would be debt to equity ratios. I can't find any long term ratios, but today's ratio is below both the 10 year and 15 year average ratio. Assets have increased in value faster than debt has been. I'll keep looking for older data.

And every source i've seen indicates that land values have been the biggest driver of both increases. That doesn't necessarily make it sustainable, if land values don't continue their meteoric rise, but it isn't a sign of a crisis, it is a sign that farmers are responding to market signals. Cheap interest, strong returns( appreciation, and profit) are driving farmers to invest in land. And with cheap interest, it makes more sense to pay the interest, and invest in the farm, than pay down the loan. Interest rates have been lower than land appreciation for so long now that it actually paid to have a mortgage on farmland. This isn't the equivalent of payday loans and credit card debt, this is mainly debt that was invested in productive and appreciating assets. I found an interesting chart that shows a very high historical correlation between farm debt levels and land prices, not surprising.

How does farmer debt compare to consumer debt growth over that same period? What about other business sectors, or governments? Consumers and governments have absolute debt growth that is even scarier, except they didn't invest it in productive assets.

[AlbertaFarmer5]

AF5, You seem to be confusing net farm income with unit cost of production.

I was reading the source of the figures right out of the report you posted, no confusion. Except, the report does not list net farm income per producer, only net farm income for the sector, which requires some extrapolation.

[chuckChuck]

"So chuck your advocating the govt get into how much farmers should produce?"

Mallee. In Canada the government already does this with quota for supply management programs for dairy and poultry products along with a cost of production formulae for pricing. They also use import tarrifs to stop low cost dumping from depressing the market.

And supply management farmers don't consider themselves socialists. Most Conservatives support these programs as well.

I doubt that there is much support for limiting production in many other commodities.

But the US and Canada both used set aside programs in their past that were tied to subsidies.

The input and grain handling sector won't support any reduced production programs.

The spend to the max and system isn't working so well. With over a $100 Billion in debt, Canadian farmers are in a very vulnerable position if profit remains elusive.

Debt to equity may be okay now but if and when land values start declining which happened in the 1980s then all hell will break loose.