It has been one long Canadian winter. I’m sure my friends in Grande Prairie, Alberta would tell me that there is still a lot left.  You can talk to just about anybody in  southwestern Ontario farm country and they will tell you that they are ready for spring.  This past winter has been a long one and cold one. I suppose the one redeeming factor is buoyant markets have kept us busy watching those volatile futures prices for grain.

To make it a little bit more interesting, the USDA released their ending stocks report this morning and the report was both bullish for corn and soybeans.  However, it seems this market wants to stay fickle because even though soybeans came in at 165 million bushels ending stocks and corn 1.7 billion bushels the market really didn’t do anything last Thursday.  It makes you think that next week may be the traditional spring rally will continue interest.

Needless to say Canadian farmers at least over the last two years have surely been focused on the revenue side of our farm management equation.  Yes, most of us are worried about paying high prices for fertilizer and fuel but basically over the last two years with prices higher than they have been in the recent past the revenue equation has been a bright spot for Canadian grain and oilseed farmers.

With revenue forecast that looks positive and with profits in our immediate future nobody likes to be the bad guy and see doom coming around the corner.  Surely I’ve been  accused of that before.  However I saw a commentary last Thursday from an old friend of mine.  Actually, my old friend George Brinkman showed up on the back page of a Canadian Farm Business Management newsletter expounding his views on Canadian farm debt.  George was instrumental in your loyal scribe getting his Masters degree in agricultural economics at the University of Guelph.  At the time he schooled me in rows upon rows of statistics on Canadian farm debt.

In a nutshell George Brinkman who is now a retired professor from the University of Guelph has been warning Canadian farmers about their high debt levels for years.  These debt levels he has warned before are much higher than our American friends.  For instance in his commentary George said that Canadian farmers had debts in 2007 of $49.8 billion, which is three times their debt in 1981.  He went on to say that our debt to income ratio went from 2-1 in 1972 to 23-1 in the period between 2004- 2007.  The equity income ratios really represent how much capital you’ve invested in order to earn in a dollar of income.  In Canada that is 110.6-1 and in Ontario it is 293-1.

Compared to our American friends it’s like we are  drunken sailors who got liberty in Las Vegas!  For instance American farm debt levels are only up 19% in the last 26 years even though their farm income tripled while here in Canada it fell.  According to George, their debt to income ratio in 2004-2007 was only 2.9-1 roughly what ours was in the 1970s and just one eighth of what ours are today.  In Canada it is four times higher than that.

I hope some of you are still reading this.  I know that when my  former professor George Brinkman rattles off the statistics many of you have your eyes glaze over.  However what it really means is that if interest rates ever spike or go up significantly Canadian agriculture is in a heap of trouble.  The reason is obvious with this much debt we are not competitive with their American friends and I don’t even want to talk about Brazil and Argentina.  I would love to know the breakdown of the debt levels with regard to the supply managed Canadian agricultural sector versus grains and oilseeds versus our livestock sector.  The high cost of quota in Canada must have an obvious effect on these numbers.

I am quite alarmed by these numbers.  However you might say that George is yelling fire in a crowded theater where everybody is having a good time and everybody is paying their bills.  He is right but does it really matter if our revenues are paying these bills at least in the short term?  That is one thing but the other thing that this tells me is that our structural cost of maintaining an agricultural sector in Canada is high compared to other places.  So it is completely obvious to me at some point in the future there will be a reckoning point.  However it also means that Canadian farmers are limited in their entrepreneurial options because of the high cost structure that we operate in compared to our competitors whether that be in the United States or in South America.

What’s that really mean?  It means to me that the price of land is too high in places like Ontario and Québec compared to comparable land in far-off places.  It also means that the price of quota to produce Canada’s supply managed commodities is too high.  It surely will also mean that if we ever do see interest rates spike someday our debt levels cannot be sustained.

However of course there was a USDA report released last Thursday.  We are all thinking about our revenue projections for the coming year.  Nobody wants to pour cold water over all the fun.  Las Vegas is just too much fun.  However keep in mind what my old professor George Brinkman is musing about his true.  As long as interest  rates stay low and revenues are comfortable Canadian farmers will be on cruise control.  However when it changes there  may be the greatest farm rationalization we have ever seen.   Okay, let me get back to analyzing the latest commodity revenue projections!