How does the balance sheet of agriculture in the U.S. compare to Canada?
Researchers from the University of Illinois recently reviewed the financial health of the U.S. farm sector. They investigated trends in U.S. farm financials of the past 5-years while providing a forecast for 2017. This offers a great opportunity to identify the similarities and differences in the balance sheet of U.S. and Canadian agriculture using the release of FCC’s Outlook for Farm Assets and Debt.
Here are three interesting trends in Canadian and U.S. agriculture financial health:
1. Farmland and buildings represent a greater proportion of farm assets in the U.S.
Farmland and buildings represent the largest farm asset by far in both the U.S. and Canada. It is also becoming increasingly important. In the U.S., farmland and buildings accounts for 83% of all assets, which is 4 percentage points higher than it was in 2012 (79%).
In Canada, farmland and buildings represents 75% of all assets, 4 percentage points higher than it was in 2012 (71%). Many factors explain this difference: crop inventory levels and on-farm storage, production quotas in supply managed sectors, etc.
2. Liquidity is a major concern for U.S. farms
The average current ratio (current asset / current liabilities) of U.S. farms has declined from 2.87 in 2012 to 1.55 in 2016. This is concerning for the U.S. agriculture sector as it is below the commonly-used benchmark for U.S. agriculture of 2. This is already causing some financial pressures on some U.S. producers.
The average current ratio for Canadian farms is 2.31 which has declined from 2.63 in 2012 but still remains healthy. The weaker Canadian dollar shielded producers from declining commodity prices between 2014 and 2016. This is an area to monitor as the loonie recently edged higher.
3. Farm asset values remain strong
Solvency of both U.S. and Canadian farms remain strong. The average debt-to-asset ratio of U.S. farms is 12.7%, while in Canada it has averaged 15.4%. In both Canada and the U.S., the debt-to-asset ratio has been trending below the long-term average.
There are many similarities between Canadian and U.S. agriculture. Farmland and buildings remain the most important asset in both countries. The Canadian dollar remains supportive of farm revenues and farm health, but short-term indicators of farm financials can evolve rapidly.
Craig joined FCC in 2009 as an Agricultural Economist, specializing in monitoring and analyzing the macroeconomic environment, modelling industry health, and providing industry risk analysis. Prior to FCC, he worked in the livestock branch of the Saskatchewan Ministry of Agriculture. Craig holds a Master of Agricultural Economics degree from the University of Saskatchewan.