Canadian Farmers Face Years of Squeezed Margins | FBC, Canada's Farm & Small Business Tax Specialist

Canadian Farmers Face Years of Squeezed Margins

Product prices continue to drop for Canadian agriculture, meaning that farmers will likely have to find ways to save money through spending cuts and better tax planning.

In June, Statistics Canada's Farm Product Price Index dropped 4.8 per cent year-over-year in yet another decrease for the measurement meant to track the prices farmers receive for the commodities that they produce and sell, according to Blackburn News. The crops index fell 19.9 per cent. Year-over-year crop price declines began in August 2013.

With returns on investments not looking great in the next few years, farmers will have to resort to cost-savings efforts in order to maintain some sort of return for their products, according to The Western Producer. Farmers have bandied about ideas such as putting an end to machinery upgrades and paying close attention to their ROI of inputs.

Right now, prices are forecast to reasonably remain around the same through 2016. While this doesn't yet portend a sudden drop, it isn't exactly a positive either.

"It makes it less fun. Being less fun changes a lot of things," Brent VanKoughnet, a farm management consultant and expert, told The Western Producer. "An optimistic outlook is sometimes a lot more free-wheeling and at worst a little sloppy ... When that mood changes, people start to go back and challenge the expenses of even basic things."

Farmers Who Spent Wisely Before Will Do Better Now

The farming sector's boom years came with an increase in spending on just about everything, the publication explained. Farmers bought land and equipment and began experimenting with plenty of new technologies. They invested in drone-based crop scouting, remote sensors, foliar-applied micronutrients and other advanced farming technologies during this stretch of big returns.

Those days are coming to an end. Month-over-month, the Farm Product Price Index dropped one per cent, Statistics Canada found. Prices for products such as grain and oilseed have been placed under pressure due to a recovery of worldwide production and historic crops for a variety of major grains and oilseeds.

Spending will likely be different for farmers in the coming years. VanKoughnet told The Western Producer that while he thinks farmers will still be willing to spend, they will simply require a thorough convincing beforehand. In the past, farmers could risk bad decisions, but with their margins disappearing, this prospect is fading.

Farmers who overspent during the boom may run into problems soon, though those who operated their business wisely are likely to make it through leaner times, VanKoughnet explained. Many farmers were able to take advantage of the fatter years, raking in returns and preparing for the inevitable harder times ahead.

"For people with a 15 to 20 year plan to stay in farming, this boom put them in a good position to pretty aggressively turn over equipment and put themselves in a place where they won't have many unexpected expenses," he said.

As the boom comes to an end, farmers should do their tax planning with help from FBC, in order to ensure they maintain their margins.

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