Provincial Ag Scene - Winter 2017
January 22, 2017
The state of the
agriculture industry in Canada is dynamic to say the very least. Farming in
western Canada has shown remarkable strength the last few years, with
increasingly innovative production methods adding to yields and quality.
Notwithstanding some weather challenges this past growing season, the industry
has generally shown good results.
In some parts of the
prairies, the 2016 harvest could not be completed due to prolonged periods of
rain and snow in September and October. Regardless, the overall production of
crops in the prairies is among the highest on record.
Prices for cash crops
are somewhat of a mixed bag. Hard red spring wheat prices are exhibiting
slightly higher prices in late 2016 than they were in the last part of 2015.
Canola prices, while lower during mid-2016, have recovered to approximately the
same level as in late 2015. Pulse crops - peas and lentils - are down from late
2015, as a result of higher worldwide production in 2016.
After a challenging year
for cattle prices, there have been signs of strengthening in some parts of the
sector. That said, it appears that, overall, the cattle business will continue
to be under financial pressure going into 2017.
appreciated in value across the prairies through 2015, and numerous indicators
in 2016 seem to indicate prices will continue to be strong. Rates for cash
rental of farmland also appear to be steady relative to last year. The hard
numbers for 2016 will be available in the spring of 2017, providing a more
Low interest rates
continue to work in favour of primary producers, allowing them to more easily
invest in resources and technology to help increase production. The Canadian
dollar continues to be weaker relative to the US dollar, which helps support
Canadian commodity prices.
Most farmers' financial
positions are solid, giving reason for optimism going into 2017.
Options for Your Land
Leases for farmland vary
in structure, and as tax professionals know, each type of lease comes with its
own set of positives and negatives. The types of agreements are numerous, from
receiving cash rent to sharing in the input costs and revenue, to contributing
all inputs and receiving all revenue, and several variations in between.
If tax implications are
not a consideration, the very simplest agreement is one in which a tenant rents
your land from you for cash. You receive your rental payment either all
up-front, or possibly half before seeding and half after harvest. This is
usually simple, with your rent payment somewhat guaranteed, regardless of your
renter's revenue. A potential pitfall is that your renter could have a crop
failure and not be able to pay you in full. You also may want more involvement
and control in the way your land is being farmed than this type of lease typically
affords. In this scenario, a professional farm manager is able to customize
your cash rent lease agreement and ensure your interests are protected.
While cash rent
agreements currently make up the majority of leases, there are alternatives
that hold large potential tax advantages.
You can structure an
agreement with your tenant where you contribute a percentage of the input
costs, entitling you to the same percentage of the crop produced. This type of
arrangement is best described as a "production joint venture" (known
in some areas as crop share), often involving help from a professional farm
manager. Your financial participation qualifies you as a farmer in the eyes of
CRA and can hold substantial tax advantages, especially for transferring your
land to your children or grandchildren. You can be directly engaged in the
yearly input decisions, as well as in the marketing of your portion of the crop
to maximize your revenue.
Another way to be
considered a farmer is to create a custom farming agreement. In this case, you
provide all the inputs and hire someone to perform all the farming activities
from seeding to harvest. As you are simply "outsourcing" the
operations performed in a growing season, you are considered a farmer. With the
assistance of a professional farm manager and agronomist, you are in control of
the entire operation.
The specific model you
choose should coincide with your long-term goals for your land as you generate
revenue with it and make plans to pass it along to your children.
FNC Serecon offers
comprehensive consultation services designed to help landowners improve their
farm and ranch operations. FNC Serecon trained field staff has extensive
experience in agriculture. We use the proven results of similar situations to
help in assessing your best course of action. We have expertise in commodity
marketing, project analysis, development and implementation, financial review,
appraisals, and conservation and recreation projects. Our consultation system will
help you identify your objectives for your agricultural assets and help you
achieve your goals. Our services are tailored to meet your needs.
We provide a
comprehensive analysis comparing various lease and rental alternatives
available in the area as well as a comparison of expected income from each
type. We also provide recommendations for the lease that we feel would best
suit your objectives. Our lease analysis includes crop production costs,
expected yields, and grain prices.
Total Analysis or Enterprise Specific
Let us help you
determine if you are receiving the best returns for your farming operation. Our
team can complete an objective review of your farm or ranch, analyzing your
current operator, lease options, and enterprise analysis. Our analysis
considers potential improvements, including tile, irrigation, grain storage,
fence improvement, conservation work, and land acquisition or sale. Our
Enterprise Specific consultation is focused on any one of the land improvements
The Next Generation
We can help you and your
Trusted Advisors (legal, financial, insurance, estate) develop a plan for the
transition of your farm or ranch to your children or other heirs. There are
many considerations to take under advisement, we work with your Trusted
Advisors and analyze all options available and make recommendations based on
your goals and wishes for your next generation of owners.
of Our Consultation Services
Pride of ownership,
personal enjoyment, and asset diversification are all intrinsic qualities that
when combined with your farm's monetary value create a complex asset that
requires experienced care. FNC Serecon can complete an analysis on your behalf
to ensure that you are not only getting the most out of your land financially,
but are also taking all of the right steps to preserve the land for future
generations. Let us help you determine if your farm or ranch is achieving all
of the goals you have, from ensuring proper care (conservation, pesticide
stewardship, weed management, fertility, etc) to producing a fair return by
controlling expenses and maximizing income opportunities. We have the expertise
to provide you with the recommendations and plans needed to ease your mind and
ensure that your land is being maintained in your best interest.