Farmland values continue to increase

April 20, 2015 8:28 am
Kevin Weedmark

Saskatchewan farmland gained 18.7 per cent in value in 2014—the highest increase in the country for the second year—and Manitoba farmland gained 12.2 per cent in value, according to the Farm Credit Canada Farmland Values Report released last week.

The report shows that, while farmland values showed strong growth in 2014, the increases were not as steep as the previous year.

Average farmland values across Canada saw a 14.3 per cent increase in 2014, compared to a 22.1 per cent increase in 2013.

“2013 was a really strong year,” says Ron Bonnet, president of the Canadian Federation of Agriculture. “I think what we’re seeing is a matching up of farmland values and commodity prices. You can usually draw a link between the two.”

FCC says drought in the United States as one reason for the 2013 spikes in prices. Jeff Leal, Ontario’s minister of agriculture, food and rural affairs, adds many factors may influence the value of land and the price of food.

“These values and prices are usually determined by the market,” Leal says. And in key Canadian agricultural regions, such as Ontario, Quebec and the Prairies, that market has slowed down.

Manitoba and Saskatchewan showed the most significant change from 2013 to 2014, slowing from an increase of 25.6 to 12.2 per cent and from 28.5 to 18.7 per cent, respectively.

The figures also show a trend towards more steady values, FCC says.

“While the increases are still significant in many parts of the country, they do suggest we are moving toward more moderate increases for farmland values,” says Corinna Mitchell-Beaudin, FCC executive vice-president and chief risk officer.

“This is good news for producers since gradual change in the value of this key asset is always better for those entering or leaving the industry.”

J.P. Gervais, FCC’s chief agricultural economist, predicts a “soft landing” for farmland values since crop prices began moving closer to the long-term average.

While lower interest rates make it tempting to buy land, Gervais says producers need to exercise caution.

“Interest rates will eventually increase, even if this is not on the 2015 horizon,” Gervais says. “Expanding world stocks of grains and oilseeds could bring prices down further, creating tighter margins.”

Bonnet agrees and says producers will carefully monitor their total debt load to keep that under control while keeping an eye on interest rates and commodity prices.

“Livestock is expected to remain strong this year,” Bonnet says. “There may be some back off on crops which may hold off purchasing in the next year.”

Tighter profit margins may also affect the land rental market. Rental rates usually take a little time to adjust downward following lower grain and oilseed prices. Multi-year leases are also gaining in popularity.

“Producers should be encouraged that a weak Canadian dollar, expanding trade agreements and growing world food demand are helping to enhance the demand side of the market for Canadian commodities, creating a positive long-term outlook for agriculture,” Gervais says.

“Land is a valuable asset and there really isn’t a one-size-fits-all formula for determining when to buy or sell,” Mitchell-Beaudin says. “Producers really need to take a close look at their operations and ensure they can manage through a number of scenarios when it comes to revenues and expenses.”

Saskatchewan showed one of the most significant changes among the provinces, slowing from an increase of 28.5 per cent in 2013 to 18.7 per cent in 2014.

Based on the farmland values for the last five years, Manitoba farmland valued at $100,000 in 2009 was worth $193,472.53 after five years, in 2014.

Saskatchewan farmland valued at $100,000 in 2009 was worth $237,178.24 by 2014.