The era of booming farmland values may be coming to an end, says a new report from Farm Credit Canada.
From 2011-16 farmland values in Canada increased, on average, more than 10 percent annually.
Those double digit gains could be over, for a while, because the FCC is predicting farmland values to rise only one percent in 2018.
“The value of farmland and buildings is projected to continue appreciating, but at a slower pace: annual average increases of four percent in 2017 and one percent in 2018,” FCC economists said in a report released Tuesday morning. “This declining rate of increase (for land values) will mainly be the result of projected softer growth in farm cash receipts and higher borrowing costs.”
The FCC report, Outlook for Farm Assets and Debt 2017-28 (PDF format), said the majority of Canadian farmers are in good financial shape. However, interest rates are expected to rise, farm income could flatten and gains in land values may slow.
Given all that, producers may need to adjust business plans and expectations, particularly expectations around land values.
In its report, the FCC said farm cash receipts in Canada are not keeping up with the increases in land values, meaning land has become more expensive relative to farm income.
From 2011-16 the value of farmland and buildings increased 50.1 percent, thanks to two main drivers:
• strong farm cash receipts
• low interest rates
The Bank of Canada raised interest rates twice this summer and more rate hikes are expected. As well, the FCC expects annual gains in farm income to slow.
“If you’re generating more income from your asset, it’s to be expected that your asset (land) is going to gain value,” said J.P. Gervais, chief agricultural economist for FCC.
“What we’re saying is, right now we expect farm income in the next 10 years to look a bit different than the last 10…. Yes, incomes are still going to grow, but at a slower pace.”