We have seen a significant surge in the value of prairie farmland over the past 10 years. In fact, land values have tripled in many areas from 2005-15.
Several key factors have played a role in this and will no doubt affect any future movements in the price.
Low interest rates have made it easier for more producers and investors to cash flow the larger price tags.
Rates have been low for so long that there is an entire generation that is not old enough to remember when interest rates were much higher.
Members of this generation would be among the more aggressive buyers, and they carry a much higher risk tolerance. There doesn’t appear to be a clear indication that interest rates are going to rise significantly any time soon. If rates stay low, it will further fuel the rise in land prices.
Some commodity prices have settled, such as wheat, canola, oats and peas, while others remain very strong, such as lentils and chickpeas. Depending on where the land is located, we may see some stabilization in land prices.
Land prices in some areas of the United States have fallen, but I wouldn’t expect a decrease in Canada, although some stabilizing may occur. Areas strong in pulse crops will likely retain strong and perhaps rising prices.
Economics is driving a lot of expansion as farms look to get bigger to become more profitable.
The recent increase in profitability has seen a resurgence of young people returning to the farm to take over.
As such, the farm needs to be larger to generate enough return to provide a living for the new generation and a retirement for the older generation.
Large expansions take a lot of cash. The recent surge in expansions has pushed many farms to their borrowing limits, which might cool expansion plans for awhile and stabilize land prices in some areas.
It’s interesting to see that more investors are interested in farmland.
Farmland seems to offer a stable return because of low interest rates and less predictable financial markets. It’s also tangible. Speculation is no doubt one factor for this outside interest in land. What do they know that we don’t?
Urban sprawl continues to occur on the Prairies as people look to move out of the cities and into the country.
There is significant demand for acreages and quarter sections for people to build their estates. Farmland is a relatively cheap option compared to the rising cost of property inside the city.
The weather is virtually impossible to forecast with any accuracy, but advances in technology in genetics and machinery have resulted in an ever increasing resiliency in the overall prairie crop.
If producers continue to experience plentiful harvests, it will likely push the price of land higher.
It’s also worth noting that farmland on the Prairies is undervalued because of political restraints placed on ownership.
There are pros and cons to this, but the fact is we may be only scratching the surface if you compare the value of farmland on the Canadian Prairies to that of B.C., Central Canada, the United States or even Europe, where ownership is less restrictive.
It’s hard to know where values go from here, but the current fundamentals would signal that upward pressure will remain.
One thing is for sure: while increases in the value of land may frustrate many young or aggressively ex-panding farmers, it has created an enormous amount of wealth for long-term land owners and made retirement a lot more comfortable for the outgoing generation.