Canadian farmland values rise, but demand softens: Farm Credit

The value of farmland continued to increase in all Canadian provinces except Nova Scotia last year, but the rate at which Canadian farmland values are increasing has slowed from 2017.

According to Farm Credit Canada’s 2018 Farmland Values Report, average Canadian farmland values rose by 6.6 percent in 2018.

On a province-by-province basis, the greatest annual increases were recorded in Quebec (8.3 percent), Alberta (7.4 percent) and Saskatchewan (7.4 percent).

Manitoba’s farmland increased in value by an average of 3.7 percent. British Columbia land values rose by 6.7 percent.

During an April 26 conference call with reporters, FCC’s chief economist J.P. Gervais said all provinces with the exception of B.C. recorded annual increases that were equal to or lower than the increases recorded in 2017.

Higher interest rates and lower farm incomes were cited as the main factors.

“On the demand side, interest rates and farm incomes really do matter,” Gervais said.

“Interest rates climbed in 2018, and if you go all the way back to the middle of 2017, we’ve had five rate increases by the Bank of Canada, so that has … resulted in an average increase in borrowing costs of about 1.25 percent.”

Higher borrowing costs have slowed the demand for farmland in Canada, although the effect is somewhat muted due to Canadian interest rates, which remain at extremely low levels from a historical perspective, he said.

Farm incomes were another factor that slowed demand for Canadian farmland in 2018.

Gervais said year-end farm income statistics for 2018 are not yet available, but early estimates point to a decrease of one percent or more in farmgate receipts, depending on farm type and location.

For crop producers, farm cash receipts are expected to decline by as much as three percent nationally, and more in some provinces.

In the crop sector “every province is different,” Gervais said.

“The mix of crops is going to have a big impact … on income trends.”

FCC monitors farmland sales in 51 regions across Canada to determine average changes in provincial and national farmland values.

For the vast majority of regions monitored, FCC saw fewer land transactions in 2018 than 2017, Gervais said.

The average value of Canadian farmland has risen every year during the past decade.

On average, a piece of Canadian farmland valued at $100,000 on Jan. 1, 2009, would be valued at nearly $295,000 as of Dec. 31, 2018, according to the FCC’s valuation models.

Nonetheless, the rate at which Canadian farmland values are rising has slowed noticeably over the past five years.

In 2012 and 2013, for example, average farmland values at the national level rose by 20 percent per year or more, according to FCC reports.

The average increase of 6.6 percent recorded in 2018 was the lowest national rate of gain recorded since 2010.

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