The amount of debt carried by Canadian farmers has never been higher, but producers don’t appear overly concerned
Survey respondents with annual sales of more than $1 million are even more likely to buy land, machinery and other major assets this year, the survey found.
Thirty-four percent of farmers who reported sales of more than $1 million a year said they were somewhat likely to buy more land this year, while 47 percent of farmers with sales of more than $2 million a year said they were somewhat likely to buy land and 83 percent said they were at least somewhat comfortable making capital purchases.
Al Mussel, an agricultural economist who analyzed the survey data, said numbers pertaining to land acquisitions are surprising, given the current economic environment.
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Crop prices have been falling over the past two years, while land prices have increased significantly.
According to Farm Credit Canada, the average value of Canadian farmland increased by more than 40 percent in the two-year period ending Dec. 31, 2013.
“There was a significant proportion (of respondents) that said they planned to purchase land, but what was funny was that almost everybody that participated in the survey — I think it was 84 percent — said that they felt land was overvalued in their area,” Mussel said.
It might seem unusual that a farmer would consider buying land in a market that he considers overpriced, but Mussell said some farmers see land as a strategic acquisition based on its proximity to their existing landholdings.
Others see a larger land base as a way to optimize use of existing assets, such as machinery.
“As you get larger and larger machinery sets or multiple sets of machinery, there’s sometimes a desire to get access to a larger acreage base that would drive the unit operating costs of that machinery down,” he said.
Mike Raine, managing editor of The Western Producer, which commissioned the Ipsos survey, said a farmer’s perception of land values sometimes differs from that of a speculative investor.
The fact that land values have increased very rapidly during the past few years may also be influencing farmers’ perception, he said.
“Farmers often view a piece of land under a different lens than would an outside investor.… Quite a bit of farmland in the last decade has doubled and in some cases tripled (in price) in Western Canada … so under those circumstances, you can see why some farmers might consider land to be overvalued.”
Concerns about rising interest rates did not appear to play a major role in the attitudes of farmers who are contemplating a major purchase.
More than half of the survey’s 455 respondents indicated that a one percent increase in interest rates would have a minor or manageable effect on their businesses.
Contact brian.cross@producer.com
