Farm real estate value increased 15 percent last year

The value of farm real estate in Canada continued to climb rapidly last year.

According to Statistics Canada figures released June 18, farm real estate assets were worth more than $352 billion as of Dec. 31.

It represents an increase of more than $46 billion, or 15 percent over 12 months.

Total farm real estate assets were valued at $306 billion at the end of 2012.

The statistics also paint a positive picture of equity in the agricultural sector.

Despite record farm debt, the total value of all assets in Canada’s agriculture sector was estimated at $488.4 billion at the end of last year, up $53 billion from 2012.

Liabilities were estimated at $73 billion, leaving total equity at $415.3 billion.

A year earlier, equity was estimated at less than $368 billion.

Bill Brown, a University of Saskatchewan professor and agricultural economist, said the rapid increase in Canadian farmland values and farm equity indicates a profitable farm sector.

“The reason farmland values go up is because there are profits in agriculture,” he said.

“The reason they go down is because there are losses in agriculture. When I see double digit inflation in farmland values, I tell myself and I tell my students that that’s not going to happen forever.”

The value of farm real estate assets will double every 3.5 years If farmland values increase by 20 percent a year, he added.

In Saskatchewan, farmland values increased by 28 percent last year, according to Farm Credit Canada.

Brown said recent increases in the value of farmland have given Canada’s farmers more equity and greater capacity to borrow because farmland is the primary form of security used to secure loans and mortgages.

Statistics Canada’s latest figures show that Canadian farm debt rose to a record  $78 billion early this year.

Under current economic conditions, there is no reason to assume that Canadian farmers are overextended, Brown said.

However, that could quickly change with a sudden rise in interest rates or a significant drop in overall farm profitability.

“That’s exactly what happened in the 1970s and early ’80s,” Brown said.

“Farmland values went up, farmers were borrowing more money against those values and then when interest rates went up and the profitability of agriculture disappeared, farmland values started to drop and many people lost their farms and the farmland that they had bought.”

Brown said farm profitability will ultimately determine whether producers are in a position to service their record debt levels.

“Are farmers overdebted? I would say right now, probably no, but if things change…” he said.

“I think we’re getting plenty of moisture this year … and if we get some heat in July and we get another bumper crop, we’re going to be pretty positive on the value of farmland and borrowing more money.

“But if we get rain constantly and have a terrible crop, people will start rethinking their positions and may not have enough money to … (service)  their debt load.… It’s always been a risky business, agriculture.”

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