Canadian land prices still rising

Canadian land prices still rising

Canadian farmland values continued to rise in 2016, but the rate of increase fell for the third consecutive year.

The average value of Canadian farmland went up 7.9 percent, which is down from 10.1 percent in 2015, 14.3 percent in 2014 and 22.1 percent in 2013.

Surprisingly strong farm cash receipts fueled increases in every province across the country.

Alberta led the way in the Prairie region with a 9.5 percent increase, followed by Manitoba at 8.1 percent and Saskatchewan at 7.5 percent.

The rate of increase is well below the heyday of 2013 when Saskatchewan experienced a 29 percent growth in farmland values followed by Manitoba at 26 percent and Alberta at 13 percent.

However, Canadian growers are still faring much better than their counterparts in the U.S. Midwest, where farmland values fell 10 percent because of plummeting crop receipts.

“That to me really is a good illustration of the differences in the health of the farm economies,” said J.P. Gervais, chief agricultural economist for Farm Credit Canada, which tracks farmland values.

Canadian growers have been somewhat insulated from the downward slide in commodity prices by the weak Canadian dollar, which is trading at around US75 cents.

Crop receipts in 2016 were up 14 percent in Manitoba and seven percent in Alberta, largely because of good yields.

Receipts were down six percent in Saskatchewan because of quality problems.

Scott Schulka, senior director of valuation and environmental risk at FCC, said there was quite a bit of variability in farmland values by region last year.

For instance, there was a 17 percent increase in values in southwestern Saskatchewan but no increase in the southeastern portion of the province.

Schulka believes that is because there was plenty of optimism surrounding pulse crops early in the year, which are primarily grown on the west side of the province.

Meanwhile, the southeast suffered from a slowdown in the oil and potash sectors and poor weather conditions.

Schulka was surprised by the resiliency of Alberta’s farm economy, given the recent economic struggles in that province.

“Despite the economy still feeling the drag of low energy prices, it recorded the second highest average farmland value increase in Canada,” he said.

Gervais is forecasting a further reduction in the rate of increase in farmland values in 2017. He thinks the national average will be half of what it was in 2016.

He expects stable crop receipts based on futures prices, a two percent increase in yields, an average quality crop and the dollar remaining around 75 cents.

Schulka said land sales haven’t slowed in the first quarter of 2017.

“We’re busy. There’s a lot of interest. Farmland is selling,” he said.

“Things aren’t selling any cheaper anyway.”

Gervais warned producers not to become complacent because while farmland values are still rising, crop receipts have been increasing at a slower rate than farmland values over the past few years.

Canadian farmers are in good financial shape to weather the storm if receipts take a nosedive in 2017.

Their debt-to-asset ratio is below the long-term average, and working capital, which is the first line of defense, is plentiful.

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