Farmland values rise in Canada

Strong crop receipts and a low interest rate have put farmers in a solid financial position according to FCC's latest farmland values report. | File photo

A modest increase in Canadian farmland values last year after three years of declining rates is not necessarily the beginning of a new trend, says Farm Credit Canada chief economist J. P. Gervais.

The agency reported that the national average value increased by 8.4 percent in 2017, up from 7.9 percent the previous year and the first increase since the 2013 high.

“I think it’s a sign of a stable and strong farm economy,” Gervais told reporters on a conference call to release the annual farmland values report. (PDF format)

He said strong crop receipts combined with a low interest rate put farmers in a generally solid financial position.

Small rate increases in the second half of 2017 affected sales nationally as most transactions occurred before then.

Gervais said he expects further pressure on interest rates probably through at least one more Bank of Canada hike plus increases in the United States, but that alone shouldn’t completely cool off the farmland market.

“If you look at land prices over a long period of time, they should be roughly at the pace of inflation plus productivity gains,” he said.

Productivity is rising at about two percent.

“Add on top of that another two percent to cover farm expenses and overall inflation. I probably would say that’s where you should be looking at for 2018 if we do only have one rate increase from the Bank of Canada,” he said.

In 2017, Saskatchewan saw the highest average increase of 10.2 percent while British Columbia had the lowest increase at 2.7 percent. There wasn’t enough data to assess values in Newfoundland and Labrador.

In Manitoba, farmland values increased five percent, compared to 8.1 percent the previous year, and in Alberta they went up 7.3 percent, down from a 9.5 percent average increase in 2016.

Gervais said timing played a big role in Saskatchewan’s increase.

“A lot of the transactions actually appeared in the first part of the year,” he said.

Interest rates were lowest and expectations of a good crop were high. Although weather challenges will likely result in a decline in farm cash receipts of about two percent, the ratio of land price to crop receipts is still close to historical norms, Gervais said.

“We’ve been just basically catching up to a level where we’ve historically seen prices of land in Saskatchewan match up with farm income,” he said.

Land on the west side of Saskatchewan saw the greatest increases in value at between 14.2 percent in the south to 16.6 percent in central areas. Prices in northeast and east-central regions were only 1.5 to 2.2 percent higher than 2016.

Gervais suggested land availability was a factor in these results.

Manitoba is in a similar situation in terms of its land price to income ratio, he said. There will be a significant jump in crop receipts in Manitoba once the final 2017 numbers are in, and that momentum should carry land sales forward in 2018.

The Central Plains-Pembina Valley region saw no change in farmland value year over year, while the highest increase was 9.9 percent in the Parkland.

In Alberta, FCC reported steady demand in all regions but pockets of strong demand existed where there are competing farm operations and decreased demand showed in dry areas.

The highest increase was 11.5 percent in the Peace, compared to 11.4 percent in the south.

For the first time, the FCC report included a value range of per-acre prices for the 51 regions it reports on.

Gervais said that was due to popular demand.

Saskatchewan still has the lowest prices on the Prairies, ranging from $600 to $3,200 depending on the region.

The range in Manitoba is $800 to $8,100, and the Alberta range is $1,000 to $10,800.

He added that rising values do make it harder for young producers to enter farming but there are options for some to get into different supply chains that don’t have to be large scale but do return a premium.


About the author


Stories from our other publications