Average farmland values continued to rise nationally in 2013, according to the most recent Farmland Values Report released by Farm Credit Canada (FCC).
The average value of farmland in Saskatchewan increased by 28.5 per cent in 2013. Saskatchewan experienced the highest average increase in Canada, yet the average land price in Saskatchewan is still less expensive than in the neighbouring provinces. The latest increase is part of a trend that shows farmland values rising in that province since 2002. Saskatchewan farmland values increased by 19.7 per cent in 2012 and 22.9 per cent in 2011.
Average farmland values remained unchanged in Newfoundland and Labrador and increased in all other provinces.
Low interest rates, growing world food demand and the resulting strong commodity prices in the first half of the year supported the increase.
The annual FCC report provides important information about changes in farmland values across Canada. The average value of Canadian farmland increased by 22.1 per cent in 2013, with the majority of this increase occurring in the first half of the year. This annual change represents the largest increase since FCC began reporting in 1985. The second highest increase was 19.5 per cent in 2012.
Farmland values last decreased in 1992, when they dropped by 2.1 per cent.
“The positive overall health of the agriculture industry during 2013 is reflected in recent land value trends,” said Michael Hoffort, FCC Chief Risk Officer. “It’s an indicator of the industry’s strength, and it’s good news for producers who hold land as an asset. At the same time, it can be a challenge for those who want to buy farmland to expand their operations. There’s often a limited supply of land available for sale and land that’s offered for sale is strongly pursued.”
The two most important drivers of farmland values are crop receipts and interest rates, according to J.P. Gervais, FCC Chief Agricultural Economist. However, he cautions producers not to use the past few profitable years – when crop prices were abnormally high due to the 2012 U.S. drought – as the basis for purchasing more land.
“Recent long-term outlooks for crops suggest world stocks of grains and oilseeds will rebuild, bringing prices closer to their long-term average. Margins will be tighter and eventually interest rates will increase,” he said. “Producers need to look at their operations and ensure they can manage through a number of scenarios when it comes to revenues and expenses.”
Tighter crop margins may also affect the land rental market. Rental rates usually take a little time to adjust downward following lower grain and oilseed prices. Multi-year leases are also gaining in popularity. Yet Gervais expects rental agreements to move over time in the same direction as crop receipts.
“For the next several years, we expect the demand for farmland to slow down, which supports a so-called soft landing scenario,” Gervais said. “We don’t anticipate farmland values to collapse, but we do expect slower increases due to potentially lower crop receipts.”
To see the FCC Farmland Values Report and video, visit www.farmlandvalues.ca.