Farmland in Canada continues to get more expensive, but commodity prices and less demand for land from some sectors means land value increases in 2018 have slowed compared to the previous two years.
The 2018 Farm Credit Canada (FCC) Farmland Values Report shows Canadian farmland values, in price per acre, increased by 6.6 per cent, a drop from the 2017 increase of 8.4 per cent, and 7.9 per cent in 2016.
Why it matters: The rate of land value increase is an indicator of the health of the farming sector and the optimism of farmers.
The report covers Jan. 1 to Dec. 31, 2018, and was released on April 29.
Within the report, the values represent 90 per cent of the sales within each area across Canada, excluding the top and bottom five per cent.
All provinces showed a rise in the average farmland value, aside from Nova Scotia, which decreased 4.9 per cent, and Newfoundland and Labrador, which did not have enough transactions to asses farmland values.
Quebec, Alberta and Saskatchewan had the largest farmland value increase with 8.3, 7.4 and 7.4 per cent, respectively — each above the national average.
“With the steady rise in farmland values, producers are making more strategic investments,” says J.P. Gervais, chief agricultural economist for FCC. “Whether it means paying a higher price for land that has potential to be more productive or buying in blocks to improve the efficiency of their operations, producers are sharpening their pencils with an eye on variable commodity prices.”
Gervais said fewer land transactions in 2018 is consistent with a tight supply of land available for sale and a softening in demand, which is a reflection of farm income levelling off, variable commodity prices and rising borrowing costs.
Ontario rate of increase drops
Ontario farmland values increased by 3.6 per cent in 2018, following an increase of 9.4 per cent in 2017.
While farmland values went up in 2018, it is the smallest percentage increase since 1999 and the last time the year-over-year increase was below four per cent was in 2007, says Richard Vyn, associate professor in the department of Food, Agricultural and Resource Economics at the University of Guelph, Ridgetown Campus.
Interest rates and commodity prices are the two factors relating to the lower increase in land values, says Vyn.
“After an extended period of low interest rates, we finally saw an increase in interest rates in 2018. In addition, commodity prices have not been particularly strong over the last couple of years, and farm income was further affected by vomitoxin issues last year. A combination of these contributed to restraint in farmland market activity.”
Ontario’s northwestern region including Bruce, Grey, Simcoe and Dufferin counties experienced the largest land value increase at 7.6 per cent, ranging from $5,100 to $16,700 per acre.
Southeastern and south-central regions, including Haldimand, Norfolk, Niagara, Wentworth, Brant, Waterloo and Halton counties followed.
Upward pressures from large livestock operations, urban buyers and the imbalance between high demand and a limited supply of available land, explain the higher increase in these three regions, said the report.
Farmland values in the northern and eastern regions remain unchanged and there appeared to be less appetite for land from dairy producers in 2018.
Throughout the southeastern and southwestern areas, there is a consistent strength in land demand as the soil types allow for specific crops, such as vegetables and ginseng, to be grown.