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Farmland values increase not as steep in 2014

Apr. 13, 2015 - Average farmland values in Canada continued to rise in 2014, but the climb wasn't as steep as the previous year both nationally and in many key agriculture regions, according to the latest Farm Credit Canada (FCC) Farmland Values Report.

Average farmland values in Canada showed a 14.3 per cent increase in 2014, compared to a 22.1 per cent increase in 2013. The rate of increase also slowed in many key agriculture regions, including Saskatchewan, Alberta, Manitoba, Quebec and Ontario.

Manitoba and Saskatchewan showed the most significant change from 2013 to 2014, slowing from an increase of 25.6 to 12.2 per cent and from 28.5 to 18.7 per cent, respectively. In these provinces, location and soil quality continued to play a significant role in creating differences in land values from one region to another.

"While the increases are still significant in many parts of the country, they do suggest we are moving toward more moderate increases for farmland values," said Corinna Mitchell-Beaudin, FCC executive vice-president and chief risk officer. "This is good news for producers since gradual change in the value of this key asset is always better for those entering or leaving the industry."

Other provinces, including British Columbia, Nova Scotia, New Brunswick and Prince Edward Island, continued to see single-digit increases, while the value of farmland in Newfoundland and Labrador remained unchanged from 2013.

J.P. Gervais, FCC chief agricultural economist, has been predicting a "soft landing" for farmland values since crop prices began moving closer to the long-term average following abnormally high prices due to the 2012 U.S. drought.

While lower interest rates make it tempting to buy land, Gervais emphasized producers need to exercise caution. "Interest rates will eventually increase, even if this is not on the 2015 horizon," he said. "Expanding world stocks of grains and oilseeds could bring prices down further, creating tighter margins." Tighter profit 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.

"Producers should be encouraged that a weak Canadian dollar, expanding trade agreements and growing world food demand are helping to enhance the demand side of the market for Canadian commodities, creating a positive long-term outlook for agriculture," Gervais added.

"Land is a valuable asset and there really isn't a one-size-fits-all formula for determining when to buy or sell," Mitchell-Beaudin said. "Producers really need to take a close look at their operations and ensure they can manage through a number of scenarios when it comes to revenues and expenses."

FCC's Farmland Values Report provides important information about changes in farmland values across Canada.

To view the FCC Farmland Values Report, video and historical data, visit www.fcc.ca/FarmlandValues. To learn more about the report, participate in the free FCC webinar on April 20, which can be found in the Agriwebinar section of the Farm Management Canada website.

April 13, 2015  By FCC