FCC reports rise in Ontario farmland values
By Farm Credit Canada
Apr. 16. 2012, Guelph, ON – According to a new Farm Credit Canada (FCC) Farmland Values Report, the average value of farmland in Ontario increased by 7.2% during the second half of 2011. In the two previous six-month reporting periods, farmland values increased by 6.6% and 2.4%, respectively. Farmland values have been rising since 1993 in this province and reached a peak increase of 8.2% in the last half of 1996. The FCC report provides important information about changes in land values across Canada and is available at www.farmlandvalues.ca.
In comparison, the average value of Canadian farmland increased by 6.9% during the last six months of 2011, following gains of 7.4% and 2.1% in the previous two semi-annual reporting periods. Overall, farmland values increased in nine provinces and remained unchanged in Newfoundland and Labrador. Saskatchewan, which has 40% of Canada’s arable land, experienced the highest average increase at 10.1%. Saskatchewan results appear to be in line with the pace of price increases in the U.S. where double-digit growth in farmland values have been reported in several corn and soybean states including Iowa, Kansas and Nebraska. Two contributing factors to the value increase in Saskatchewan are the current and anticipated strength of commodity prices, combined with land values that previously increased at a slower rate than in other areas of the country.
“Low interest rates, in relation to inflation, and higher farm income levels have recently led to significant increases in farmland values in some provinces,” says Michael Hoffort, FCC Senior Vice-President of Portfolio and Credit Risk. “FCC's analysis indicates that farmland value trends are sensitive to both interest rates and crop receipt trends. With interest rates expected to remain at historic lows until 2013, it will be especially important to monitor trends in crop and livestock receipts in the coming year. These factors combined with strong demand from expanding farm operations and increasing interest by non-traditional investors have all played a role in the continuing trends toward higher farmland prices.”
Canadian farmland values have risen steadily during the last decade. The highest semi-annual average national increase was 7.7% in 2008. The last time the average value decreased was by 0.6% in 2000. The average national price of farmland has increased by about 8% annually since the general upswing in commodity prices began in 2006. That’s about twice the rate observed in the first part of the decade.
Recent long-term projections from Agriculture and Agri-Food Canada provide a positive outlook for Canadian agricultural producers. “A more affluent population in emerging economies like China and India is driving the global demand for food which results in crop and livestock prices that have remained above historical averages,” says Jean-Philippe Gervais, FCC Senior Agriculture Economist. “This helped propel the value of farmland to record-highs in North America. It will be important for producers who want to sell or buy farmland to keep an eye on possible variations in Canadian farm income in the coming years.”
“We would like to focus on a more positive perception of agriculture, one that reflects the optimism that producers themselves tell us they have so we can attract the people, the skills and the investment that will be needed to meet this increased demand for food,” says Hoffort. “At the same time, we want to provide tools for those who want to buy farmland to expand their operation or to enter the industry. That’s why FCC created the new Young Farmer Loan that can help young farmers buy land.”