Canadian farmland trending less affordable in FCC report

Average values continue rising across board

The average value of farmland in Canada is continuing to rise faster than farmers’ ability to generate revenue from it, Farm Credit Canada’s latest Farmland Values Report suggests.

The report, released Monday, shows the average value of Canadian farmland rose 5.2 per cent in 2019 over 2018, the smallest year-over-year increase since 2010, and down from a 6.6 per cent increase in 2018 over 2017.

Despite the more modest lift, “farmland affordability continues to decline relative to farm income,” the Crown farming and agrifood lending agency said in a release.

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FCC in this case defines affordability in terms of a price-to-revenue ratio — that is, the average farmland price per acre, against the land’s average expected receipts per acre. And that ratio has been trending up in recent years, FCC’s chief agriculture economist J.P. Gervais told reporters on a conference call ahead of the report’s release.

A year of poor yields or weaker prices can have such an effect, FCC said, and in 2019 “weather challenges made farmland more expensive when measured against actual gross revenues,” pushing the ratio to an all-time high.

Most provinces are in such a situation, FCC said, describing 2015 as the “turning point” year in which the price-to-revenue ratio crossed its 15-year average, in the wake of several years of strong revenue growth — but since then, “the momentum hasn’t slowed to match the moderation in crop receipts.”

Asked about the effect of investor speculation on farmland values, Gervais said the amount of Canadian farmland being sold to investors, who then lease those acres to farmers, remains relatively very small, maybe touching five per cent in Ontario but mostly below that level elsewhere.

Challenging conditions

On a provincial basis, Prince Edward Island and New Brunswick booked the largest increases in average farmland values, at 22.6 and 17.2 per cent respectively. New Brunswick saw increased demand from dairy and potato producers, while P.E.I. showed a growing number of farms approaching the provincially-mandated caps on land ownership.

Ontario, Quebec and Saskatchewan showed increases of 6.7, 6.4 and 6.2 per cent respectively. Ontario and Quebec showed strong demand from supply-managed farms and crop producers, with “very limited” available land in Ontario and “more sustained” demand in regions of Quebec where farmland values had been lower.

Saskatchewan, meanwhile, saw more landlords either put land up for tender or sell to their long-term renters. Sales of “superior quality” land began to level out, but sales of small parcels or lower-quality farmland increased.

British Columbia’s average farmland values rose closest to the national average at 5.4 per cent, with the most notable increases in demand seen on Vancouver Island as well as in irrigated land and vineyard development.

At the low end of the increases in average farmland value were Manitoba (four per cent), Alberta (3.3 per cent) anod Nova Scotia (1.2 per cent).

While Manitoba had established producers in expansion mode, “next-generation” farmers entering the market and landlords selling land to their renters, it also had “challenging weather conditions throughout the growing and harvest seasons.”

Alberta also had adverse weather as well as volatile commodity prices and weaker economic conditions; its farmland values saw their biggest lift in southern Alberta’s potato-growing regions, as more processing capacity opened up in the Lethbridge area.

Nova Scotia’s “modest” average increase followed a 4.9 per cent decrease in 2018 over 2017, with strong demand in the Annapolis Valley and Truro-Shubenacadie regions up against adverse weather conditions, including Hurricane Dorian, as well as weaker crop prices.

Looking ahead

FCC’s report noted that the values it lists reflect the market factors seen in 2019, before the COVID-19 coronavirus pandemic’s onset in 2020. “Any impact from the pandemic will be captured in future reports,” the farm lender said.

Gervais, speaking to reporters Friday, said to the extent that FCC can anticipate the likely effects of the pandemic, its impact on farmland values is expected to be minimal.

The economic slowdown due to the pandemic will create volatility for commodity prices, FCC said. Reduced consumer income may put downward pressure on demand for ag commodities, but if supply chains are disrupted, prices may also face “upward pressures.”

Interest rates are expected to remain low and supplies of available farmland remain limited at best, Gervais said, though it’s also expected that both buyers and sellers will adopt a more cautious approach, possibly resulting in fewer transactions.

However, he added, with the number of farmers in Canada continuing to decrease, more and more assets per farmer are going to be transferred or sold when those farmers leave the industry. — Glacier FarmMedia Network

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