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Rise in Canadian farmland value accelerates

Rising average values per acre for Canadian farmland are nothing new in recent years, but a much sharper increase in Saskatchewan over the first half of this year has pulled the national average along with it.

In its latest Farmland Values Report, released Monday, Farm Credit Canada notes an increase of 7.4 per cent in the average value of Canadian farmland in the first half of 2011 — setting a relatively brisk pace following increases of 2.1 and three per cent in the previous two six-month periods.

Where other provinces either saw increases below the national average or had no increase to speak of, Saskatchewan reported the highest six-month increase in land values, at 11.6 per cent, the federal farm lending agency said.

The increase in Saskatchewan, based mainly in the province’s northwestern and southeastern farming regions, follows relatively small rises of 2.7 and 2.9 per cent in the previous two six-month periods, FCC said.

"The Saskatchewan results appear to mirror the U.S. situation, where double-digit increases in farmland values have been reported in several corn and soybean states," FCC said Monday.

"Two contributing factors to the current value increase are the ongoing strength of commodity prices, combined with land values that previously increased at a slower rate than other areas of the country."

Nationwide, the average price of farmland has increased by about eight per cent per year since commodity prices began climbing substantially in 2006, FCC said. That’s about twice the rate observed in the period from 2000 to 2005.

The highest six-month increase in the past decade was 7.7 per cent, in 2008. Canada’s average farmland values last slipped in 2000, when they fell 0.6 per cent in a six-month period.

"Low interest rates (and) good crop prices in recent years, along with low returns in financial markets, mean farmers are buying more land," Jean-Philippe Gervais, FCC’s senior agriculture economist, said in the lender’s release.

"These three factors combine to increase demand for land and push prices up. As long as crop prices continue to be strong, farmland values should remain high."

"It depends"

Other provinces reporting increases in the six-month period ending June 30 this year included:

  • Ontario, up 6.6 per cent, largely in the province’s southwestern and northern farming regions (compared to hikes of 2.4 and 4.3 per cent in the two previous six-month stretches);
  • Quebec, up 4.4 per cent (up 0.9 and 2.3 per cent);
  • Alberta, up four per cent (up 1.5 and 2.9 per cent);
  • Nova Scotia, up 2.9 per cent (up 0.6 and 3.1 per cent); and
  • Manitoba, up 2.4 per cent (up 1.3 and 3.4 per cent).

British Columbia ag land values remained flat on average in the first half of 2011, compared to a rise of 0.4 per cent and a drop of 0.9 per cent in the previous two periods. Average farmland values in the first half of the year were also unchanged in:

  • New Brunswick (up 2.4 per cent and unchanged),
  • Newfoundland and Labrador (unchanged and up 0.7 per cent), and
  • Prince Edward Island (up 3.2 per cent and unchanged).

Farmers now often ask if they should be buying land during this uptrend in prices, or waiting for a drop, said Richard Hayes, FCC’s senior director for valuation.

"The answer is that it depends. Sound information and an assessment of personal risk tolerance can help make the decision easier. The next six-month report will be very interesting," he said.

FCC’s twice-yearly report calculates its land values based on appraisals, in January and July, of 245 benchmark farm properties to gauge variations in bare land values across the country.

The chosen properties represent the most prevalent classes of agriculture soil in each census district, FCC said. Market values are estimated based on recent, comparable arm’s-length transactions in farmland.

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