Average Manitoba farmland prices were up 3.6 per cent in 2020, slightly below the Canadian average increase of 5.4 per cent Farm Credit Canada (FCC) announced in a news release Monday.
A combination of low interest rates, which cut the cost of borrowing money to buy land, and higher farm cash receipts, especially for crops, which makes paying a loan easier, contributed to the demand for land in 2020, J.P. Gervais, FCC’s chief economist, told reporters during an online briefing Friday.
“If you go to the Prairies it really is a story about strong income,” he said, noting crop cash receipts were up nationally 18 per cent in 2020.
Manitoba’s farm cash receipts were up 5.7 per cent.
While crop receipts were up in Manitoba, livestock receipts suffered, especially for cattle and hogs, largely because of COVID, which reduced slaughter capacity resulting in lower prices to farmers.
Why it matters: Farmers need land to grow crops and livestock, but it’s their most expensive asset. As values continue to rise it’s harder for young farmers to get into business and more expensive for established operations to expand. On the flip side, for landowners, higher land values boost net worth, making expansion more attainable and retirement more comfortable.
Farmland values across the Prairies were mainly influenced by renters purchasing land from landlords, neighbour-to-neighbour sales, farmers buying or selling land to gain operational efficiencies and family farm purchases to support succession plans, FCC said.
The highest average provincial increases for farmland in 2020 were in British Columbia and Quebec, with averages of eight and 7.3 per cent, respectively.
Alberta followed with a six per-cent increase and Saskatchewan mirrored the national average increase of 5.4 per cent.
Ontario saw a 4.7 per cent increase.
For Ontario and Manitoba, the below-average rise reflects relatively high land prices in both provinces already, Gervais said.
Manitoba farmers had to deal with some pest problems and average yields in 2020, he said. That, and a 3.9 per cent increase in land price in Manitoba’s Parkland region in 2019, probably contributed to the 2.9 per cent decline in prices that region saw in 2020, Gervais said. (See sidebar below.)
“But overall I think it has been a positive year (for Manitoba farmland prices),” he said
“The demand for land remains strong in various regions, even in the regions that have not seen much of an increase.”
The Atlantic provinces saw the smallest average farmland value increases in 2020. Prince Edward Island reported an increase of 2.3 per cent, Nova Scotia’s increase was 1.6 per cent and New Brunswick had a 1.3 per-cent increase. This follows more significant increases in 2019.
Weather played a significant factor in New Brunswick and Nova Scotia, as well as other parts of the Atlantic provinces in 2020. The region experienced the worst drought in decades during the critical growing season, which significantly diminished the value of cash crops, as well as created hay and forage shortages.
Given stronger crop prices late in 2020 and into 2021, Gervais expects land prices across Canada will continue to rise during the first half of this year.
Despite higher farm incomes and low interest rates, Canadian farmland was at its second least affordable in 2020, just slightly better than in 2019, which set the record for land being the least affordable in recent times, Gervais said.
“It’s ironic in the sense that things are moving in the right direction because I do think that’s a strong indicator of future land appreciation possibilities,” he said.
“We’re at the second-highest, expensive point in time, but less expensive than last year (2019), I guess.”
The average interest rate for all types of loans in Canada in 2020 was down a bit from the previous year at a historically low 2.25 per cent, Gervais said. But long-term rates are up 0.5 per cent since last month and up one per cent over the last 12.
“I think the Bank of Canada will do its very best to keep short tern rates low for an extended period of time,” Gervais said. “There are some concerns right now about inflation so that’s pushing long term rates higher.
“Financial markets are now actually suggesting that a rate increase by the Bank of Canada is going to come up in 2022. We’re not going to have to wait until 2023. It might be as early as mid-2022. So we got just maybe another year of very low short-term interest rates, but that doesn’t mean that rates aren’t moving up. That’s an assessment that every operation needs to undertake and say ‘What kind of financial risk am I exposed to?'”
Gervais expects the Canadian dollar to remain under 80 cents relative to the U.S. dollar as the U.S. government’s US$1.9 trillion stimulus package is expected to strengthen U.S. currency.
“I expect (the Canadian dollar) to go back to that 70 to 75 cents,” he said. “I think it will end the year lower than 80 cents as opposed to higher than 80.”
A lower Canadian dollar usually means higher prices for Canadian crops because world grain prices are in U.S. dollars. However, farmers have to pay for when buying American-made inputs and machinery.
From the report:
Manitoba farmland values increased by an average of 3.6 per cent in 2020, following a four per cent increase in 2019.
Growing conditions in 2020 varied throughout the province, with overall yields near average, depending on the crop and location.
Forage production was down, due to insufficient moisture.
Potato yields were average.
Farmland buyers continued to be mainly existing farmers expanding their operations, next-generation producers entering the market and landlords selling to tenants.
While some areas received reduced rainfall, others experienced significant moisture, however, overall moisture levels were below average.
Insect infestations were a problem with flea beetles in canola fields and cutworms and grasshoppers in other crops. Overall, grain and oilseed receipts were very strong.
This region had the highest average farmland value increase in the province at 11.6 per cent.
The 2020 growing season was dry and windy in northern areas, while southern areas received more consistent moisture.
Harvest conditions were good with minimal weather delays.
The region had an early frost, which affected longer-season crops.
This region had an average increase of 5.3 per cent in farmland values, following an 8.2 per cent increase in 2019.
The growing season was variable with significant moisture in the south and dry, windy conditions in the central to the northern area.
Central Plains-Pembina Valley
Farmland values increased an average of 4.8 per cent is this region, with the most significant increase in the traditionally lower land value area.
The region’s irrigated land, including parts of the Westman region, had an average value increase of 4.6 per cent in 2020.
This region had an average increase that was lower than the provincial average at 2.9 per cent, largely due to varied growing conditions.
Buyers were mainly existing farmers continuing their expansion with next-generation producers entering the industry.
This region saw an average 2.9 per cent decline in farmland values, with the most significant decrease observed in the northern part of the region.
Other parts of the region experienced mostly slight increases in values or no increases.
Source: Farm Credit Canada’s 2020 Farmland Values Report