Average Manitoba farmland values rose four per cent in 2019, just slightly higher than the 3.7 per cent increase recorded in 2018, Farm Credit Canada (FCC) says in its 2019 Farmland Values report released April 6.
The biggest increase — 8.9 per cent — was in the Eastman region followed by 4.7 per cent in Central Plains-Pembina Valley, 3.9 per cent in Parkland, three per cent in Interlake and 2.7 per cent in Westman (read related and see below).
It’s the 27th year in a row that Manitoba farmland values went up. However, the annual rate of increase has plateaued, rising by the equivalent of inflation (two per cent) and increased land productivity (one to two per cent) combined.
Canadian farmland values, on average, went up 5.2 per cent in 2019 and are expected to continue increasing slowly, the report says.
Canadian farmland values, on average, went up 5.2 per cent in 2019 and are expected to continue increasing slowly so long as farm income holds or improves, the report says.
“These factors support the elevated valuation of farmland,” it reads.
Why it matters: The price of farmland affects farmers at both ends of their career. Higher values mean young farmers struggle to build their operations, but can make expansion more attainable later in the career path, and retirement more comfortable.
“Farmland values are still going up (in Canada and Manitoba), but at a slower pace,” J.P. Gervais, FCC’s chief agricultural economist, told reporters during a telephone news conference April 3.
So far COVID-19 hasn’t had that much of a negative impact on Canadian agriculture, except for cattle and corn, he said.
The big drivers of land prices are farm income and interest rates, he said.
“To the extent that prices are somewhat what we recorded in previous years, and we can still export… and… I would argue yields should go back to trend — it’s not out of the question we have a good year,” Gervais said.
Land is still in demand as farms continue to get larger and younger farmers enter the business, Gervais said.
In addition, interest rates are low and could even go a bit lower, he said.
“But there is no guarantee that you wouldn’t see a decline (in land values) at one point, especially given that current valuation of land relative to farm income is at the highest point it has ever been,” Gervais said. “Do I anticipate that? The answer is no… ”
While COVID-19 might not have hurt farmers yet, they’ve had setbacks, including lower revenues the last few years, trade disputes, including canola exports to China, have been disruptive, there were harvest struggles last fall, and grain delivery delays due to a railway strike and protesters blocking the tracks.
And COVID-19 will only add to the uncertainty, not just in commodity markets, but land sales.
“I expect more caution from (land) sellers, more caution from buyers,” Gervais said. “But having said that, low interest rates, farm income that might not be too different from what we’ve seen in recent years… I would expect a similar pattern for farmland values in 2020.”
In fact, Gervais said his land value forecasts the last few years were lower than the actual advance in land prices.
Meanwhile, farmland is getting harder to afford, he said. The farmland value to farm income ratio is higher than it has ever been.
“That means land is getting more expensive relative to farm income,” Gervais said. “2015 is really the turning point no matter where you look… it started to shift.”
The long-standing trend to fewer, bigger farms continues, but is slowing, Gervais said, something he says isn’t necessarily a bad thing.
“We have more and more smaller farms and we’ve got bigger farms getting bigger,” he said. “It’s the middle part that seems to be squeezed a little bit — squeezed in the sense of not necessarily moving. Having more, different business models out there is a good thing because that means, from a demand point of view, demand remains healthy… ”
Given the problems many farmers have had in recent years, and the added uncertainty from COVID-19, liquidity is going to be crucial for many farmers this spring, Gervais said.
Why liquidity was so critical in this current situation is that you don’t want to compound the negative impact of what we saw prior to this crisis and compound this into what we’re likely to see in the next few months, he said.
“If you have margins that are really tight and liquidity issues to begin with you don’t want to force businesses to make decisions that are not in their best interest long term,” he said. “So that’s the reason you need to focus on liquidity in the first place.”
In March the federal government announced FCC would have an additional $5 billion to assist farmers with cash flow this spring and loan deferrals.