Average farmland values continued to appreciate in 2016, but by less than the increase a year earlier.
That trend was seen both in Manitoba, and across Canada as a whole, with both easily outpacing the gain one could expect from holding a bank GIC, according to Farm Credit Canada.
Land prices here, which have been rising steadily since 1992, on average gained 12 per cent in both 2015 and 2014. But after four years of annual double-digit increases, Manitoba farmland appreciated 8.1 per cent last year, just slightly higher than the Canadian average increase of 7.9 per cent, FCC says in its 2016 Farmland Values Report.
“The rate of increase continues to slow down and we continue to think about that soft landing that we have been talking about for a number of years now,” FCC’s chief agricultural economist J.P. Gervais told reporters during a technical briefing April 6.
Farm cash receipts, the main factor driving farmland prices, have fallen from peaks set in 2012 and 2013. Those years saw 19.5 and 14.3 per cent increases in the value of Canadian farmland and a jaw-dropping 25.6 per cent increase both years in Manitoba.
Although the final numbers aren’t in, FCC expects 2016 Canadian crop receipts to be up two per cent; Manitoba’s and Alberta’s are forecast to rise 14 and six per cent, respectively, despite challenging growing conditions.
Saskatchewan’s 2016 crop receipts are predicted to drop six per cent as bad weather downgraded crops and prevented farmers from harvesting some crop last fall.
Despite the less bright outlook for Saskatchewan, FCC has been doing a brisk business lending money for farmland purchases so far this year, said Scott Sahulka, FCC’s senior director of valuation and environmental risk. While he couldn’t say if Saskatchewan land values will rise as much in 2017, so far “things aren’t selling any cheaper.”
A year ago FCC predicted Canadian farmland values would rise two to four per cent in 2016. Gervais said while he was surprised they turned out to be twice that, it fits with the higher-than-forecast crop receipts farmers are expected to earn.
FCC predicts Canadian farmland values will, on average, rise three to four per cent in 2017, assuming stable crop receipts and interest rates and a 75-cent Canadian dollar.
FCC monitors farmland in 51 regions, estimating market value using comparable arm’s-length sales. Because land prices vary significantly, FCC measures land value trends using a percentage instead of price per acre.
In 2016 just seven regions didn’t see land values rise, Gervais said.
While FCC pegs the average increase in Manitoba farmland values at 8.1 per cent in 2016, it breaks down the province into five regions. The biggest increase — 11 per cent — was in Central Plains-Pembina Valley, despite weather challenges.
“The increase was mainly due to private land transactions between landlords and renters, along with some tendered sales,” the FCC report says.
Values were up eight per cent in the Interlake, mainly based on sales in the southern part of the region. Land values in the north Interlake were unchanged.
“The increase in the south was influenced by some supply management sector expansions, while larger producers accounted for most of the land sales in the north,” the report says. “Sales throughout the region were supported by good growing conditions for soybeans, wheat and canola.”
In Westman land values rose 7.3 per cent driven by increased acreage for higher-priced soybeans, as well as good-quality corn and potato crops.
The Parkland and Eastman regions saw a 6.8 and 4.3 per cent increase, respectively.
Although the increase in Manitoba’s farmland value last year is lower than in 2015, 12.4 per cent, it’s still a strong result given provincial comparisons are a weighted average, Gervais said.
“It is actually quite significant, that 8.1 per cent (increase), and part of the reason is the expansion of soybeans,” he said.
“I would say that it is still a fairly, fairly strong market for farmland in Manitoba.”
Manitoba farmland value increase was the fifth highest in Canada. The biggest jump — 13.4 per cent — was in Prince Edward Island, followed by Alberta, Nova Scotia and British Columbia with increases of 9.5, 9.1 and 8.2 per cent, respectively.
That was followed by Quebec, Saskatchewan, Ontario and New Brunswick at 7.7, 7.5, 4.4. and 1.9 per cent, respectively.
There wasn’t enough data to assess Newfoundland-Labrador land values.
Despite the slower increase in Canadian farmland values, Gervais is still upbeat about Canadian agriculture.
“I believe the demand for Canadian ag products remains really strong both at home and abroad,” he said. “That is supported by a low Canadian dollar, low interest rates as well. From a producer’s standpoint you don’t want to be overly confident about what the markets are going to bring.
“The bottom line is we also have realistic expectations… We’ve basically doubled cash receipts mostly across the country… but I think it would be a little bit unrealistic to expect the next 10 (years) are going to be like the last 10. Yes, I am absolutely confident that we can sustain farmland values that we have seen and recorded in 2016 if indeed we are able to sustain farm income. That is the critical variable to monitor as we move forward.”
In contrast, farmland values in the United States have been falling. Gervais blames a 30 per cent drop in U.S. farm income in three years. And based on current price projections American farmers won’t be profitable in 2017, he said. Canada’s lower dollar has helped shield Canadian farmers, he said.
Although western Canadian farm income has been weakening, farmers are still generally financially strong, Gervais said. The debt-to-asset ratio is lower than the long-term average, which means farmers will have more flexibility with lenders should revenues fall more than expected.
“So I think we are still in a very strong financial position, liquidity position, if you look at working capital as the first line of defence, is very strong on the Prairies given the amazing years we have had over the last five, six, seven years. I think that is reassuring from the standpoint if we do indeed see the Canadian dollar appreciate… or a bit of a softening from an income standpoint given our strong financial position.”
FCC doesn’t expect a higher Canadian dollar or rise in interest rates in 2017, although borrowing costs could increase later this year, Gervais said.