Highlights

• The farmland affordability index is at its highest level (least affordable) since 1983
• Ontario, Quebec have the least affordable farmland
• The average farmland payment in 2024 was 11 per cent of cash receipts

Rising faster than revenue

FCC reported on March 26 that its newly purchased farmland affordability index, which calculates the relationship between payments for the land and its income potential, rose to its highest level (least affordable) since 1983 at 138 in 2024. However, the metric was well below the record high of 207 set in 1981. Since 2020, farmland values and interest rates have risen faster than revenue.

All four Western Canadian provinces saw their indexes rise with Saskatchewan being the highest at 150, a level unseen in that province since 1990. Meanwhile, British Columbia was only a few points behind. Manitoba was at approximately 125, its highest level since 1983 and Alberta was at around 110, a six-year high.

However, farmland in Ontario and Quebec had the least affordability in Canada in 2024 and reached record highs at just above and just below 150, respectively. In Atlantic Canada, the index was at around 110.

The average farmland payment in Canada represented 11 per cent of farm cash receipts in 2024, the highest percentage ever recorded. The average was at nine per cent only three years earlier. Ontario had the highest percentage in 2024 at 17 per cent, while Saskatchewan had the highest in Western Canada at just above 10 per cent. Atlantic Canadian farmers paid the lowest percentage of their receipts at three per cent.

FCC warned that projected declines in grain and oilseed receipts, as well as persistent high costs and potential trade disruptions could tighten net margins in 2025, making farmland less affordable.

The post Farmland becoming less affordable: FCC appeared first on Manitoba Co-operator.

That’s according to a recent online article by Farm Credit Canada (FCC) that delved into the dollars and cents of the renting-or-buying decision.

Generally, the cost to rent farmland is lower than financing a purchase, making renting a worthwhile option to explore, FCC said. It can support cash flow and minimize financial risk to the overall farm operation.

The best way to analyze this decision is what’s known as the rent-to-price ratio, which is the cash rental rate per acre divided by the value of that acre of land. The result is a ratio that is measured as a percentage.

For example, land worth $5,000 an acre, with a rental rate of $100 an acre, would have a rent-to-price ration of 2.0 per cent.

The largest increase in farmland values in 2023 were in Saskatchewan, Manitoba, and Quebec. With rental rates rising at a similar pace overall in those provinces the ratio remained stable. Alberta had a rent-to-price ratio of 2.4 per cent in 2023, down from 2.6 per cent in 2023. Saskatchewan was at 3.1 per cent both years. Manitoba was at 2.4 per cent both years.

The national rent-to-price ratio in 2023 was 2.52 per cent, a slight decrease from 2022. The lowest rent-to-price ratio provincially was Ontario, at 1.25 per cent in 2023, compared to 1.4 per cent in 2022. The highest was Prince Edward Island at 4.35 per cent in 2023, unchanged from 2022.

In 2022, Ontario saw the highest increase in farmland values with an average 19.4 per cent increase, with a more modest increase of 10.7 per cent in 2023. With the RP ratio decreasing this year, this indicates that cash rental rates agreements have not evolved at the same pace as farmland values.

Similar results were observed in Atlantic provinces with the rate of increase in rental agreements being lower than the rate of farmland value appreciation in both New Brunswick and Prince Edward Island. These provinces experienced higher than average increases in farmland values in 2022.

Cash rental agreements are often negotiated for longer periods, which encourages better land stewardship and more predictability for both parties. There is also considerable fluctuation in each province’s cash rental rates and farmland values. The high-end RP ratio is usually seen on farmland with the lowest value per acre in the province.

Specialty crops, like potatoes, are generally negotiated at higher prices than other crops.

Renting farmland can complement land purchases and is often part of long-term strategic growth plans, FCC says, but a lot goes into that decision.

Rent or buy?

Renting may be part of the business strategic plan when an operation is looking to expand their land base and grow their operation. Buying land can tie up available capital and reduce cash flow, leaving fewer financing options for machinery, input needs or future expansion opportunities.

While there are obvious advantages of land ownership, cash flow remains a key consideration for producers, as this is tied to the ability to service debt and maintaining agility for capitalizing on opportunities, FCC says. The difference in per acre profitability is generated by subtracting the cost of renting land from a newly purchased land cost, assuming a 25 per cent down payment and 25-year amortization length.

Since 2021, the three Prairie provinces have seen an increased cash flow benefit from renting land compared to purchasing. In 2023 in Alberta, rented ground returned $160 per acre more than newly-purchased land. The same story holds true for Manitoba as the per acre difference in profitability due to renting has doubled since 2020.

Saskatchewan has also seen the advantage grow for renting over owned land as well, but with smaller results.
Ontario and Quebec producers have also seen higher cash flow advantages when moving to rental agreements compared to newly purchased land. Ontario’s rent advantage was 2.5 times higher in 2023 compared to 2020, while Quebec is 2.1 times higher.

While the cash flow advantage of renting over financing is significant, producers need to understand their cost of production before entering into a new land rental agreement to ensure it meets the needs of their operation.

The post Renting land better than buying for cash flow: FCC appeared first on Manitoba Co-operator.

The report, posted in mid-March, said Manitoba’s pasture land values had increased 19 per cent through 2023, compared to 12.7 per cent in Saskatchewan and 9.6 per cent in Alberta. British Columbia was in fourth place with a 7.4 per cent increase.

Manitoba’s cattle country bore the brunt of those increases. In the Interlake, pasture land value increases far eclipsed the provincial average, growing 28.3 per cent. The Parkland saw similar growth at 27.4 per cent.

Rates in other parts of the province grew more moderately. Western Manitoba saw increases of 6.4 per cent, FCC said. Land in that region was also more expensive to start with, and the lender noted that per acre pasture values in Westman were still higher than other areas.

It’s the second year that FCC has included pasture land in its annual report and, due to lack of information from eastern regions, data presented for 2023 covered only Western Canada.

Why it matters: The Bank of Canada has yet to lower interest rates but that hasn’t deterred farmland purchasers.

The lender pointed the finger at high demand for pasture, despite highly variable forage and pasture yields last year.

Drought held Western Canada in a chokehold last year, particularly in parts of Alberta and Saskatchewan, and at the end of December, the Canadian Drought Monitor classified all of the west, except the far northwest of B.C., as suffering some level of drought.

Large areas southeast of Calgary and into southwestern Saskatchewan were in extreme to exceptional drought, described by the monitor as a one-in-20 to one-in-50-year event.

Despite demand for pasture, Canada has fewer cattle than at any point in the last 35 years. In February, Statistics Canada reported that start-of-year cattle stocks were 11.1 million, 2.1 per cent lower than the year before and the smallest national cattle herd since 1989.

The agency attributed that to drought, record prices at auction marts and tight feed supplies. Farmers “responded by sending breeding stock to feedlots,” StatCan said.

In October 2023, FCC projected that the annual average price for a fed steer in Alberta would reach $225 per hundredweight, more than 45 per cent higher than the five-year average.

A troubling trend for beef producers

The cattle grazing pasture are worth more, but Manitoba Beef Producers general manager Carson Callum suggested demand for that land may have nothing to do with continued livestock production.

“A lot of these lands that have been purchased recently may have been bought as pasture land, but in many cases the intent is to chew them up for annual cropping,” said Callum. “That’s a big concern for us, since the cow-calf industry is so reliant on these pasture land habitats.”

Land typically considered only suitable for grazing now faces competition from emerging crop varieties developed for resilience, he noted. Producers may wonder whether cropping would be more profitable than pasture.

That said, cattle producers are riding a good market and grain prices have fallen.

“There’s been a bit of a downturn in some of the cash crop commodity prices, so there might not be as much of a desire to convert,” said Callum. “And we’ve seen an increase in cattle prices. So those market fundamentals will mean some of these lands will be maintained in place.”

There is also pressure for producers to embrace sustainable farming. The cattle sector has long argued that it’s operations, particularly at the cow-calf level, foster wildlife habitat and play a role in carbon sequestration and water management.

MBP’s lobby efforts echo that theme.

“If producers can get paid for the ecosystem services that they provide on pasture land habitat, like flood and drought mitigation or species at risk maintenance, that would be a good benefit for beef producers to keep (the land) in grass,” said Callum. “But again, when you can improve your bottom line by selling it for grain, I think you’re going to see that (switch) happen.”

Farmland’s growing price tag

The price of Canadian farmland in general continued its upward trend in 2023, FCC noted, but slowed compared to recent years. Average growth in the price of farmland was 11.5 per cent, down from 12.8 per cent in 2022.

“We had three consecutive years of … land values climbing. And so we’re seeing a little bit of a pullback,” said FCC chief economist J.P. Gervais. “It’s still double-digit, still a very significant increase.”

In Manitoba, there was a double-digit increase in farmland values at 11.1 per cent, just under the national average. Last year, the province posted an increase of 11.2 per cent and in 2021, that percentage was 9.9.

It was the third-highest year-over-year increase in the country. Only Saskatchewan (15.7 per cent) and Quebec (13.3 per cent) reported higher.

The report noted that limited supply coupled with strong demand drove the increases in value, despite high interest rates. Even if some potential purchasers were holding out for lower interest, FCC noted, tight supply resulted in quick sales of any land available and likely increased the price.

By region in Manitoba, the Interlake once again led the way, reporting an increase of 19 per cent. That’s significantly higher than in 2021 and 2022. FCC said there was strong demand and increased values throughout the region.

In western Manitoba, cropland values rose by 12.3 per cent, again based on strong demand and low supply. The region had the second-highest growth rate in the province, but, in a reversal from it’s pasture situation, had the second-lowest per-acre value in Manitoba. Areas with the biggest increases correlated with strong crop yields.

The Central Plains-Pembina Valley region retained its top spot for per-acre farmland values in 2023 and had an annual land value increase of 10.5 per cent, driven by strong demand as large operations continued to expand, FCC noted.

Variable rainfall in the Parkland region affected yields, but values still increased 7.9 per cent in 2023, compared to 7.5 per cent in 2022. Eastern Manitoba had the province’s lowest growth rate, where land values increased 6.7 per cent.

The price of irrigation 

Strong demand for potatoes, often tied to irrigated land values, led to increased demand. Prices for irrigated land in the Westman and Central Plains-Pembina Valley areas increased 18.1 per cent, significantly higher than the 3.8 per cent posted the year before. 

FCC said most sales of irrigated land were private deals between landlords and renters. 

National trends 

Demand for irrigated land was also the prime driver of values in Alberta, where value grew 11.7 per cent in 2023, the most of any of that province’s sectors. That pales in comparison to the 29.9 per cent increase reported in 2022. Those numbers weren’t a surprise for Gervais, given the heavy hammer of drought in Western Canada. 

In 2021, drought spurred widespread government aid packages. In early 2022, big patches of southern, central and eastern Alberta, as well as most agricultural areas in Saskatchewan and Manitoba, were also in severe to exceptional drought, according to the Canadian drought monitor. Dryness continued through 2023. 

Nationally, farmland value trends showed significant variability, Gervais noted. Growth in some provinces, such as Manitoba, remained above 10 per cent, while British Columbia’s pace dipped into the red by 3.1 per cent, although that province also had the highest average land value on a per-acre basis. 

Rates from other provinces included 10.7 per cent in Ontario (down from 19.4 per cent in 2022), 7.8 per cent in Nova Scotia (down from 11.6), 7.4 per cent in Prince Edward Island (down from 18.7), 6.5 per cent in Alberta (down from 10 per cent) and 5.6 per cent (17.1 per cent in 2022) in New Brunswick. 

Hard year for buyers 

It was a generally unaffordable year to buy land, said Gervais, pointing to the double hit of high interest rates and flagging commodity prices. Actual farmland sales declined slightly from 2022 as producers exercised more caution around investment decisions. 

He expects that caution to extend well into 2024 due to continued high interest rates, high input costs and lower grain prices. 

In fact, he said farmland in many parts of the country is less affordable now than it’s ever been. Fiscal circumstances have also opened operations to more financial risk. 

“It makes it more difficult for young farmers and young operations that have a desire to expand into the industry,” he said. 

In the short term, farm receipts of grains, oilseeds and pulses are projected to decline by 13.2 per cent in 2024, in comparison to a 0.4 per cent increase in 2023. Gervais predicted a 4.8 per cent decline in 2024 earlier this year. 

He urged producers to take action to manage these losses. 

“An important part of preparing for inevitable, yet unpredictable, economic changes is not only creating a risk management plan, but also updating it as those shifts in the economy unfold,” he said.

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The number one barrier facing new farmers is access to farmland. By 2033, a shortfall of 24,000 general farm, nursery and greenhouse workers is expected to emerge.

Young farmers and Indigenous land stewards cannot grow, harvest and produce food without secure land access. BIPOC farmers (Black, Indigenous and people of colour) are particularly disadvantaged by generations of discriminatory and colonial policies that continue to dispossess them of land.

Massive investment firms are pushing the cost of land out of reach. The cost of farmland is skewed by the interests of investment firms who are purchasing land far above market rate.

In Saskatchewan alone, large investors and absentee landlords have purchased a million acres of farmland in the last 20 years – an area almost 18 times the size of Saskatoon. These purchases have driven up the cost of farmland by an average of 16 per cent annually. Average values for cultivated farmland in Ontario increased by 19.4 per cent in 2022.

Under these conditions, farmers cannot afford to farm. The National Farmers Union is calling on the federal government to stop allowing predatory investment firms to gamble with Canada’s food system.

“We know what happens when land speculators are allowed to run rampant,” said Rav Singh, youth advisor for NFU Ontario. “It was land speculators who bought up Greenbelt farmland with the help of the Ford government, planning to pave it over and build high-end townhouses. Investment companies should not have the power to gamble with the future of farming.”

“Our governments must pull the emergency brake and keep farmland in farmers’ hands,” added Jessie MacInnis, NFU youth president. “We need land legislation that favours the next generation of farmers, not investment firms. The National Farmers Union demands that governments enact a total ban on investor ownership of farmland.”

– The National Farmers Union is a general farm organization.

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The data, released in an Oct. 3 Farm Credit Canada (FCC) report, shows the province following the national trend. Analysts say the rate of increase is starting to ease.

“When you look at the average increases, the increases are higher for the lower-priced land value areas, and when you look at the higher-priced lands, you’re seeing less of an increase when measured in percentage terms,” said FCC chief economist J.P. Gervais.

Why it matters: There’s no relief on land prices, although slowing rates of growth suggest that appetite has dropped in higher-priced areas.

That state of affairs is reflected locally. In comparing land price and increases across the province, eastern Manitoba and the central Manitoba-Pembina Valley have both highest average prices and the lowest growth. That also holds true if numbers are run for the last year rather than just the last six-month period.

However, Manitoba bucked trends in another area of the financial analysis. Gervais singled out Manitoba as one of only two provinces (the other being Saskatchewan) that saw a significantly higher price increase in the last 12 months (July 2022–June 2023) compared to the last calendar year.

Gervais said that is a function of the lower starting point for land values compared with other provinces, combined with a positive outlook for farm income.

“Values are still going up as a function of the limited available supply and a positive, confident outlook for the long term,” he said. “We had this rebound in 2022 production after a difficult 2021 year and that’s pushed up revenues at the end of 2022, early 2023.”

Overall cash receipts for the province were up 11 per cent in the first six months of the year, compared to the first six months of 2022, with grains and oilseeds up 23 per cent.

“A year ago, that was roughly flat because we had challenges with the 2021 crop that was marketed in the first six months of 2022,” said Gervais.

He also cited relief in the input markets, as those prices have softened since the astronomical highs of last year.

“Combined, I think that’s the reason why we have the increase that we have in Manitoba,” said Gervais.

The rest of the West

Alberta is where the data best matches Gervais’s economic intuition.

Farmland values in that province increased by three per cent over the first half of 2023 and six per cent over the last 12 months. That’s down significantly from 2022, when values jumped 10 per cent throughout the year.

“The pace of increase definitely seems to be slowing down in Alberta,” Gervais said.

However, FCC only looks at dry land in Alberta for its mid-year report.

“We don’t have enough transactions to accurately assess and measure the irrigated land markets,” Gervais said.

Alberta has roughly the same projected income increases as Manitoba.

“Cattle receipts are high, which is a positive given all the challenges with regards to drought, but if you look at cash receipts for grains and oilseeds, it is up 24 per cent,” said Gervais.

That increase, combined with a shortage of available land, has kept demand up, and high land prices have dampened the rate of rise.

“Land values still continue to go up, but at a slower rate of increase,” said Gervais.

Saskatchewan had the highest land value jump of any province in the last six months at 11.4 per cent. It had similar growing conditions and income levels to the rest of the Prairies, but its proximity to Alberta makes it an outlier in the region, according to FCC.

“At the end of the day, Saskatchewan, in some areas, is still priced lower than it is in Alberta,” Gervais said. “I think buyers from outside the province might explain why demand seems to be a little bit higher.”

Ontario

Ontario’s 6.9 per cent increase in land values so far in 2023 was in line with the national average, and only slightly higher than Manitoba, but the reasons are starkly different, says Gervais.

“In Ontario, there are definitely fewer transactions. It’s one of the critical aspects we’ve seen. There’s no way for us to be aware of 100 per cent of the transactions, but the bottom line is that there is a significant decline.”

Another contrast with its western neighbours is that Ontario has seen a decline rather than a significant year-over-year increase in farm incomes.

“For the first six months, grain and oilseed producers have seen a decline of three per cent in income,” said Gervais. “But that’s because the previous year was a really good year.”

In terms of farm income, Ontario had healthy years in 2021 and 2022, particularly for grains and oilseeds, but it also dodged the production challenges experienced on the drought-riddled Prairies.

“Higher interest rates and somewhat flat income for the first six months of 2023 explain why we’re seeing lower numbers for Ontario compared to what it was the previous 12 months,” Gervais said.

There is a wide range of pricing across the province, with the southwest, central west and southeast regions leading in price per acre.

The wider view

British Columbia had no increase in farmland values in the first six months of the year. Again, FCC cited the already high cost of agricultural real estate in the province.

Farther east, at 10.6 per cent, Quebec saw the second highest growth rate in Canada over the last six months, with a high degree of variability across its regions.

FCC did not provide data for the Atlantic region due to limited sales in its database.

The ever-decreasing supply of available land seems to be a common theme nationwide.

“Supply stands out to me as one of the things that we don’t talk about nearly enough and document nearly enough,” said Gervais. “When there is limited supply, there are limited options.

“A buyer looking at something available now might pull the trigger because it may not come back on the market for 40 years or so.”

Measuring interest

Interest rates are another repeat topic in the FCC analysis.

Canada has seen several increases in the Bank of Canada rate over the past year, and Gervais said farmers shouldn’t expect any decrease in the short term.

“We’ve changed our forecast a bit recently. We pushed it later into 2024. We think there’s not going to be any relief from the Bank of Canada until very late in 2024. The battle against inflation isn’t over.”

Gervais said he expects the central bank to raise its overnight policy rate by another 25 basis points either later this year or early in the new year.

“[Rates] might not go much higher than they are now, but they will certainly stay where they are for a while,” he said. “There’s more that needs to be done here to bring inflation down to two per cent.”

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Farm groups and lawmakers are concerned that land buys by investors and foreign countries are driving up farmland prices and threatening national security.

Booker’s Farmland for Farmers Act, introduced on Thursday, would ban most corporations, pension funds and investment funds from buying or leasing farmland.

“We must protect farmland from becoming an investment strategy for huge corporations,” Booker said in a statement.

Institutional investors – including Nuveen Natural Capital, a subsidiary of TIAA, and UBS Farmland Investors – own $15.9 billion of farmland, according to the National Council of Real Estate Investment Fiduciaries’ Farmland Index.

Several U.S. senators, including Iowa Republican Joni Ernst and Montana Democrat Jon Tester, have introduced bills in recent months to limit foreign ownership of farmland, citing concerns that adversaries might buy U.S. land to gain influence.

The Senate on Tuesday passed an amendment to the National Defense Authorization Act that would boost federal review of foreign farmland purchases and limit some by China, Russia, Iran and North Korea.

China holds less than 1% of U.S. foreign-owned farmland, according to the Department of Agriculture (USDA). Canada holds 31%.

Jordan Treakle, national program coordinator for the National Family Farm Coalition, said corporate ownership is the more pressing concern for rural communities because of its impact on land prices.

“Most farmers cannot outbid a multinational corporation,” he said.

The average price of an acre of farmland was $3,800 in 2022, a record high and up 75% from 2008, according to USDA data.

Booker hopes to pin his bill to this year’s farm bill, an omnibus package passed every five years that funds farm and nutrition programs, said a staffer.

–Reporting for Reuters by Leah Douglas in Washington.

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Farm Credit Canada’s latest analysis of farmland rental prices says they’re roughly maintaining their traditional linkage, says J.P Gervais, the organization’s chief economist.

“We were curious to see whether that would bring up land rental rates faster,” says Gervais. “Not yet, it appears. Land rental rates seem to be moving roughly at the same speed as land values.”

However, there could be a lag in the effect that interest rates have on the market.

“I think we’re going to find out,” says Gervais, adding it could take the better part of this year before it becomes apparent.

Why it matters: Understanding the rent-to-price ratio for farmland can help farmers decide whether renting land is a more viable option to free capital for other needs.

Incidentally, Gervais says that while financial markets predict a rate decrease as soon as October, he sees that as overly optimistic.

“We’ve had a pretty strong labour market, which is sustaining consumer spending. Yes, inflation is coming down, but the economy is still moving forward right now, and a lot of us thought that we would have seen a slowdown already, but we haven’t.

“The economy is more resilient than everybody expected. I think it’s a bit premature to say that we’re going to get a rate cut as soon as October. I’m starting to doubt even that’s going to happen in December.”

But Gervais says interest rates are just part of a collection of market pressures that affect rental rates.

“There are several economic conditions that impact the cost of renting land in Canada. Land values, the availability of land and its quality can all drive rental prices.”

By the numbers

In mid-April, the FCC released its annual analysis of the rent-to-price ratio for cultivated farmland in Canada. Across the country, the rent-to-price (RP) ratio in 2022 was 2.55 per cent, compared to 2.5 per cent in 2021. Most provinces saw year-over-year decreases, including Manitoba, which saw its rate drop from 2.5 per cent in 2021 to 2.4 per cent in 2022. Only Saskatchewan and Alberta had slight increases.

FCC calculates the ratio by dividing the rental cost per acre by the land value per acre. A ratio trending lower suggests that cash rental rates are appreciating at a slower pace than land values.

Around 40 per cent of Canadian farmland is rented. Typically, renting is less expensive than purchasing, and the lower the ratio, the better the renting option becomes.

For young farmers and new entrants, renting is seen as a viable option to free up capital that would otherwise be tied up in purchasing and instead can be put toward financing options for machinery or inputs.

FCC began tracking the RP ratio three years ago so it could become a tool to help farmers decide whether renting is the right option.

Another consideration, when deciding whether to buy or rent, is the relationship between rental rates and cropland revenues. Rental rates as a proportion of crop gross revenues have declined since 2020, but crop input costs have increased significantly, putting pressure on profitability.

“We know that we have lower prices than we had last year so, margins are likely to be lower,” says Gervais.

Input costs increased significantly last year but have come down a bit this year.

“I don’t think that the decline is that significant since, if you look at fertilizer prices, they’ve been trending down, but some of it has already been purchased. The bottom line is, those margins are tighter.”

Gervais warns against making snap decisions based on a partial picture. The decision to buy or rent land can have long-term implications.

“Do you have your strategic plan in mind? Where do you want to take your farm five years from now? What are the targets you have in mind?”

He says farmers will sometimes look at the price differential and interest rates and pull the trigger if their costs per acre can be reduced a little. While that’s important, it shouldn’t be the determining factor.

Gervais recommends that farmers stick to their five-year plan and only make decisions if they fit within that plan.

“If you start out looking beyond year one and have that five-year perspective, I think that opens up a bit of a different discussion and maybe different decisions, even facing the same set of numbers.

“Deciding whether to buy or rent is a strategic decision unique to each producer. There is a lot to consider, including interest rates, yields, commodity prices and input costs.”

Some limitations

Manitoba Agriculture farm management specialist Darren Bond says that looking at the RP ratio and calculating the difference in land costs based on mortgage and tax rates is useful, but it has limitations when used on its own. It doesn’t factor in things like yield and commodity prices, nor does it capture the high demand/low demand aspect of market dynamics.

“I’ve spoken to landlords over 10 miles apart who had the same productive capacity land. One was priced at $65 an acre and the other was $120 an acre,” says Bond. The difference between the two was that one was in a low-demand rental market and the other was in a hot one.

For Manitoba farmers, the province has additional tools available to help with these decisions, including a calculator on their website that considers factors like yield, commodity prices and input costs.

“It’s pretty straightforward,” says Bond.

The calculator (available in Excel form, PDF form, or as a mobile option) takes the gross revenue, subtracts the operating costs, labour costs, equipment costs, storage costs, and producer profit expectation, and calculates the maximum amount of land rent that a farmer will be able to pay.

Bond says it’s important to see the choice between renting and buying as a bottom-line decision, but many farmers have an emotional attachment to building equity in their farms.

“I always hear, ‘there’s nothing like equity,’ and ‘you don’t build equity in rented ground,’ and that’s true for sure,” he says. “But paper equity really only helps you with debt leveraging. Other than that, it doesn’t really help you.”

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Farm Credit Canada’s latest analysis of farmland rental prices says they’re roughly maintaining their traditional linkage, says J.P Gervais, the organization’s chief economist.

“We were curious to see whether that would bring up land rental rates faster,” Gervais said. “Not yet, it appears. Land rental rates seem to be moving roughly at the same speed as land values.”

Why it matters: Understanding the rent-to-price ratio for farmland can help farmers decide whether renting land is a more viable option to free up capital for other needs.

However, there could be a lag in the effect that interest rates are having on the market. “I think we’re going to find out,” Gervais said, but pointed out it could take the better part of this year before it becomes apparent.

Incidentally, he said, while financial markets are predicting a rate decrease as soon as October, he sees that as overly optimistic. “We’ve had a pretty strong labour market, which is sustaining consumer spending,” he said.

“Yes, inflation is coming down, but the economy is still moving forward right now, and a lot of us thought that we would have seen a slowdown already, but we haven’t; the economy is more resilient than everybody expected. I think it’s a bit premature to say that we’re going to get a rate cut as soon as October. I’m starting to doubt even that’s going to happen in December.”

But interest rates are just part of a collection of market pressures affecting rental rates, he said. “There are several economic conditions that impact the cost of renting land in Canada. Land values, the availability of land and its quality can all drive rental prices.”

In mid-April, FCC released its annual analysis of the rent-to-price ratio for cultivated farmland in Canada. Across the country, the rent-to-price (RP) ratio in 2022 was 2.55 per cent, compared to 2.5 per cent in 2021. In Saskatchewan and Alberta, there were slight year-over-year increases. The RP ratio increased to 3.1 per cent and 2.6 per cent respectively, while all other provinces saw decreases.

FCC calculates the ratio by dividing the rental cost per acre by the land value per acre. A ratio trending lower suggests that cash rental rates are appreciating at a slower pace than land values.

Around 40 per cent of Canadian farmland is rented. Typically, renting is less expensive than purchasing, and the lower the ratio, the better the renting option becomes. For young farmers and new entrants, renting is seen as a viable option to free up capital that would otherwise be tied up in purchasing and instead can be put toward financing options for other needs, such as machinery or inputs.

Ultimately, the reason FCC began tracking the RP ratio three years ago was so that it could become a tool to help farmers decide whether renting is the right option for them.

Another important consideration when deciding whether to buy or rent is understanding the relationship between rental rates and cropland revenues. Rental rates as a proportion of crop gross revenues have declined since 2020, but crop input costs have increased significantly, putting pressure on profitability.

“We know that we have lower prices than we had last year,” Gervais said. “So, margins are likely to be lower.” Input costs increased significantly last year but have come down a bit this year.

“I don’t think that the decline is that significant, since, if you look at fertilizer prices, they’ve been trending down, but some of it has already been purchased. The bottom line is, those margins are tighter,” he said.

That said, Gervais warns against making snap decisions based on only a small part of the picture. The decision to purchase or rent land can have long-term implications.

“Do you have your strategic plan in mind? Where do you want to take your farm five years from now? What are the targets you have in mind?” Gervais said. Farmers will sometimes just look at the price differential and interest rates and pull the trigger if their costs per acre can be reduced a little.

While that’s an important factor, he says it shouldn’t be the determining factor. Gervais recommended that farmers stick to their five-year plan and only make decisions if they fit within that plan.

“If you start out looking beyond year one and have that five-year perspective, I think that opens up a bit of a different discussion and maybe different decisions, even facing the same set of numbers,” he said.

The Ontario Agricultural College at the University of Guelph, which surveys and analyzes farmland rents, prices and ratios in that province each year, cautions that rental rates and land values can vary considerably on a given parcel’s specific characteristics, limiting the RP ratio’s use as a guideline.

Also, OAC notes in its most recent survey report, such a ratio doesn’t account for “a host of important factors” such as property taxes and the rate of land appreciation over time — but is nonetheless useful for farmers wanting to compare and assess the returns on a land asset.

“Deciding whether to buy or rent is a strategic decision unique to each producer,” Gervais said. “There is a lot to consider, including interest rates, yields, commodity prices and input costs. Open communication and collaboration between landowners and renters creates a quality, long-term relationship. Matched with a risk management plan and business strategy, producers have the building blocks for success.”

— Don Norman reports for the Manitoba Co-operator from Winnipeg. Includes files from Glacier FarmMedia Network staff.

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Most Canadians are acutely aware of how home prices and rents have skyrocketed in the last 15 years or so. In large cities, investor ownership of condos and houses has attracted enough attention that the federal government was prompted to crack down on foreign buyers.

Since 2014, we’ve been studying changing land tenure patterns in the Prairies, home to 70 per cent of Canada’s agricultural land. Our research reveals three major trends: ongoing farm consolidation, increasing land concentration and expanding investor ownership of farmland, all leading to growing land inequality.

Like the transformation of urban real estate, there is highly contested debate on who benefits from these changes.

Worldwide, investor purchases of farmland increased significantly during the global land grab that was spurred by food price spikes in 2007-08. High food prices, a growing global demand for food and environmental pressures convinced many investors that farmland was a safe bet in an increasingly volatile world.

As hedge funds, pension funds and wealthy individuals poured billions of dollars into farmland, researchers began to write about the financialization of agriculture — that is, the growing influence of financial players and motives over farming and food production.

Our research found that investor ownership of farmland in Saskatchewan was negligible in 2002, but had climbed to nearly one million acres by 2018 — almost 18 times the size of Saskatoon. While Saskatchewan sought to tighten rules on farmland ownership in 2016, this seems to have done little to slow the pace of investor acquisitions.

Robert Andjelic, an investor from Alberta, is now Canada’s largest landowner, with 225,435 acres in 92 Saskatchewan rural municipalities. His company leases farmland to dozens of farmers and undertakes “land improvements,” such as clearing trees, brush and other natural habitat, as well as filling in wetlands in order to farm from corner to corner of every parcel.

Another major investor is Avenue Living, which has a foot in both urban real estate and farmland. It has a portfolio of some 83,000 acres.

As investors gobble up more land, there is growing unease among farmers. Investors argue they are helping farmers by relieving them of their assets and providing young farmers with access to land through rental agreements. Given that, on average, investors pay more for land compared to other buyers, these deep-pocketed buyers have undoubtedly contributed to the rapid increase of farmland prices.

In a survey of 400 Prairie farmers, 76 per cent under 35 indicated that non-farmer investor activity has had a negative or very negative effect on the local farmland market. Among older farmers, 83.2 per cent indicated that investor activity has had negative or very negative impact on the local community.

Farmers also expressed unease about the growing economic clout of large farmers (those with more than 10,000 acres) and mega-farms (more than 30,000 acres).

Some of Saskatchewan’s largest grain farms now own and control tens of thousands of acres. According to our research, Monette Farms owned some 63,000 acres of land in 2018, and farms much more than that with production sites in Montana, Arizona and Saskatchewan.

One Organic Farms reportedly operates on a land base of 40,000 acres, with the large majority rented from Andjelic Land Inc.

In-depth interviews with more than 100 farmers in Alberta, Saskatchewan and Manitoba revealed many are deeply concerned about the environmental degradation wrought by big agriculture. Others argued these players out-compete locals for farmland and contribute little to local communities.

Land inequality has significant implications for the vibrancy of democracy, the viability of rural communities and the sustainability of agriculture.

Accessing land is currently the biggest barrier for young and new farmers who want to get into farming and land prices continue to soar above what is justified by the fields’ productive value. At the same time, farm debt is the highest it’s ever been and the Prairies are experiencing an emptying out of the countryside.

Canadians should also be concerned about the logic promoted by investors and mega-farmers, which seeks to extract monetary value from every square inch of farmland.

Given that agriculture is a significant contributor to Canada’s greenhouse gas emissions, doubling-down on this hyper-productive, fossil-fuel dependent model will only make it harder for Canada to meet its climate change commitment.

Progressive agrarian and food movements propose a different future — one based on food sovereignty. This would entail equitable access to land for farmers, sustainable livelihoods and valuing farmland for its social and ecological worth, as well as its productive value.

As the climate crisis intensifies, there has never been a better time for urban and rural Canadians to work together to transform food systems.

Annette Desmarais is the Canada Research Chair in Human Rights, Social Justice and Food Sovereignty at the University of Manitoba. André Magnan is an associate professor of sociology and social studies at the University of Regina. This article first appeared in The Conversation and is reprinted under Creative Commons.

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The data was released in a Farm Credit Canada report March 13 and represents the largest increase the province has seen since 2015, when prices rose 12.4 per cent. This year’s increase follows jumps of 9.9 per cent in 2021 and 3.6 per cent in 2020.

Why it matters: Manitoba’s increase in farmland values was below the national average, but compared to what was seen in the last few years, that’s not saying much.

The highest increase in farmland values was in the Central Plains-Pembina Valley region at 16.1 per cent. The Eastman region’s values increased by 11.2 per cent, consistent with the provincial average. The Interlake (9.3 per cent), Westman (9.2 per cent) and Parkland (7.5 per cent) regions all fell below the average.

The report noted that stable-to-increasing demand for land, along with limited supply, was largely responsible for the rising numbers in the province. The demand was mainly from farmers looking to expand, including supply managed farm operations and cash crop producers.

“There are many factors that impact the value of land, such as commodity prices, interest rates, access to markets and other investment opportunities,” said Keystone Agricultural Producers president Jill Verwey in a written statement. “The value of land and any accompanying changes must be viewed with this in mind.”

But Verwey noted that land values are also a signal of the investment climate for agriculture in Manitoba.

“Manitoba producers want to see an environment where investment is attracted to rural Manitoba, for both primary agriculture and value-added processing,” she said. “This requires investments in rural infrastructure, like roads and internet, as well as community resources, like child care and health care facilities.”

Verwey said she was pleased to see these types of investments included in the 2023 provincial budget, released March 8.

“This is sending signals that are positive for producers and the investment climate for agriculture in Manitoba,” she said.

Nationally, the 12.8 per cent increase was the largest seen since 2014, and it follows gains of 8.3 per cent in 2021 and 5.4 per cent in 2020. J.P. Gervais, FCC’s chief economist, said the numbers were a bit of a surprise.

“At this exact same time a year ago, I said that I expected the rate of increase to be smaller than the 2021 rate of increase,” he said. “That was my expectation. Up until very recently, I did not think that we were going to get 12.8 per cent.”

Gervais said he had thought challenging economic conditions would likely slow the demand for farmland, but the picture became clearer in recent months.

“It’s all about supply and demand,” he said. “On the demand side, we might find it a little surprising that demand remains as strong as it has, given high interest rates and high input costs. But the flip side of that is that we’ve had strong receipts as well.”

Gervais pointed out that receipts for grains, oilseeds and pulses increased 18.3 per cent in 2022. “And on the supply side, all the data that we collected weighed out to a very tight supply of farmland available for sale.”

The highest average provincial increases in farmland values were observed in Ontario, Prince Edward Island and New Brunswick (19.4, 18.7 and 17.1 per cent, respectively). Saskatchewan followed with 14.2 per cent.

Five provinces had average increases below the national average: 11.6 per cent in Nova Scotia, 11.2 per cent in Manitoba, 11 per cent in Quebec, 10 per cent in Alberta and eight per cent in British Columbia. There was insufficient data to analyze other regions of the country.

Gervais said there are a few things to note about the data in the report.

Because the report is based on the calendar year, the effect of the drought on the Prairies in 2021 is still dragging land prices and may explain the difference in increases when compared to Ontario, which didn’t suffer through the drought. But Gervais warned not to draw too much from those geographic differences.

“It’s getting harder to generalize about what’s going on in the marketplace, even within a province,” he said.

The second thing to note is that interest rate increases haven’t yet worked their way through the system, since people may have locked in their rates when interest was lower.

Land values relative to farm income are also as high as they’ve ever been, Gervais noted.

“In most, if not all, provinces, we’re getting very near the top of the market ever in terms of the value of land relative to farm income.”

Gervais acknowledged that higher farmland values pose a challenge for young producers, new entrants and operations looking to expand. It means a strong risk management plan is critical, especially if people are looking to buy land.

“You need to have an elaborate strategic plan for your operation over the next five years and a strong risk management plan that goes with it,” he said.

“Land is more expensive now, relative to income, than it’s ever been. The ability to service debt and overall equity in the operation are critical factors of success going forward.

“The good news is that farmland value increases reflect a positive outlook for the demand for agriculture commodities and the quality food we produce in Canada.”

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