Have Farmland Values Hit A Peak?

on May 1 | in Tek Talk | by | with No Comments

From FCC Express, by Neil Billinger

Some Canadian farmers believe the rapid rise in farmland values over the past four years may have hit its peak.

That reaction comes after Farm Credit Canada released its annual Farmland Values Report. The report shows a continued rise in farmland values in 2014, but one that wasn’t as steep as the previous year both nationally and in many key agricultural regions.

Average farmland values in Canada had a 14.3-per-cent increase in 2014, compared to a 22.1-per-cent increase in 2013.

Saskatchewan farmland values increased an average of 18.7 per cent in 2014, which was the highest provincial increase. Much of this increase occurred in the first half of the year. The province saw values increase by 28.5-per-cent in 2013, continuing a decade-long trend of increasing values.

FCC states strong grain and oilseed prices in the early part of the year, coupled with higher cattle prices in the latter half of the year, generated optimism in much of the agriculture industry. Historic production yields and attractive interest rates also prompted a surge in farmland purchases.

In the field, Brett Halstead, president of the Canadian Canola Growers Association, says he’s heard anecdotes of changes from a year ago.

“There are some stories out there that not all land has been rented this year,” Halstead says. “Some contracts for land rentals were actually down this year compared to the record highs over the last couple of years.”

Farm Credit Canada chief agricultural economist J.P Gervais is projecting a soft landing in farmland values this year.

“We could see farmland values go up at the rate of inflation around two per cent and maybe just a little bit higher considering expected productivity gains for crops in Canada,” Gervais says.

Halstead, who farms in Nokomis, about 150 kilometres southeast of Saskatoon, agrees.

“I think there is bound to be a levelling-off effect after four years of relatively steep growth in farmland values,” Halstead says.

Gary Stanford, president of the Grain Growers of Canada, says while the rising market is a boon to retiring farmers, it’s challenging the younger generation wanting to start farming or expand their operations.

“There is so much competition from some of the larger, more established farms,” Stanford says.

Stanford, who farms about 30 kilometres south of Lethbridge at Magrath, Alta., is still seeing plenty of competition for available land in his area. He estimates rent prices have gone up about $5 an acre despite commodity prices, but also forecasts a price plateau on the way.

“I see it kind of going more flat in the next couple of years,” Stanford says. “I don’t see it going way up. Eventually, there is a breaking point with land rent and with land values. But with the Bank of Canada rate being so low, I still think people are going to keep looking for opportunities.”

Stanford notes some areas with poorer quality land or below average rail service may have already experienced the plateau.

In the Canadian cattle sector, producers are receiving record prices for their steers and heifers following many years of low returns, but there doesn’t appear to be a big rush to expand herds or land base.

Pat Hayes from Val Marie, about 375 kilometres southwest of Regina, Sask., is one of four Saskatchewan directors with the Canadian Cattlemen’s Association. He says the past three years have seen one record crop and two that were above average, which has helped pump up land values.

“All of Saskatchewan, other than some areas that were too wet to seed in the last three years, have produced about as big a crop as they ever produced on average, year-over-year,” Hays says. “A lot of people are starting to buy into this is the new norm. Well, I’m sorry but I don’t buy it. I’m still being pretty cautious because we can go back to the droughts of the 80s or some of the lower rainfall years in the 2000s.”

The website Real Agriculture posed this question to its readers: Where are farmland prices heading over the next year or two?

Based on 332 responses, the number one response at 39 per cent was, “there is going to be a drop in land values. Current crop prices are not high enough to cover land costs, never mind the possibility of higher interest rates.”

Opinions on whether land values will remain the same or increase, however, followed closely behind.

Thirty-two per cent of respondents predict land values will remain the same over the next couple of years while 29 per cent of respondents believe land values will continue to climb, but at a slower rate than 2012 and 2013.

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