Farmland Values Up, Despite Higher Borrowing Rates 




Ontario led the way higher as Canadian farmland values continued their long-term ascent through the first half of this year. 


Even rising interest rates were unable to quell the gains, as national farmland values climbed an average of 8.1% in the January-June 2022 period, according to a mid-year review released Tuesday by Farm Credit Canada (FCC). FCC’s annual farmland values report in the spring showed farmland values up 8.3% in 2021. 


The highest average farmland value increases were reported in Ontario at 15.6%, followed by Prince Edward Island at 14.8% and Quebec at 10.3%. Saskatchewan showed the largest increase among the Prairie provinces at 8.4%, with Manitoba at 6% and Alberta at 5.9%. 


“Producers are still making strategic investments in their operations and buying farmland, which is in short supply and high demand,” said FCC chief economist J.P. Gervais. “This healthy farmland market is a good indication there is confidence and optimism in the future of the industry among producers.”   


Most land transactions were agreed to prior to the most significant interest rate increases. However, Gervais said he believes the more recent rate increases will not completely deter some producers from making land purchases that make sense for their operations. 


“There’s little doubt that higher borrowing costs will slow the demand for farmland,” he said. “But the fact that the supply of farmland available is limited and farm incomes are trending in the right direction could offset the impact of interest rates increases.” 


The Bank of Canada has been aggressively hiking interest rates to battle runaway inflation, with its benchmark rate now sitting at 3.25%, the highest since 2008. Back in 2020, in the early days of the global pandemic, the Bank policy rate sat near 0%. 


Gervais said strong farm cash receipts, buoyed by robust commodity prices, have managed to offset some of the profitability challenges from higher interest rates and farm input costs. 


Farm cash receipts climbed 14.6% year-over-year for the first half of 2022, although grain, oilseed, and pulse receipts were slightly lower in the first six months due to the drought across many parts of the Prairie provinces in 2021. Receipts are projected to increase 18% for the full 2022, relative to 2021. 


Despite inflationary pressures and geopolitical tensions, new-crop prices continue to be elevated and should generate positive profit margins, given the latest production and yield estimates, according to the mid-year review. 


Provinces with a higher percentage of arable land, such as Saskatchewan and Alberta, seem to experience a slower pace of increase in land values, the mid-year review showed. Ontario’s average increase was bolstered by the central regions of the province, “where competition for arable land is strong but supply is limited.” 


Gervais recommended operators maintain a risk management plan to protect their businesses against unforeseen circumstances, such as increases in borrowing costs and unfavourable movements in commodity prices. 


Farmland in Canada has gained in value each and every year since 1993, posting astronomical advances of 19.5% and 22.1% in 2012 and 2013.   


Source: DePutter Publishing Ltd.

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