Gains in Canadian farmland value gains continued to soften through the first half of 2020, with Farm Credit Canada (FCC) warning the full impact of the COVID-19 pandemic is yet to be known.
A mid-year review conducted by FCC found that national farmland values increased by an average of 3.7% through the first six months of this year, down from the 5.2% gain observed in the 12 months ending Dec. 31, 2019.
Last year’s increase in farmland values was the smallest of the past decade - following gains of 8.4% and 6.6% in 2017 and 2018, respectively - and a continuation of a five-year trend of softening growth in average farmland values. Now, amid the uncertainty of a global pandemic, values through the first half of this year have slowed further, although still a good performance considering the circumstances, said FCC chief economist J.P. Gervais.
“Given the global economic situation during the first half of 2020, Canada’s farmland market is showing remarkable resilience in the face of adversity and uncertain times,” he said. “Changes to production and marketing plans induced by the pandemic have had a definite influence on profitability, yet the demand for farmland remained robust.”
Low interest rates, the limited supply of farmland in the market and confidence among producers in the farmland market appear to be the main drivers behind the 2020 mid-year increase, FCC said.
Alberta and Saskatchewan led the way for Western Canada, with farmland value gains of 4.9% and 4.2% through the first half of the year. Manitoba posted a 2.3% advance, while Ontario and Quebec showed gains of 0.4% and 2.6%. New Brunswick had the nation’s strongest increase at 6.5%. On the other hand, Nova Scotia farmland values were flat through the first half of this year.
In general, the pace of farmland value increases over the past six months was slightly higher in western provinces and slightly lower in central and eastern parts of the country, with the exception being New Brunswick.
Indeed, when FCC looked at farmland values over the 12-month period between July 2019 and June 2020, the 8.5% gain observed in Alberta was well above the 3.3% advanced reported for the January-December 2019 period. Similarly, Saskatchewan showed a 7.9% increase from July to June, compared to a 6.2% advance between January and December last year. In comparison, Ontario’s July 2019 to June 2020 gain of 3.7% fell well short of the December-January 2019 increase of 6.7%.
FCC said the strongest regional increase in Saskatchewan farmland values was observed in the eastern part of the province, while the south-central, north and western regions of Ontario saw generally stronger advances.
Although the pandemic has resulted in supply chain disruptions that have impacted some sectors, mainly red meat, Gervais said the grain, oilseed and pulse sectors have performed well in the first half of 2020, supporting the slightly higher rate of increase in Western Canada farmland values.
Earlier this year, Statistics Canada reported that crop receipts (excluding cannabis) for the first six months of 2020 were up 1.6% compared to the same period last year.
Still, FCC cautioned it could take a year or more to fully assess the pandemic’s influence on economic variables that drive the farmland market.
“The size of the 2020 crop, foreign demand for Canadian ag commodities, interest rates and the value of the Canadian dollar are the economic variables to monitor,” it said. “The economic uncertainty calls for a careful review of investment plans to identify risks and opportunities in the farmland market.”
Source: DePutter Publishing Ltd.
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