Rising Land Values Lift Canadian Farm Equity 




Boosted by rising farmland values, Canadian farm equity saw its largest increase in eight years in 2021. 


A Statistics Canada report on Thursday pegged national farm equity as of the end of last year at $627.2 billion, up 10% on the year and the sharpest percentage increase since 2013.  


The value of total farm assets rose by 9.4% to $748.6 billion in 2021, with nearly all the increase coming from gains in the value of farm real estate, which increased $58.4 billion. On the other hand, total liabilities rose 6.4% to $121.4 billion in 2021. 


The gain in farmland values – supported by historically low interest rates, high commodity prices and a tight supply of farmland available for sale – more than offset a 7.1% decline in the value of crop inventories to $19.4 billion in 2021, the largest annual percentage decrease since 2014.  


Although most principal crops commanded higher prices on the market in 2021, the sharp decline in stocks, a result of drought in much of Western Canada, led to the decrease in the value of crop inventories, StatsCan said. Saskatchewan experienced the largest decrease in the value of crop inventories, down $1.9 billion to $6.4 billion. 


The poultry and livestock inventory value increased 12.2% to $8.8 billion in 2021 because of higher prices for most livestock and supply-managed commodities. All provinces reported gains in the poultry and market livestock inventory value, with Alberta (+$312.7 million) and Ontario (+$260.4 million) accounting for almost 60% of the national increase. 


Liabilities increased in every province, led by Ontario, which was up 10.2%. Low interest rates in 2021 may have encouraged farmers to take on debt to finance their businesses, StatsCan said. 


Meanwhile, despite the increase in equity this past year, two farm profitability ratios - return-on-assets and return-on-equity - declined to their lowest levels in over a decade. While cash income hit a record high, the drought in Western Canada negatively impacted on-farm inventories, leading to a drop in total net income. As a result, farm businesses generated less profit from their capital, StatsCan said. 


For the second consecutive year, both the debt-to-asset ratio and debt-to-equity ratio also decreased in 2021. However, both ratios remained higher when compared with their 10-year averages. 


Source: DePutter Publishing Ltd.

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