Farmland values correlated with debt
Stronger dollar, higher interest rates and lower commodity prices support slowing increase of values
By Kaitlynn Anderson
Farm Credit Canada’s (FCC) Outlook for Farm Assets and Debt 2017-18, published in September, explained that farmland values and farm debt are highly correlated.
In the report, FCC presented data to highlight the correlation.
The value of farmland and buildings appreciated by 50.1 per cent between 2011 and 2016. Outstanding farm debt appreciated by 32 per cent over the same period of time, according to the report.
This correlation could be due to the fact that over the past decade, farming has become more of a profitable industry, according to J.P. Gervais, chief agricultural economist at FCC.
“(With) the combination of improved farm profitability, low interest rates and strong asset appreciation, many producers have made strategic investments in their operation to improve the efficiency and profitability of their operations,” Gervais told Farms.com.
“This has also resulted in many farmers taking on additional debt,” he said, also stating that farmland currently comprises approximately 70 per cent of total farm assets.
With changing economic conditions alongside this correlation, FCC forecasts that overall debt levels will continue to increase, but at a slower pace.
“Lower commodity prices, a stronger Canadian dollar, and higher interest rates are supporting an environment where we expect a slowing pace of farmland and building appreciation,” said Gervais.
However, this forecast may not impact farmland rental rates.
While the same factors that influence farm profitability and farmland values also affect the farmland rental market, Gervais explains that there are “regional characteristics that may cause farmland rental markets to behave differently from the farmland values market.”
Photo: Richard Gillard / iStock / Getty Images Plus