Weather volatility and market uncertainty are leading to cautious buying and modest increases in land prices
By Kate Ayers
Canadian farmland values continue to rise only slightly year over year, a recent Farm Credit Canada (FCC) release said.
While farmland values across Canada rose by 6.6 per cent between 2017 and 2018, the national average increased by just 3 per cent in the first half of 2019, the release said. If this trend continues for the rest of the year, this modest increase in farmland values will be “part of a five-year trend of softening growth in average farmland values,” the report added.
Since 1993, average farmland values have increased annually. Farmers saw steeper rises in land prices between 2011 and 2015 in some regions across the country. However, since 2015, when the average land value increase reached 10 per cent, Canadian farmland value has risen modestly by single-digit increments, the release said.
“The land-buying spark, in part caused (by) the high grain prices in 2013-2014, has now fizzled out and expectations are normalizing or trending negatively with more recent foreign policy concerns,” Brandon Wilcox, a partner at S.W. Irvine & Associates, said in an email statement to Farms.com.
S.W. Irvine & Associates is a real estate appraisal firm located in Guelph, Ont. that specializes in agricultural properties and rural businesses, the company’s website said.
“Uncertainty with what direction our trading partners to the south will (head) has tampered some economic growth,” Wilcox said.
“Servicing debts and cash flow concerns have to be in the back of some farmers’ minds as international trade sanctions have already impacted our soybean, canola and meat industries.
“That being said, growth has only slowed to more historic norms – (growth) has not stopped in any of the regions I’ve appraised. I’m seeing more areas catching up to the higher land rate areas first impacted in 2014.”
However, the farm debt-to-asset ratio in Canada remains lower than the 15-year average, the release said. So, many farmers could purchase land if such transactions are in their business plans.
“The balance sheet is still strong, but uncertainty in markets and the fact that farmland values have climbed rapidly in the past may be giving some producers reason to pause,” J.P. Gervais, FCC’s chief agricultural economist, said in the report.
“Others (farmers) may have already expanded their operations and are now exploring other strategic investments.”
“For a while, we were noticing farmers increasing their capital expenditures by building new barns, grain bins and manure storage. (Producers) were taking advantage of all the new buying power they had with the windfall of land value equity,” he said.
“This year, the construction trend seems to be in the poultry industry as outdated … two- to three-story broiler barns are getting older and are being replaced by modern one-story barns with more efficient technology. Enriched layer barns are also consistently replacing the older cage layer systems.”
Current commodity and land markets may have farmers wondering what next year could bring.
“Should economic trends continue, I would expect (farmland) values in certain areas to keep catching up to the premium prices that were all the gossip in coffee shops from 2013 to 2015,” Wilcox said.
“Savvy farmers are finding better deals through average-appearing farms that are improved by using some elbow grease to clear old fence rows or innovative property drainage techniques and soil management.”
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