Demand for Canadian farmland remains strong; however, tighter farm profitability contributed to a slower appreciation rate in all provinces but Alberta and Saskatchewan. Through the first six-month of 2020, Canadian farmland values increased by 3.7% on average. Plenty of factors explain the strong demand for farmland: healthy balance sheets and historically strong returns on farmland, low interest rates, and grains, oilseeds and pulse receipts that increased 6.3% in the first six months of 2020 despite several challenges including trade restrictions, weather challenges, a rail strike and COVID-19.
With the growth in grains, oilseeds, and pulse receipts outpacing the appreciation in farmland values, the affordability of land improved for Canadian farm operations. However, this trend is not consistent across all provinces. One tool to gauge farmland’s affordability is to compare the average per acre land value divided by average expected returns per acre (price to revenue ratio). The 2020 price-to-revenue ratio estimate assumes the mid-year increase is reflective of the entire year. To forecast revenue, we use actual producer prices through August as well as futures market prices and industry yield expectations.
In Saskatchewan (Figure 1), strong increases in farmland values are matched with equally strong projected yields and prices, resulting in the price to revenue ratio expected to remain stable in 2020. In Ontario (Figure 2), the price to revenue is expected to trend down because of stronger crop revenues. Overall, affordability is expected to improve or remain flat in all provinces. The exception is Alberta, where farmland values increased 4.9% through the first 6 months and revenue is projected to increase by 3.8% based on current market prices and production estimates.
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