Farmland values continued to trend higher in 2022 as demand for farmland remains high and available supply is low. Higher interest rates and farm input prices were offset by strong cash receipts, mitigating profitability pressures on the demand for farmland.
Around 40% of Canadian farmland area is rented. Renting land is a business approach that offers financial flexibility because the financial cost of renting is often lower than buying.
Rent to Price ratio analysis
The analysis below provides an overview of cash rental rates in selected provinces by leveraging the farmland benchmarks from our FCC Farmland Values Report.
Rent to Price (RP) ratio (measured in %)
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Cash rental rate per acre
Value of cultivated farmland per acre
The cash rental rate per acre reflects new rental agreements negotiated in the fall of 2022. The weighted average RP ratio of Canadian cultivated land is 2.55% (Figure 1), a slight increase from drought-stricken 2021, however lower compared to 2020.
Source: FCC calculations
Land prices, rental rates, farm revenue, and interest rates tend to move together over the long run, yet the relationship between these variables can be disrupted at any time.
The RP ratio decreased from last year in almost all provinces (Table 1) except for Alberta and Saskatchewan. The land rental market in these two prairie provinces seems to have reacted to changing economic factors. The 2021 RP ratio declined when the region suffered a drought and rebounded in 2022 with good crops.
Often, rental agreements are negotiated between related parties or parties that want to continue their existing business relationship. These can often be done at lower average rates than if the lease were made to a third party which can have higher transaction costs and risks due to unobservable tenant or landlord characteristics.
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