Canadian farmland rental rates and values are climbing at generally the same rate, but renting still offers benefits – especially for new producers.
A Farm Credit Canada analysis pegged the rent-to-price ratio for cultivated farmland at 2.52% in 2023, little changed from a year earlier. Notably, the three provinces that recorded the highest farmland value increases in 2023 - Saskatchewan, Manitoba, and Quebec - also saw increases in rental rates, maintaining stability in rent-to-price ratios.
A ratio trending lower suggests cash rental rates are appreciating at a slower pace than land values. Conversely, an increase in the ratio indicates that rental rates are increasing faster than land values.
The FCC analysis provides a detailed breakdown of rent-to-price ratios by province, highlighting variations in rental rates and farmland appreciation across different regions (see table below). Notably, provinces like Ontario and select Atlantic provinces have witnessed divergent trends, with rental price agreements evolving at a slower pace compared to farmland values.
“There are challenges that come with buying land amid increasing land values and elevated interest rates,” J.P. Gervais, FCC’s chief economist, said in a release Thursday. “Renting land can serve as a strategic way for new entrants to get established or grow their operations without being burdened with all the upfront costs that come with land purchases.”
According to FCC, the three prairie provinces have seen an increased cash flow benefit from renting land compared to purchasing since 2021. In 2023 in Alberta, rented ground returned $160/acre more than newly purchased land. The same story holds true for Manitoba as the per acre difference in profitability due to renting has doubled since 2020. Saskatchewan has also seen the advantage grow for renting over owned as well but with smaller results.
Ontario and Quebec producers have also seen higher cash flow advantages when moving to rental agreements compared to newly purchased land. Ontario’s rent advantage was 2.5 times higher in 2023 compared to 2020, while Quebec was 2.1 times higher.
“In regions where farmland values have outpaced rental rates, renting land emerges as a suitable option for producers seeking to optimize their cash flow and operational flexibility,” Gervais said.
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