by JIM ALGIE
Farmland prices have continued to rise in Canada during 2014 but at a slower pace than in recent years, close observers say of the six-month trends.
“We’re still seeing land values go up but not as fast as they have in the past two or three years,” Farm Credit Canada (FCC) senior agricultural economist James Bryan said in an interview from the agency’s Regina head office.
Likewise, London-based agricultural, real estate appraiser Ryan Parker said most Ontario farm districts have “held their upper limits” on farmland pricing. Parker makes his living appraising farm properties and publishes an annual study of land values in southwestern Ontario available on the website of his employer, Valco Real Estate.
His surveys show farmland prices in the region up between 20 and 30 per cent each year since 2010. This year will bring another boost, Parker predicted in an interview, Wednesday.
“We’ve been really, really strong on the land value in spite of lower commodity prices and a lower outlook for commodity prices,” Parker said. “Surprisingly, we are still going to be up again over 2013 numbers,” he said.
Both Parker and Bryan agree demand for farmland is mostly about low interest rates and buoyant commodity markets in recent years.
“We’ve had quite high crop prices and low interest rates so that’s very stimulative to land values,” Bryan said, referring to recent years. “There’s a bit less enthusiasm; people aren’t chasing land quite as much as they were before,” he said of current demand.
There are signs of land price softening in some cash cropping areas of the United States. In late August, the Illinois Society of Professional Farm Managers and Rural Appraisers identified declining farmland values of between two and six per cent for the first six months of 2014.
Society members expect stable or modest declining trends in Illinois over the next year, survey chair Dale Aupperle told an Aug. 28 press briefing reported on the society’s web site. Most respondents said there were fewer Illinois sales during the first half of 2014 when compared with 2013. More than half of respondents expected land prices to decline between one and five per cent next year, the report said.
A survey of Iowa Realtors Land Institute members last spring estimated a 5.4 per cent drop in farm land values over the previous six months in that leading corn and soybean-growing state, an Iowa State University extension service summary says. However, U.S. Department of Agriculture data for Kansas published, Aug. 1, shows farm real estate values up 17 per cent on average in that state over the previous 12 months while the U.S. average rose eight per cent.
A strong outlook for Ontario’s well-situated, intensive livestock sector as well as supply-managed, livestock operators in the province provide demand strength that may not affect corn-belt states, Parker said of reports from Illinois and Iowa.
“Our livestock sector and quota especially puts us in a little bit of a different situation, especially in southwestern Ontario,” Parker said. “We have a dense group of intensive livestock producers and their thought process is not totally just on crop price and crop yield.”
Farm Credit is Canada’s largest agricultural lender. A federal crown corporation with more than $26 billion in loans, it publishes a detailed, national survey of Canadian farm land prices annually each spring.
The report for 2014 is expected in March or April. Last year’s report showed a national average increase of 22.1 per cent in 2013, higher than any increase since FCC began reporting land values in 1985.
The Ontario increase was 15.9 per cent. Average farmland values in the province have risen continuously for 25 years.
“We’re still hearing of prices going up but just not at the same pace as the past two or three years,” Bryan said. Despite lower prices for most field crops, financial prospects for agriculture remain strong when compared with historical performance.
“The fundamentals are still there,” Bryan said, referring primarily to continued, low interest rates and relatively strong outlook for farm commodities generally. “Long term, things look fairly good for agriculture,” he said.
USDA projections show “fairly strong crop prices for the next 10 years; not records but it’s about $4 corn which, if we look at the historical context, is quite good,” Bryan said. “It just doesn’t look quite so good compared to what we had in the past two or three years.”
Recent demand for land reflects both relatively low borrowing costs and the relative prosperity of farmers. Compared with other potential investments, land remains attractive, Bryan said.
“If you’re looking at alternative investments, parking your money in a safe investment isn’t going to yield much return . . . so part of it is reinvesting in the farm and expanding to a scale that allows you to be efficient.”
A change in interest rates could change the general outlook for farmland sales but Bryan doesn’t expect interest rate moves for six months.
“It really depends on what inflation does,” Bryan said. “We’re within the band still of the Bank of Canada’s target inflation rate but if we see it start to creep higher, interest rates are going to go up; it’s a matter of when.”
“Some time in 2015 is most likely when the interest rate will start increasing and it will take a bit of the edge off,” Bryan said, of expected demand for farmland.
Recent recovery of the U.S. stock market takes out some of the investment spin but farmland remains an attractive place to invest, Parker said.
“It’s definitely held its value and increased value over the past five years so I would say on that basis that it’s a good investment,” he said. “There’s a little less action in 2014 but some of that is just inventory. There just isn’t much available,” Parker said. BF