Ontario field rental prices remain high

Wednesday, December 18, 2013

by MATT MCINTOSH

Corn prices might be substantially lower than they were a year ago, but the cost of field rental and land acquisition remains high in some of Ontario’s prime growing areas like Chatham-Kent and Essex.

Dave Armstrong, a cash crop and livestock farmer near Wheatley in Essex County, says stiff competition from larger operations is making both renting and buying land very difficult.

“My rent is going to drop with the price of grain, but it’s hard to pick up land when you’re running a smaller business,” he says. “Renting isn’t too sustainable, so you have to buy land, but that can be hard because the price of ground is so high right now.”

“The big guys are the ones who can afford it, and they keep growing,” he says.

Armstrong is caught in a crunch that many other farmers in Ontario can expect to face over the next while as land rental rates remain high even as the value of the commodity crops grown on them falls.

Fluctuating commodity prices will have an effect but it can take a while, explains Alfons Weersink a professor in the University of Guelph’s department of Food, Agriculture, and Resource Economics, in a recent interview. “This year, when prices have dropped, rent prices are still set to increase a bit; rental rates tend to lag behind commodities.”

In a February 2013 report, Weersink and Brady Deaton, another professor in the same department at the university, identified demand as a key factor in driving how much farmers pay to rent farm property.

This is because rental rates are partially determined by what farmers and owners think the return on their crops will be in the following year, Weersink says in a recent interview, and in recent years, higher commodity prices have made Ontario’s farm rental market more competitive.

But there are other factors at play too.

“Soil quality is an important one, but land availability is one of the most significant,” says Weersink. “While lower commodity prices will likely lead to a drop in rental prices, high demand means some land will still go for top-dollar.”

He also says that an increasing percentage of Ontario’s farmland, about 35 to 40 per cent, is owned by non-farmers. Some, he says, is owned by large foreign investors.

Weersink outlines the extent to which demand can affect rent using the example of Kent County and the Chatham area, which has rental prices that surpass those seen in the highly competitive land markets in the regions surrounding Toronto.

“You wouldn’t expect it to be the case, but some markets are just that competitive.”

Despite competition in the land market, Deaton says in a recent interview that renting has been more profitable than purchasing in recent years, thanks to a steeper increase in the price of land per acre.

According to Deaton, a saving grace for some farmers can be relationship building. He says the average rental agreement in Ontario is for a 10 to 12 year period, and the majority of rental contracts are actually oral contracts.

“Building and maintaining a positive relationship with the landowner helps producers weather outside competition,” he says. BF