Farmland value growth slows in Canada: FCC report

Tuesday, April 14, 2015

by JIM ALGIE

Ontario followed Saskatchewan and Quebec in farmland value growth during 2014, Farm Credit Canada appraisers say as they continue to track a moderating trend in farm real estate markets.

FCC’s annual Farmland Values Report, published Monday, shows average values in Canada grew by 14.3 per cent in 2014, led by Saskatchewan at 18.4 per cent, Quebec at 15.7 per cent and Ontario at 12.4 per cent. It’s only the latest in a 25-year trend of rising farmland values but showed slower growth in 2014 than in 2013, the 12-page report says.

Ontario’s market reflects outsized demand for available land, together with relatively low interest rates, expanding livestock enterprises and, in parts of southwestern Ontario, the role of “non-agricultural buyers.”

J. P. Gervais, FCC’s chief agricultural economist, urged caution among farmers considering future land acquisitions. Lower crop prices together with expanding stocks of grain and oilseeds “could bring prices down further, creating tighter margins,” Gervais said in a statement accompanying the benchmark land values report.

Although higher borrowing costs appear unlikely in 2015, “interest rates will eventually increase,” Gervais said. He also said, however, that Canadian agriculture’s longer term outlook remains “positive” mainly because of the relatively weak Canadian dollar, expanding trade agreements and growing world food demand. Gervais is to discuss current land values during a webinar Apr. 20 beginning at 12 p.m. EST.

Corinna Mitchell-Beaudin, FCC’s chief risk officer, welcomed the move to “more moderate increases for farmland values.” In a statement, Mitchell-Beaudin said “gradual change in the value of this key asset” benefits both new and retiring farmers.

FCC is a federal crown corporation and Canada’s largest farm lender with a $27.3 billion portfolio and 21 consecutive years of growth. The trend identified in this year’s annual land values report follows similar observations in the United States and in southwestern Ontario.

In an annual report published in February for the 10 counties of southwestern Ontario, Ryan Parker, a real estate appraiser with London, Ont.-based Valco Consultants Inc., identified four per cent growth in land values during 2014 compared with 20 and 30 per cent growth rates since 2010. An August 2014 U.S. Department of Agriculture analysis of farm real estate values in that country indicates a similar slowing trend in farmland values.

In a current blog post discussing Ontario values, FCC’s Gervais identified a significant increase in the 2014 ratio of farmland prices to crop receipts. The 2014 ratio of 19.1 compares with a long term average at 12.4, he said.

“Results like these are cause for pause,” Gervais said in the post, although he also said “a higher price-to-receipts ratio can be justified on the basis of expected growth in agriculture.” However, the report also indicates recent growth may have peaked in some of Ontario’s most costly regions.

“We can’t rule out the possibility that farmland values have peaked and that the market could moderate/retreat at some future point,” Gervais said. BF