by JIM ALGIE
Rising agricultural land values in the 10 counties of southwestern Ontario moderated during 2014 mainly because of lower commodity markets, an annual report by London-based appraiser Ryan Parker says.
The 32-page report concludes average prices rose only four per cent across the region, compared with year-by-year increases since 2010 of between 20 and 30 per cent.
Available online at ValcoConsultants.com, the report analyses agricultural land sales for a region bounded by Lake Huron on the west, Lake Erie on the south and northeast to the six southern townships of Grey County. A partner in Valco, Parker identifies signs of a slowdown in demand and “some signs of market stress” in “glaring contrast” to recent years.
Livestock farming operations in supply-managed commodities continue “to have a large impact” on land markets in some areas, notably, Huron, Perth and Oxford counties, Parker’s report says.
“These are areas where the dense proportion of livestock/quota producers kept land values strong even in the face of lower commodity prices,” the report says.
Historically low interest rates “have allowed for substantial expansion by large, progressive agricultural producers,” the report says. A recent change in the outlook for interest rates suggests they’ll remain low and “continue to provide a strong appetite for agricultural land” in 2015.
Parker’s report predicts agricultural land values in the region will “continue to be very strong with overall level values” and significant variability depending on individual properties. He expects “fewer sales and more listings” in 2015 “if the market continues to tighten up.”
The report includes median land values for each county. They show Perth and Oxford counties with the highest median value per tillable acre at $17,000.
Huron County comes in just under $13,000 with Middlesex and Kent at $12,000. The median value for Elgin and Lambton counties is $10,500 and $10,000, respectively, while Essex, Bruce and south Grey all show up at just under $8,000.
Bruce, Lambton and Elgin counties show the largest average annual increase since 2010 at between 22 and 28 per cent. Parts of Perth, Middlesex and Huron counties have showed even stronger growth over the past four years of between 24 and 25 per cent.
Parker’s report identifies top end sales in 2014 at between $20,000 and $25,000 per acre. While bottom end ranges in most areas continued to rise, the research also indicates some reduction in value for parts of Perth, Lambton and Bruce counties.
Parker’s analysis selected sales to reflect demand for land used solely for farming. The average number of sales analysed was 27 and ranged from a high of 42 transactions in Kent to a low of only 17 in Oxford. BF
Comments
The lowest yielding stock I own is TD bank at 3.38%, which is just under $575.00 on seventeen grand, which an acre of land cannot generate. The highest yielder I own is Canadian oil sands at 11.78%. You can do the math.
If one already owns a few farms, there is not much point in parking profits in more land as you will already have taken advantage of future capital gains tax exemptions.
Many farmer
s like to defer taxes so they purchase properties that don't make money in hope that they will appreciate like they have in the past 30 years, which is unlikely since most of those increases are a result of interest declining by about 17%
The government has a tool for defering taxes, it is called an RRSP.
Inside an RRSP you can put blue chip companies like TransCanada for example that have a history of increasing dividends yearly and the shares will continue to rise ahead of what little inflation there is.
Raube Beuerman
Just to refresh our memories Raube, how much ag land did you say you still own.
Just enough to make use of capital gains in the future. 2 farms.
Think I already made that point.
Raube Beuerman
So are you licenced or should people take your advice keeping in mind what they paid for it ?
Had a guy tell me that a farm would never be worth a million dollars . He then went on to say that he could make me more money with investments than any farm would ever appreciate in value . I told him to prove it to me with his own money first then I asked him why he still owned a farm !
Coments like yours help those who own bank shares sleep better at night.
Keep buying, I like the dividends you provide for me.
Raube Beuerman
When, not if Rates rise, will have an immediate impact on land values, I suspect a lot of farmland will be on the market quickly.
Interest rates are determined by bond yields, right now the USA is 2.1% for a 10 year, and Canada is 1.45%
The basket case of Greece is over 9%, but no sane person would go there.
I truly believe we will not see rates rise more than 2% for at least 20 years.
I also think it will be difficult for the Government and Central banks to maintain their target of 2% inflation going forward.
Raube Beuerman
I guess I m just old ,I can remember 1980 s rates of 20%. Seems hard to believe how things have changed, but change is the one thing we can always count on in our life times. I had a young lady from FCC tell me some of her clients could not stand a 2% raise in rates with the amount of money they owe.
Farmland evaluation experts have been warning about a bubble in farmland valuations for decades.
At $20,000 per acre, what crops can you grow that will consistently yield more than the 3% produced by a GIC, with no work involved?
For the first time in 28 years, the Federal Reserve Bank of Chicago released its AgLetter report that good US cropland values dropped 3% in 2014 in the Mid-West (see http://farmpolicy.com/2015/02/12/farmland-values-federal-reserve-banks-o... ).
As reported here, the Ontario experts have already seen stresses in the Ontario farmland market.
The Canadian residential real estate market has also started a slow melt in value that likely will continue for the next 30 years, taking off at least 30% (to as must as 80%) of the current value according to international and national experts.
Will farmland values in Ontario and the rest of Canada soon follow suit?
Only time will tell.
Glenn Black
Small Flock Poultry Farmers of Canada
At these prices for farmland, the best comparison is to gold which has almost no value in use.
Therefore, farmers are buying land for the same reason people buy gold, and that's the expectation of/for capital appreciation only.
There was a time FCC wouldn't lend more than 75% of the agricultural productive value (APV) of land which now would roughly translate into something like $3,000 per acre.
Everyone interested in sound agricultural policy should regret the day FCC stopped lending on APV and should regret even more the day FCC started taking quota as security.
We are indeed living in a "fool's paradise" and will pay dearly for ignoring sound investment principles - we paid dearly in the early 1980s for allowing our inflationary expectations to get ahead of common sense in the late 1970s, yet we seem to have learned nothing from that debacle.
Stephen Thompson, Clinton ON
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