Farm Credit Canada’s (FCC) annual land values report is considered the industry standard. The organization’s chief agricultural economist and vice-president J.P. Gervais and his team look from coast to coast at farmland sales and trends, for a national perspective on what’s happened in the past year.
Barring drastic and unforeseen circumstances – such as the standoff with China over canola - it’s a good bellwether for what’s to come. It can help producers planning to buy or sell land manage risk, by knowing where markets have been and where they’re likely headed.
The 2018 annual report was released in April, showing that, on average, farmland values are continuing to trend upwards.
FCC says the value of Canadian farmland jumped 6.6 per cent in 2018. That’s less than it was in 2017, and the lowest recorded growth in eight years.
In Ontario, land values rose 3.6 per cent. That’s actually about half as much rise as FCC saw nationally, but it may not be as dramatic as it sounds, says agricultural economist Prof. Brady Deaton at the University of Guelph.
He says there’s considerable variation in farmland values within Ontario, depending on the location and the quality and quantity of farms coming up for sale in the farmer’s area.
Many Ontario farmland owners are non-farmers, particularly in regions close to the Golden Horseshoe. In these areas, the appreciation of farmland values is entangled with the growth and wealth of urban areas.
And in Ontario, overall farmland prices are already among the highest in Canada. That means land didn’t have as much room to increase, compared to some places elsewhere in the country.
For example, Quebec had the highest average increase, at 8.3 per cent. Not far behind was Saskatchewan and Alberta, which both experienced land value increases of 7.4 per cent in 2018, and British Columbia, with values rising 6.7 per cent.
Nova Scotia was the lone province to record a decrease in average farmland values, a drop of 4.9 per cent.
Gervais said overall, buyers are making “strategic investments.” Many of 2018’s sales involved lesser quality land, because very little top-quality land was available or affordable. So producers made strategic decisions to buy land that was maybe not as good and needed improving…but at least it was for sale, and in line with the underlying productivity of the land.
FCC doesn’t collect data specific to horticultural land. However, Gervais says his economic intuition suggests that horticultural land values are indeed following the trends stated in the land values report.
To validate his hunch, he looked at gross receipts for fruits and fresh vegetables in Ontario.
“Receipts are one of the main drivers of land values, no matter what sector you’re looking at,” he says. “The growth in receipts for fruits and fresh vegetables in Ontario mimic the growth in overall crop receipts in Ontario…in fact, receipts in horticulture do not seem to flatten in recent years like it has been the case for grains and oilseeds – so there’s still some growth. If you look at the regions in Ontario for which there is a large concentration of horticultural production, I would suggest that the data we report does apply to horticultural land.”
On the horizon, FCC is expecting more modest increases in land values. Gervais speculates they’ll likely be about half of the average boost experienced in 2018.
Right now, the main influence expected on the national land value average in 2019 is the canola crisis on the prairies, which could make for a very difficult year. FCC says producers anticipating a land-value slowdown in their region are urged to note that such a phenomenoncan increase risk.
Land values, it says, must be in synch with variables such as net income, interest rates, commodity prices and productivity, it says.
And with receipts driving land values, we’re in for an interesting year.