Farm Credit Canada (FCC) has released an analysis of the rent-to-price ratio for cultivated farmland in Canada. The rent-to-price ratio is obtained by cross referencing  cash rental rates and the Farmland Values Report data. A ratio trending lower suggest that cash rental rates are appreciating at a slower pace than land values. Conversely, an increase in the ratio indicates that rental rates are increasing faster than land values. This information can help producers make decisions around buying versus renting land.

The national rent-to-price (RP) ratio in 2022 was 2.55 per cent compared to 2.5 per cent in 2021. In Saskatchewan and Alberta, there were slight year-over-year increases. The RP ratio increased to 3.1 per cent and 2.6 per cent respectively, while all other provinces saw decreases.

“There are several economic conditions that impact the cost of renting land in Canada. Land values, the availability of land and its quality can all drive the price to rent,” explains J.P. Gervais, FCC’s chief economist.

There is provincial fluctuation in cash rental rates and land values which creates a significant range in the minimum and maximum rates for each province. The high-end, rent-to-price ratio is typically for land with the lowest value per acre in the province.

Around 40 per cent of Canadian farmland is rented. Typically, renting is less expensive than purchasing and the lower the ratio, the better the renting option becomes. For young farmers and new entrants, renting is seen as a viable option to free up capital that would otherwise be tied up in purchasing and instead can be put towards financing options for other needs such as machinery or inputs.

Another important consideration when deciding whether to buy or rent is understanding the relationship between rental rates and cropland revenues. Rental rates as a proportion of crop gross revenues have declined since 2020, but crop input costs have increased significantly, putting pressure on profitability.

By sharing agriculture economic knowledge and forecasts, FCC provides insights and expertise for those in agriculture. Visit FCC Economics at www.fcc.ca/Economics.

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Source:  Farm Credit Corporation April 24, 2023 news release