At the end of April, Farm Credit Canada (FCC) released its annual Farmland Values Report. No Grainews readers will be surprised to hear that buying land has paid off over the past decade. Canada-wide, FCC reports that farmland values increased by 6.6 per cent on average in 2018 (after increases of 8.4 per cent in 2017 and 7.9 per cent in 2016).
Despite weather problems in many parts of the Prairies, average farmland values were up across the board in 2018: 7.4 per cent in Alberta and Saskatchewan, and 3.7 per cent in Manitoba. Of course, land markets are local. When the Prairies are divided into 15 regions, land value increases range from just 0.1 per cent in the Interlake region of Manitoba to a 12.7 per cent increase in prices in southern Alberta.
FCC’s chief agricultural economist, J.P. Gervais, spoke to farm writers on a conference call. He was very careful to talk about averages: they don’t mean much. There is a lot of variation within “average” numbers. He did say he’d noted that “at the top end of the market, the demand for land seems to be flat.”
While land prices have been going up, not all farm incomes have been following. In Saskatchewan, Gervais said, the rate of increase in land prices “has been exceeding the rate of increase in farm income.” Generally, he said, Saskatchewan is a province where the ratio of the price of land to farm income is close to its long-term average. This year, the ratio increased, with higher land prices and lower incomes. “At some point,” he said, “the ratio should come down again,” with smaller increases in land values.
For next year, Gervais suspects average land values will continue to rise, but likely at a slower rate (maybe half of this year’s increase) thanks to income uncertainty, coming mainly from price decreases due to trade problems and a decrease in canola demand in the wake of African swine fever. “There’s a lot of question marks around 2019,” he said.
If you’re thinking about buying land, Gervais said, “you need to have a good grasp of where you sit in terms of long-term debt.” Land purchases tie up a lot of capital. In times of volatile prices, if things go bad, the working capital you have on hand “is that first line of defence.”