A study by Canada’s federal ag lender finds the average value of farmland across the country rose by over five per cent in 2010, with values in Ontario, Saskatchewan, New Brunswick and Prince Edward Island ahead of the six-month curve.
Crown agriculture and agrifood lending agency Farm Credit Canada on Monday released the latest instalment in its twice-per-year Farmland Values Report, based on a system of 245 benchmark farm properties to monitor variations in bare land values across Canada.
Generally, FCC said, cash crop producers are leading the buyer activity in farmland, and strong demand with limited supply have made farmland a “hot commodity” due to its historic performance as a stable investment with income-generating potential. Low interest rates have also encouraged buyers to “seize opportunities” and thus helped support farmland values.
Given the variations in land prices and land uses between and within regions and provinces, due to factors such as soil quality, climate and proximity to urban areas, FCC’s report doesn’t try to provide average farmland values in dollars per acre, but instead tracks average changes in farmland values.
Canada-wide, the average value of farmland rose 2.1 per cent in the last six months of 2010, following increases of three and 3.6 per cent in the previous two reporting periods, FCC said. Combined, the increase over all of 2010 was 5.1 per cent.
Prince Edward Island recorded the highest average increase in Canadian farmland values during the second half of 2010 at 3.2 per cent, following seven years of flatlined or decreasing values, FCC said.
But “favourable weather conditions in 2010 paved the way for an abundant potato harvest,” which, combined with higher potato prices last year, boosted demand for quality farmland, FCC said.
Buyers, especially around Summerside, were choosy, however, and “some farmers found it difficult to sell land that did not meet the quality standards sought by purchasers.”
In terms of the largest increases in the last half of 2010, Saskatchewan farmland values followed P.E.I.’s, rising 2.7 per cent in the six-month period and an average of 0.5 per cent per month over the year.
While sales were offset by last year’s spring flooding and unseeded acres, land values were “relatively stable” through much of the province and the increase came largely from “a couple of rural municipalities in the southern half of the province that experienced considerable sales activity.”
Strong demand was evident for good quality land, especially in lentil-producing areas, the agency said. Purchasers from other countries were also seen relocating to farm in Saskatchewan.
Stronger potato prices and slim pickings for land buyers led to an average increase of 2.4 per cent in New Brunswick’s farmland values in the last half of 2010, FCC said.
The upward pressure on land values was tempered by a decrease in potato processing contract volumes of between 15 and 25 per cent from the previous year. More typical purchasers from the dairy industry were less active buying land but were able to rent at “a reasonable price” from former beef producers and part-time farmers, FCC said.
Farmland values in Ontario also rose an average of 2.4 per cent in the last six months of 2010, for a total average monthly increase of 0.6 per cent in 2010, the highest in Canada, FCC said.
Demand for land in southwestern Ontario came from dairy farmers looking to grow cash crops due to restrictions on purchases of dairy quota. Meanwhile, FCC said, large intensive livestock operations sought land for expansion and to satisfy nutrient management program rules.
Alberta farmland values, meanwhile, rose an average of 1.5 per cent during the second half of 2010, following gains of 2.9 and 3.8 per cent in the two previous periods.
Activity was “generally stable” in the province’s north as it recovered from the 2009 drought, and was steady along the Highway 2 corridor between Calgary and Edmonton, FCC said.
“Irrigated land for specialty crops continued to be the major factor driving land values higher in southern Alberta… while other cultivated land in the region saw marginal increases.”
Farmland values in Manitoba increased an average of 1.3 per cent during the second half of 2010, following gains of 3.4 and 5.9 per cent in the two previous periods. Values rose by an average of 0.7 per cent per month during the past two years, the highest such monthly average increase across the country, FCC said.
The increase in Manitoba has turned up mainly in its grain and special crop production areas, FCC said, as “higher commodity prices, low interest rates and land seen as a safe investment fuelled land prices during the reporting period.”
However, the Interlake and beef-producing areas saw “limited or no increase” in farmland values, due mainly to wet spring and summer conditions. In Manitoba’s southeast, continued depopulation in the hog sector “could have affected land sales, but demand remained steady as dairy farmers sought more land for nutrient management purposes,” FCC said.
Quebec saw farmland values rise by an average 0.9 per cent during the second half of 2010, following gains of 2.3 and 1.3 per cent in the two previous reporting periods, and remains the only province that hasn’t experienced a decrease in its average farmland values since FCC began reporting them.
Quebec’s farmland market continues relatively stable, with the largest increases in the southwest and southeast and mainly in areas where cash crops dominate the market.
In Nova Scotia, farmland values rose an average of 0.6 per cent during the second half of 2010, following gains of 3.1 and 1.4 per cent in the two previous reporting periods.
A few land sales were recorded in the Antigonish area in 2010, with a “limited number” of bare land sales, FCC said. Field crops, fruit, and livestock production were steady in the Kentville area of the Annapolis Valley, but the low amount of dairy quota available for purchase limited expansion in the dairy sector there, reducing pressure on land prices.
British Columbia farmland values increased an average of 0.4 per cent during the second half of 2010, after slipping 0.9 per cent during the first half of 2010 and flatlining in the second half of 2009, FCC said. The Peace River region saw a “more active” market, but mainly in areas close to the communities of Dawson Creek and Fort St. John due to strength in the natural resource sector. “This helped fuel incremental farm expansion by operators who also work off-farm,” FCC said.
Elsewhere in B.C., continued slow economic conditions, a high Canadian dollar and low to average commodity prices, particularly for blueberries, “all contributed to a lower demand for land and less expansion of existing operations,” FCC said.
In Newfoundland and Labrador, farmland values were unchanged during the second half of 2010, following a 0.7 per cent increase in the first half of last year and no change in the last half of 2009.
A trend to larger dairy herds has spurred a need for more forage land in the east of the province, but FCC saw less competition for agriculture land in the province’s west, where dairy farms, the main ag sector, mostly had “adequate land holdings to support their activities.”
Across the country, “Canadian land values are strong and, looking at world markets in our current financing environment, there are factors in place that could exert further upward pressure on the price of farmland,” Jean-Philippe Gervais, FCC’s senior agriculture economist, said in a release.
“Rising incomes and population growth in emerging countries is increasing the demand for ag commodities at a time when global cereal stocks are low, production conditions in some major grain producing countries could potentially be challenging and the availability of quality farmland worldwide is limited,” he said.