Prairie farmland rentals seen holding steady, for now

FCC analyst James Bryan warns crop prices are expected to be lower by the 2014 harvest compared to the previous year’s. (Canada Beef Inc. photo)

CNS Canada — Farmland rental values in Western Canada appear to be holding steady this spring, according to three agricultural reps on the Prairies, but one analyst says prices could change by harvest time.

Although 2013 saw a record harvest across the Prairies, that hasn’t translated into an uptick in rental prices, said James Bryan, an analyst in strategy and agricultural economics for Farm Credit Canada.

“I don’t believe the impact (of last year’s harvest) on rentals has been that profound because it’s been very well covered that we have had lots of issues moving this grain and canola,” he said, noting the slowdown has essentially kept a lot of cash out of farmers’ pockets.

“A lot of it will be driven by crop prices, but it looks like for the 2014 year, by the time harvest comes around prices are going to be lower than they were last year,” he said, adding cash rental agreements are currently the dominant rental form across North America.

According to the 2011 census, 21.9 per cent of Canada’s agricultural lands were rented.

Rates vary across the Prairies; Doug Chorney, president of Manitoba farm group Keystone Agricultural Producers, estimated $40-$80 per acre as the most typical range for dry, non-irrigated farming land in Manitoba.

“I think there’s been pressure on rates to go up because land values have been rising,” he said.

Rates in Saskatchewan are holding steady, said Norm Hall, president of the Agricultural Producers Association of Saskatchewan.

“Things would have been different if the slowdown hadn’t happened,” he said.

According to Bryan, some farmland in Saskatchewan has been listed as low as $6.25 an acre, although he cautions that’s for very marginal land.

The typical spread in Saskatchewan can range as high as $140, he reported.

However, it appears Alberta is commanding the highest prices for rental land.

“For Enchant (southern Alberta) it’s $150 an acre to $200 an acre, Vauxhall you’re getting $200 to $250, at Taber you’re closer to $300 for irrigated land. That seems to be the range they’re running on,” said Lynn Jacobson, president of the Alberta Federation of Agriculture.

As profits improve, Chorney said, more producers are considering renting out their land.

“I know one landowner or farmer that quit farming because he just felt rent rates outweighed farming’s bottom line.”

Things could change if the Bank of Canada decided to hike its interest rate, said FCC’s Bryan.

The rate has held steady at one per cent since September 2010, but a rise would pressure farmland values “because your interest rate would go up and the amount people would be willing to pay would go down,” he said, adding it could also prompt people to sell the land they were renting.

“Movement downward”

Chorney also voiced caution, saying 2014 could wind up being a much different year than people expect.

“We’re setting up potentially for a cool start to the season and nobody knows what that’s going to translate into in terms of production… often memories are short and it drives a lot of this buying and renting frenzy that we’ve seen.”

Hall said he’s also noticed a lot of producers have been backing out of high-end rental deals due to the poor cash-flow situation.

“There’s pockets that had some good crops and were able to keep going right through that cash crunch, but there’s other areas that this is the first good crop in three years. They’ve backed off from the higher rent.”

Alberta also felt some pressure on rental prices, Jacobson said, but it seems to have eased.

“With the grain prices and where they went there was some movement downward in what guys were willing to pay for rent, so that slacked off a little bit.”

According to Bryan, the cash crunch hasn’t pushed prices downward so much; rather, it has kept things at an even keel.

“It will limit the amount people are willing to pay on the upward side.”

Renting land isn’t a sure thing, Chorney added.

“I mean if you’re selling land or renting it’s a good thing, but when you’re trying to run a business and consistently be profitable, volatility can be a real strain on your cash flow.”

— Dave Sims writes for Commodity News Service Canada, a Winnipeg company specializing in grain and commodity market reporting.

 

 

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