Factors affecting Ont. farmland prices

Factors affecting Ont. farmland prices
Mar 26, 2020

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A land appraisal specialist examines agricultural land value changes in counties across southwestern Ontario

By Kate Ayers
Staff Writer
Farms.com

Although much of southwestern Ontario posted strong farmland prices in 2019, fewer sales occurred than in 2018, a recent study found.

Ryan Parker, a partner at Valco Consultants in London, Ont., published his annual Southwestern Ontario Land Values study in March. In the report, he discussed the positive and negative factors that affected the farmland market in 2019. 

“In general, farmland prices have increased annually forever (or as long as there has been data) except for a couple small periods of time,” Parker said to Farms.com.

“Factors affecting that general increase include supply and demand, increased yields, technological advancements, etc. However, the biggest spikes and drops in recent history have been a result of changing interest rates and the corresponding change in lending policies.”

In 2019, interest rates, livestock density and non-farmer demand for land were three positive factors that affected the land market, Parker wrote in the report.

Lower interest rates over the past few years and the solid probability that these rates will remain low in 2020 play a role in keeping farmland market values high, the report said. Favourable lending policies also allow farmers to expand their operations amidst rising land prices.

Livestock density has affected land prices in Huron, Perth, Oxford and Wellington counties. In these areas, livestock farmers look to expand their operations because they need larger land bases for manure management and feed production, the report said.

Investors and urban residents also continue to buy land in rural areas, driving up farmland values, the report said.

Residents in the 11 counties that Parker observed saw an average increase in farmland values of 5.68 per cent from 2018 to 2019, the report said. Southwestern Ontario’s median land value is $14,458 per acre.

Between 2010 and 2019, Bruce County’s land values have risen the most, with an average increase of 15.03 per cent over the period. Essex County land values have increased the least, with an average increase of 7.90 per cent.

The land market this year will likely be comparable to conditions in 2019, Parker said in the report. However, the black swan of the COVID-19 pandemic could inject uncertainty into the market, he noted.

Over the last 12 to 18 months, many sectors have also experienced a decrease in profitability, which may affect land prices, the report said. For example, beef farmers are dealing with reduced packing capacity, resulting in thin margins. Cash crop producers face lower commodity pricing and challenging weather.

An appraisal is the best tool to assess an accurate fair market value of a farm, Parker suggested.

“The market value of farmland is determined by analyzing sale prices of comparable farms,” he explained.

vm/iStock/Getty Images Plus

 

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