FCC Farmland Value Report for 2021

FCC Farmland Value Report for 2021
Mar 14, 2022

Neither fire, drought, flooding or supply chain issues can put a damper on Canadian farmland values.

By Andrew Joseph, Farms.com

The just released Farmland Values Report from Farm Credit Canada (FCC) indicates an 8.3 percent weighted national average increase in values for 2021—despite huge impacts from adverse weather and supply chain disruptions caused by the COVID-19 pandemic.

Examining farmland values in Canada between January 1 through December 31, 2021, the Farmland Values Report showed that despite all of 2021’s inherent problems, it still rose more than the 5.4 percent increase seen in 2020; 2019 was 5.2 percent.

“The low interest rate environment and favourable commodity prices seem to have offset some of the many challenges that could have been expected to restrain the demand for farmland and the price producers are willing to pay for land,” said J.P. Gervais, Chief Economist for the FCC. “It’s a testament to the resilience and business confidence of farm operators who are largely driving this strong Canadian farmland market.”

Ontario and British Columbia led the way with farmland value increases of 22.2 and 18.1 per cent, respectively.

Provincial Increases:

  • Ontario – 22.2%;
  • British Columbia – 18.1%;
  • Prince Edward Island – 15.2%;
  • Nova Scotia – 12.3%;
  • Quebec – 10.0%;
  • Manitoba – 9.9%;
  • Saskatchewan – 7.4%;
  • New Brunswick – 5.2%

Publicly reported farmland sales were insufficient to fully access values in: Newfoundland and Labrador; Yukon; Northwest Territories; and Nunavut—based on supply and demand, of course.

Gervais noted that the Canadian ag industry still faces uncertainty owing to labour shortages, supply chain disruptions, geopolitical tensions, farm input inflation and incremental interest rate increases, all of which are expected in 2022. However, the FCC is also forecasting receipts of grains, oilseeds, and pulses in Canada will increase in 2022, fueled by strong demand and tight global supply.

It’s no surprise that farmland values increased again in 2021—the national average has done so every year since 1993. But, between 2011-2015, the increases were certainly more pronounced, with only single-digit increases reported since 2016.

The provinces of Ontario and British Columbia have through 2021 and into 2022 experienced extremely high real estate prices as reported by the media—but note that that was for urban real estate homes. It is interesting that the two provinces continued to lead the way also with increased farmland values.

Gervais explained to Farms.com that the Ontario increase is somewhat related to the urban housing market’s buying onslaught, noting that along with part-time farmers and others purchasing from non-traditional sectors have led to the increase. “It’s a diversity of buyers in Ontario that stand out to me,” said Gervais. “But there’s no one factor. It’s a whole range of factors.”

The increase in Ontario farmland values has quadrupled its 2020 value of 4.7 percent, while BC more than doubled its farmland value over the year previous, owing to limited supply of available farmland, and proximity to urban areas pushing up land values. Including Quebec, to a lesser extent, hobby farms also contributed to the impact of the pool of buyers.

With a much smaller farmland market, PEI’s average increase was more pronounced from one year to the next.

The report noted that Prairie farmland markets were tempered by the adverse dry growing conditions seen in 2021 – but impact wasn’t considered to be heavy on sales or land prices, though the situation will be monitored in 2022.

“Sharp increases are often a result of local market conditions coupled with relatively favourable economic conditions,” stated Gervais. “For areas that reported significant increases, strong demand for a limited supply of land played a key role in bumping up values.”

The report said that producers in many regions were buying or selling land to gain operational efficiencies and to support family farm succession plans, both of which contributed to a strong farmland market in Canada.

In Quebec, Nova Scotia and New Brunswick, the favourable growing conditions was a key factor in the increases in farmland values seen there.

Gervais said that producers should have and maintain a risk management plan that takes into account possible economic changes, to ensure their budgets have room to flex if commodity prices, yields or interest rates shift. Producers also need to exercise caution, especially in regions where the growth rate of farmland values exceeded that of farm income in recent years.

He indicated that the war in Ukraine will impact volatility in 2022, as will Bank of Canada increases to elevate borrowing costs with regards to financial risk management.

FCC is Canada’s leading agriculture and food lender, with a healthy loan portfolio of more than $44 billion. It also shares agriculture economic knowledge and forecasts, providing insight and expertise to help those in the ag sector. For more information and insights, visit https://www.fcc-fac.ca.

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