Canadian farmland values continued to tick higher through the first half of this year, although the longer-term outlook is uncertain given this season’s drought on the Prairies.
A mid-year review of farmland values conducted by Farm Credit Canada (FCC) showed the average value of Canadian farmland increased by 3.8% in the January-June 2021 period, little changed from the 3.7% gain seen during the same six months last year.
For the 12-months between July 2020 and June 2021, national farmland values were up 6.1%, slightly higher than the 5.4% gain FCC reported in March for the Jan. 1 to Dec. 31 2020 period.
“While the drought across most of Western Canada and the pandemic have captured most of the headlines, strong commodity prices and low interest rates have been quietly supporting a vibrant farmland market for the first six months of 2021,” J.P. Gervais, FCC chief economist, said in a release Tuesday. “Higher-than-normal prices for wheat, canola and corn have improved the profitability of many operations in the second half of 2020 and early 2021, putting them in a better position to invest in farmland as the opportunities arise.”
In general, Prairie and Atlantic provinces reported the most modest increases in farmland values for the first half of the year, while Ontario, British Columbia and Quebec had the largest increases.
Saskatchewan values for the January-June 2021 period were up 1.8%, while Alberta values were 3.7% higher and Manitoba values up 3.5%. In comparison, Ontario and Quebec farmland values jumped 11.5% and 8.1%, respectively.
For the July 2020 – June 2021 period, Ontario and Quebec farmland values climbed 15.4% and 13.7%, versus increases of 3.5% for Saskatchewan, 5.6% for Alberta and 6.3% for Manitoba.
Interest rates declined at the outset of the pandemic and remain historically low, which is also supporting the demand for farmland and weakening the supply of available land for sale in the market, FCC said. Meanwhile, buyers from different sectors are competing for the limited amount of land on the market.
However, FCC’s mid-year review admittedly does not capture the full impact of the drought which in many cases has lowered Prairie production by at least one-third or more.
“While many crop producers have benefited from the high commodity prices and have been able to take advantage of low interest rates to buy land, not everyone is in the same boat,” Gervais said. “The outlook for revenues is murkier for 2021 and 2022 given exceptional production challenges in parts of the country.”
Livestock producers, for example, have seen their cost of production increase and profits shrink as a result of the drought.
“The overall economic environment of the next 12 months bears watching. The possibility of higher interest rates, inflationary pressures and the demand for ag commodities could influence the demand for farmland,” Gervais said.
He recommended farm operators continue to exercise caution, especially in regions where the rate of farmland values growth significantly exceeded that of farm income in recent years. He also suggested operators maintain a risk management plan to protect their business from unpredictable circumstances.
Average farmland values have increased in Canada every year since 1993; however, increases were more pronounced from 2011 to 2015 in many different regions. Since then, Canada has seen more moderate single-digit increases in average farmland values.
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