Farmland rental rates keeping pace with farmland value appreciation: FCC analysis

There is alignment between farmland rental rates and the appreciating value of farmland across Canada according to a new analysis from Farm Credit Canada (FCC).

The farmland rental rate analysis presents the rent-to-price ratio for cultivated farmland in Canada. The ratio leverages insights from data sets on cash rental rates and the Farmland Values Report. A ratio trending lower suggests cash rental rates are appreciating at a slower pace than land values. Conversely, an increase in the ratio indicates that rental rates are increasing faster than land values.

The national rent-to-price ratio in 2023 was 2.52%, reflecting a negligible decline from the previous year. Notably, the three provinces that recorded the highest farmland value increases in 2023, Saskatchewan, Manitoba, and Quebec, also saw increases in rental rates, maintaining stability in rent-to-price ratios.

“There are challenges that come with buying land amid increasing land values and elevated interest rates,” said J.P. Gervais, FCC’s chief economist. “Renting land can serve as a strategic way for new entrants to get established or grow their operations without being burdened with all the upfront costs that come with land purchases.”

The analysis provides a detailed breakdown of rent-to-price ratios by province, highlighting variations in rental rates and farmland appreciation across different regions. Notably, provinces like Ontario and select Atlantic provinces have witnessed divergent trends, with rental price agreements evolving at a slower pace compared to farmland values.

“In regions where farmland values have outpaced rental rates, renting land emerges as a suitable option for producers seeking to optimize their cash flow and operational flexibility,” Gervais adds.

“Producers must carefully evaluate the trade-offs between renting and purchasing land, considering factors such as cash flow, financing options and growth potential,” advises Gervais. “Ultimately, the decision should align with their long-term strategic objectives, financial capabilities and risk tolerance.”

By sharing agriculture economic knowledge and forecasts, FCC provides solid insights and expertise to help those in the business of agriculture and food achieve their goals. For more economic insights and analysis, visit FCC Economics at fcc.ca/Economics.

FCC is Canada’s leading agriculture and food lender, dedicated to the industry that feeds the world. FCC employees are committed to the long-standing success of those who produce and process Canadian food by providing flexible financing, AgExpert business management software, information and knowledge. FCC provides a complement of expertise and services designed to support the complex and evolving needs of food businesses. As a financial Crown corporation, FCC is a stable partner that reinvests profits back into the industry and communities it serves.