Farmland Values Tick Higher Through First Half of 2023

Even in the face of rising interest rates and economic uncertainties, Canadian farmland values have shown impressive resilience through the first half of 2023.  

A Farm Credit Canada update on national farmland values Tuesday showed the average value of Canadian farmland (dryland) increased 7.7% through the first six months of this year. That is down from the 12.8% increase posted for calendar year 2022, as well as the 12.2% advance recorded for the July 2022 – June 2023 period but still relatively strong, all things considered. 

Saskatchewan had the country's highest average six-month farmland value increase at 11.4%, followed by Quebec with a 10.6% gain. Ontario and Manitoba witnessed similar first-half growth trends, with increases of 6.9% and 6.4% respectively. Alberta's growth was more tempered at 3%. British Columbia recorded no change. Due to a lack of sufficient sales data, the Atlantic provinces' average estimates will be provided at year-end. 

The growth in farmland values through the first six months of this year is particularly noteworthy given the economic backdrop. The Bank of Canada's policy rate hikes have driven borrowing costs to a decade-high, challenging farmers and other businesses nationwide. However, farm cash receipts have remained buoyant, defying the downward pressure on agricultural commodity prices. The latest forecast from FCC predicts farm cash receipts will rise by 6.6% in 2023. 

Two major forces are shaping the landscape, the FCC update said. On one side, the economic pressures, coupled with rising borrowing costs, have made farm operations wary of capital investments. On the flip side, the robust farm income and the scarcity of available farmland for sale have consistently driven land values upwards, it said. 

Beyond its national lead in growth, Saskatchewan's Northeast region shone, recording growth above the provincial average, attributed to the increased demand for moisture-retentive heavy clay soils amid low precipitation. 

For Ontario, FCC said its internal database of farmland transactions indicates a considerable decline in the number of sales in the southern region through the first six months of this year. Crop yields were above average this past year, leading to robust gross revenues and strong demand for farmland, it said. However, the situation thus far in 2023 for both western and southern Ontario is different, with high volumes of rain, which raises questions about the expected yield for this year and the outlook for farmland demand in the second half of the year.  

In Manitoba, FCC noted a shift away from the higher-priced land during the first six months of this year, while in Alberta it said the supply of farmland for sale remains tight.   

Looking ahead, the farmland market finds itself at a crossroads. Elevated interest rates, increased farm input costs, and uncertainties surrounding future commodity prices could dampen enthusiasm. On the other hand, the consistent demand, juxtaposed against limited farmland availability, seems to be keeping prices elevated, FCC said.