He points out the rent-to-price ratio on cultivated land in Manitoba and Alberta is 2.4 per cent, while Saskatchewan is a little higher at 3.1per cent
"I think that's partially because the actual price of farmland is worth a little bit less than Saskatchewan. So the rental rate and then there's a bit more demand for rental properties there. So we see a little bit higher percentage."
The farmland rental rate analysis leverages insights from data sets on cash rental rates and the Farmland Values Report.
Rent to Price ratio analysis
Rent to Price (RP) ratio (measured in %) = Cash rental rate per acre / Value of cultivated farmland per acre
With FCC's ratio, trending lower suggests cash rental rates are appreciating at a slower pace than land values, while an increase indicates that rental rates are increasing faster than land values.
Overall, the price of farmland whether to buy or lease depends on the region, the soil type, if it is irrigated and the potential for the type of crop being grown.
Shepherd says there are a number of factors to consider when looking at making any land deal but it all starts with knowing your cost of production and evaluating the risk potential to see if it fits into your operation.
"Is it nearby existing land, or it allows them to diversify? Then there's also demand for rental agreements, where producers are able to expand their land base without taking on too much debt. Also as we show in the analysis there could be a potential cash flow advantage by choosing to rent over land purchases, at least in the short term."
J.P. Gervais, FCC’s chief economist says 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.
To hear Glenda-Lee's conversation with FCC's Justin Shepherd click on the link below.
Click here to see more...