High prices of farmland translates to higher rental rates

Farmland rental rates are keeping pace with the value of farmland across Canada.

Farm Credit Canada (FCC) provides a rental rate analysis for all cultivated farmland from data on cash rental rates and the Farmland Values Report.

The analysis provides a detailed breakdown of rent-to-price ratios by province, highlighting variations in rental rates and farmland appreciation across different regions.

When the ratio is lower it assumes cash rental rates are appreciating at a slower pace than land values. An increase in the ratio indicates that rental rates are increasing faster than land values.

FCC chief economist J.P. Gervais said the national rent-to-price ratio in 2023 was 2.52 per cent which was a slight decline from 2022.

He said it was important to note Saskatchewan, Manitoba, and Quebec had 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,” Gervais said. “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.”

Ontario and select Atlantic provinces had rental price agreements moving at a slower pace compared to farmland values.

In the end, producers should evaluate the trade-offs between renting and purchasing land, Gervais said.

“Considering factors such as cash flow, financing options and growth potential, ultimately, the decision should align with their long-term strategic objectives, financial capabilities and risk tolerance,” he said.