By Richard Kamchen, Farm Credit Canada.
“Producers build equity in land: this is frequently their retirement plan, and so increasing values over time is a good thing,” says Brenna Grant, manager of Canfax, a division of the Canadian Cattlemen’s Association.
“Healthy” crop receipts and low interest rates sustained continued farmland appreciation in 2015, explains J.P. Gervais, FCC’s chief agricultural economist.
The shrinking increases in farmland values reflect crop receipts possibly reaching the top of their cycle, he adds.
Average farmland values rose in all provinces, with Manitoba leading the way with a 12.4 per cent increase. Alberta followed at 11.6 per cent and Quebec at 9.6 per cent.
Strong pulse prices drove gains in Alberta, and Saskatchewan land price rises were greatest in lentil growing areas.
Canola and wheat were leaders during the grain price boom, but since then, their values have declined while pulses have risen, explains Canadian Canola Growers Association president Brett Halstead.
A higher number of locales in Canada experienced sliding land values, FCC says. Most significantly, almost half of Saskatchewan saw land prices remain stable or even decrease slightly.
A more widespread decline in future would be troubling given farm liabilities have increased along with land values, Grant says.
“The concern is that if land prices decline... that equity levels would fall, and this would create financial pressure on operations,” she says.
Slower, stable future growth
Farmland values could see stable long-term annual increases of two to four per cent, possibly starting as soon as 2016, Gervais says. He tied the slower projected rate of land value growth to the likelihood of smaller rates of both crop receipt increases and interest rate cuts.
Gary Stanford, president of the Grain Growers of Canada, would welcome more gradual growth. While the years of significant land price escalations have benefitted retiring farmers, it’s also made it difficult for young producers who are entering farming or expanding their operations.
Grant says double-digit land value growth can be especially prohibitive for those in the beef industry.
“They’re not just expanding their herd and buying breeding stock, they also have to buy the land to support that breeding stock,” she says.
The full Farmland Values Report is available here.