Southwestern Ontario farmland prices up modestly
Authored by Valco land appraiser and partner Ryan Parker, the annual study – which analyzes agricultural land sales in the counties of Huron, Perth, Middlesex, Oxford, Elgin, Kent, Lambton, Essex, Bruce, Grey, Waterloo and Wellington – showed land prices in calendar year 2016 increased an average of 5.8% from a year earlier to $12,236/acre.
That narrowly beats the 5.34% increase the same report observed in 2015, but falls well short of the annual spikes of roughly 18%, 28% and 21% seen in 2011, 2012 and 2013, when a combination of low interest rates and strong commodity fueled rabid demand and sharply higher land prices. Indeed, since the last big jump in 2013, southwestern Ontario farmland price increases have only ranged from 4 to 5% per year.
Parker said the main reason for the overall slower growth of land values in 2014, 2015 and 2016 has been lower commodity prices. At the same time, however, the relatively low Canadian dollar has provided an excellent basis for Ontario producers and has allowed for profit margins to exist. “This good basis has been a major factor in 2015 and 2016 land values continuing to be strong.”
Meanwhile, some local farmland values actually declined this past year. In Perth County for example, the report found average sale prices were down almost 3% in 2016, while prices in Lambton and Grey counties dipped 0.88% and 0.56%, respectively. In contrast, the average per acre price in Waterloo County raced 23.5% higher in 2016, followed by a 12.55% increase in Bruce County. In most of the other counties studied, the annual gains ranged anywhere from about 2% to 5%.
“Regardless of the area or the perceived direction of land values in certain areas, a major theme in 2016 was the variability of land values,” the study said. “This variability has become prominent in the last few years with the range in values widening significantly in many areas. In many of the counties that have been studied in 2016, both the top and bottom end of the ranges have expanded resulting in a larger overall range.”
Canadian interest rate policy will remain the largest indicator of land value trends moving forward, Parker said, noting the Bank of Canada could be pushed into bumping interest rates higher on this side of the border if the U.S. Federal Reserve continues to raise its rates.
Looking ahead, Parker said he expects the current trend of modest year-over-year growth in farmland values to continue. Variability is likely to remain prevalent in most areas, although he added that “steady, yet cautious demand” will likely close the range between the low and high values in each area over time.
Source: Syngenta Canada