Canadian farmland values continue to grow, but at slower pace

Canadian farmland values grew at their slowest pace since 2010 last year, according to a report released Monday by Farm Credit Canada (FCC).

In its annual FCC Farm Values Report, FCC reported that land values across the 10 provinces of Canada rose by an average of 7.9 percent in 2016, compared with 10.1 percent growth in 2015. Last year’s growth represented a more than 60 percent decline from highs seen in 2013, when values rose by more than 20 percent.

Despite the slowdown, market observers said that the report highlights the privileged position of Canadian farmers relative to their counterparts in the US, where farmland values fell for just the second time in two decades last year.

The report’s author, FCC vice president and chief agricultural economist J.P. Gervais, told Agri Investor that farmers’ earnings were the key factor supporting continued growth in Canada. While US farmers have seen three years of declining income in the face of low commodity prices, their counterparts in Canada have reported earnings at or near record highs, he noted.

Exchange rates have also played an important role, Gervais said, highlighting that most agricultural commodities Canadian farmers sell are priced in dollars, so the Canadian dollar’s effective depreciation relative to the US dollar has moderated the impact of low prices.

Tom Eisenhauer, president and chief executive officer of Canadian farmland investor Bonnefield Financial, told Agri Investor that he was reassured by FCC’s report, which he believes accurately reflects that “rationality has returned to the market.”

“The long-term average growth in Canada of farmland values on average, if you go back 60 years, is between 7 and 8 percent,” he said. “I think [this represents] a healthy reversion to the long-term mean.”

However, Eisenhauer estimated that institutional investors account for just 1 percent of farmland purchases in Canada. Gervais agreed, noting that “non-traditional” buyers still play a very small role in the overall market, with their influence most apparent in specific regions, including Saskatchewan, Ontario and Quebec.

But continued strength in farmer earnings and underlying land values, particularly compared to those in the US, could attract these types of investors moving forward, he added.

“We have a well-balanced farmland market and that stability is not going away,” he said. “The stability of the asset is something that will remain interesting moving forward. That’s good for producers and that’s good for [others] within the ag sector.”