Canadian farmland values finally bounce back

Farmland values in Canada grew by an average of 8.4 percent last year, reversing a downward trajectory of slowing growth that began in 2014, according to Farm Credit Canada.

In its 2017 Farmland Values report, released Monday, FCC wrote that the pace of farmland value growth in 2017 accelerated from the 7.9 percent pace experienced in 2016. After increasing by 22.1 percent during 2013, growth had slowed to 14.3 percent in 2014 and 10.1 percent in 2015, according to the report.

Derived from monitoring benchmark properties throughout the 2017 calendar year, the report showed that farmland values increased in all provinces, ranging from 2.7 percent growth in British Columbia to 10.2 percent growth in Saskatchewan.

The report’s authors stressed that conditions vary widely between regions and provinces while warning that the markets could cool in 2018.

“Some of last year’s average farmland value increase may also be a result of timing as most provinces recorded a faster pace of increase in the first six months of the year, while interest rate increases didn’t occur until the latter half of 2017,” the report’s authors wrote.

FCC vice-president and chief agricultural economist J.P. Gervais told Agri Investor that while non-traditional, financial buyers are present throughout Canada’s farmland markets, because FCC does not lend to them, his direct view of their activities is limited.

Gervais said he is aware that investor types including farmland funds, insurance companies, high-net-worth individuals, pension funds and others are active in the market and the source of much conversation among Canadian farmers.

Concerns that the presence of financial investors could complicate access to farmland for young farmers was the subject of a March report by the Canadian Senate’s Standing Committee on Agriculture and Forestry. Subtitled How to Keep Farmland in the Hands of Canadian Farmers, the report summarized concerns arising from the rising prices of recent years. It also suggested steps to facilitate greater access to farmland among young Canadians including coordinated research, increasing the amount of lifetime capital gains exemption for qualified farm properties and enhancing tools for tracking land transactions.

While there are specific regions, such as Quebec and Ontario, where financial investors are likely having more of an impact, Gervais said transactions between farmers continue to predominate in determining the market’s direction.

One factor Gervais suggested might be related to the presence of financial buyers is the fact that the ratio of farmland price to farm income has continued to increase at a time when farm income in Canada is not climbing as fast as in previous years.

“I get asked: ‘Is this normal? Is this something you would anticipate?’ I say yes, given the low interest rates; interest rates still have been very low, despite the fact that they started to go up in 2017 in Canada,”  Gervais said. “I think it speaks to the outlook for ag, that remains extremely positive.”