Canadian Farmland Values Rise Again, Says FCC
November 16, 2011
According to a new Farm Credit Canada (FCC) Farmland Values Report, the average value of Canadian farmland increased by 7.4% during the first six months of 2011, following gains of 2.1 and 3.0% in the previous two six-month periods. The FCC report provides important information about changes in land values across Canada and is available at www.farmlandvalues.ca.
Farmland values remained stable or increased in all provinces. Saskatchewan experienced the highest average increase at 11.6%. The Saskatchewan results appear to mirror the U.S. situation, where double-digit increases in farmland values have been reported in several corn and soybean states. Two contributing factors to the current value increase are the ongoing strength of commodity prices, combined with land values that previously increased at a slower rate than in other areas of the country.
"Farmland is more than a production resource – it's a source of wealth for farmland owners. So it's not surprising that changes in the price of farmland generate interest from producers and others in the industry," says Michael Hoffort, FCC Senior Vice-President of Portfolio and Credit Risk. "The upward trend in farmland values appears to have accelerated. Canadian farmland values have risen steadily during the last decade." Previously, the highest semi-annual average national increase was 7.7% in 2008. The last time the average value decreased was in 2000, when it dropped by -0.6%.
The average national price of farmland has increased by about 8% annually since the commodity price increase began in 2006. That's about twice the rate observed in the first part of the decade. Near-historic highs in crop prices and lows in interest rates are other factors supporting higher land prices.
"Low interest rates, good crop prices in recent years, along with low returns in financial markets mean farmers are buying more land," says Jean-Philippe Gervais, FCC Senior Agriculture Economist. "These three factors combine to increase demand for land and push prices up. As long as crop prices continue to be strong, farmland values should remain high."
"Agriculture matters to Canadians and the positive overall health of the industry is definitely being reflected in recent land value trends," says Hoffort. "It is an indicator of the industry's strength, and it is good news for producers who hold land as an asset. At the same time, it can be a challenge for those who want to buy farmland to expand their operation. That's why we offer loan products that can help young farmers buy land."
"Producers often ask if they should purchase land now while prices are trending upward or wait to see if they come down. The answer is that it depends. Sound information and an assessment of personal risk tolerance can help make the decision easier. The next six-month report will be very interesting," says Richard Hayes, FCC Senior Director, Valuation.
- Source: Marketwire, FCC
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