Exploring farmland affordability trends through crop revenues

Demand for Canadian farmland was strong in 2021 as low interest rates and high commodity prices offset supply chain and weather disruptions’ influence on farm income. With the supply of available farmland for sale remaining tight, average farmland values increased 8.3%.

This post investigates land affordability by comparing annual land payments against gross revenue generated by different crop rotations in Ontario and Saskatchewan. While the general long-term directional trend for the two provinces is correlated, there are significant annual differences in affordability.

Calculating farmland annual payments
Most farmland is purchased with a combination of equity and debt. And the affordability of farmland is a matter of land prices, financing costs and farm revenues.

Consider a new land purchase with a down payment of 25% and a loan amortized over 25 years. To determine the farmland annual payment, we’ll use the effective average business interest rate (a weighted-average of market interest rates), which averaged 2.3% in 2021, down from 2.7% in 2020... Read More