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Alberta land prices continue to soar

Farm cash receipts were a ‘pleasant surprise’ last year and that kept upward pressure on land prices

It was another big year for Alberta and Canadian farmland prices, according to Farm Credit Canada’s annual survey.

On average, provincial farmland prices jumped by 11.6 per cent, the ag lender said in its 2015 Farmland Values Report while nationally they rose 10.1 per cent.

But there are a lot of variations across the province, said Dave Weber, a valuations and agrology specialist with Serecon, an Edmonton agricultural consulting and management company.

Dave Weber

Dave Weber
photo: Supplied

“Cultivated land is still showing some fairly strong increases,” said Weber, who lives in Castor and farms part time. “Around the cities where there is recreational appeal or it has been residential (expansion pressure) in the past, that’s where we are seeing some softening.

“We’ve got two different trends going on: Agricultural land in rural areas, especially in the productive areas, is continuing to show good strength. Less productive land and more urban surroundings are showing some weakness.”

Like the rest of Canada, Alberta farmland has been growing by double digits for several years, but the pace of those increases is slowing, said Farm Credit Canada’s chief economist.

“Nobody knows what farmland values are going to look like in 2016,” said J.P. Gervais. “For me it’s about giving the message that, from a risk management standpoint, make sure if you’re looking at buying some land it makes sense at the margin… that you can cash flow it… and have a strong ability to repay the loan you’re using to buy that land.”

farmland-values-report-2015.jpg

Weber also said that it’s difficult to predict what will happen to prices this year.

“A year ago, I would have thought that we would have seen things stalling a little more than what we have,” he said. “There certainly are sales that we’ve been finding that are showing that in a number of areas, there are increases occurring.”

Gervais said he thinks prices will go up two to four per cent this year — which would be in sharp contrast to American Corn Belt prices, which have already fallen five to six per cent and expected to drop further. But he stressed that averages can be deceiving. For example, 50 per cent of FCC’s benchmark acres in Saskatchewan saw little or no increase or even a slight decrease in value in 2015 even though the provincial average was up 9.6 per cent, Gervais said.

Long climb

The 11.6 per cent jump in Alberta farmland prices in 2015 follows a string of big annual increases — 8.8 per cent in 2014, 12.9 per cent in 2013, and 13.3 in 2012.

“The continued positive outlook on agriculture resulted in many producers purchasing land for expansion or to support succession planning,” FCC said in its summary for Alberta. “Agricultural land price increases were observed in northern, eastern and southern portions of the province, largely due to strong pulse crop prices. Continued strength in beef prices resulted in increased demand for land used for grazing in cattle-producing areas as well.”

Bountiful farm cash receipts and low interest rates are the primary drivers in recent years, Gervais said. And while FCC had predicted lower farm cash receipts in 2015 in the wake of burgeoning global grain stocks and falling prices, farm revenues were a “pleasant surprise,” and could turn out to be a record once all the data is in, he said.

The low loonie has been a big factor.

“The current exchange rate is expected to be supportive of commodity prices,” said Weber. “Because farm revenue is considered to be one of the factors that influences farm values, the lower value of the Canadian dollar is expected to be a positive influence on farmland values.”

However, the dollar has been climbing, up about 15 per cent since the start of the year.

“I think the key for us is to see a dollar that’s not going to move up too fast,” Gervais said. “I think that producers are still able to produce a profit, on average, (and) that really relies on the Canadian dollar staying in that 75- to 80-cent range.

“If there’s a risk out there I would say it’s with respect to the Canadian dollar and the ability for producers to produce a positive profit.”

Some observers worry the rapid rise in Canadian farmland prices is a bubble that could burst. But Gervais said the ratio of farmland values to farm cash receipts is close to those of the last 50 years.

“What this suggests to me, given the (cash) receipts, given where interest rates are, farmland valuations rest on sound economic arguments,” he said.

“Overall I think valuations are in line with what we find for economic trends in the marketplace. But definitely there are areas to monitor in terms of risk and income coming down is one of them and interest rates — not in 2016 but down the road — are something we are monitoring.”

Weber takes a similar stance.

“The dollar and the economy is reflected in the reason why some of the land around urban areas or recreational land is showing a weakness,” he said. “As far as agricultural land goes, it’s supported by revenue and commodity prices are still fairly decent, so we’re still seeing that carrying on.”

— with staff files


Wide range of farmland prices in Alberta

Here are some examples of Alberta farmland prices from Dave Weber, a valuations and agrology specialist with Serecon, an Edmonton agricultural consulting and management company.

The figures are per-acre averages and prices can vary considerably according to a parcel’s productivity as well as factors such as whether a large block of land is being sold and its proximity to an urban centre.

  • Irrigated land around Taber: $7,000
  • Lacombe County: $5,000
  • Ponoka, Leduc, Rocky View and Parkland counties: $4,000 to $5,000
  • Highway 2 corridor and east to Highway 21 (includes Mountain View, Red Deer, Stettler and Camrose counties): $3,000 to $4,000
  • East of Edmonton (such as Lamont, Beaver, Three Hills): $2,000 to $3,000
  • Southern Alberta dryland: $2,000 to $3,000
  • Peace Country (more productive land): $2,000 to $3,000
  • Peace Country (less productive land): $1,000 to $2,000

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