How to get a handle on farmland prices

Farm Credit Canada tracks percentage changes across the country, while Alberta Agriculture looks at dollar values in municipalities

Farm Credit Canada’s recently released Farm Land Value Report and a database created by Alberta Agriculture can go a long way to helping producers establish a land value, says a provincial farm business specialist.

“According to the new FCC report, Alberta’s change in farmland values was 11.6 per cent which was 1.5 per cent higher than the Canadian average,” said Ted Nibourg, noting the report is based on 245 benchmark farm properties across Canada.

“It’s important to know that the farm property monitored consists of bare land representing the most prevalent Canadian land inventory agriculture class soils. FCC’s appraisers estimate market value using comparables of arm’s length sales. As land prices vary considerably across the country, FCC reports percentage changes rather than average price per acre in order to track trends in land valuation.”

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Alberta Agriculture has tracked land values and acres transferred in the province since 1996. Rather than tracking on a percentage basis, its data is presented in dollar amounts for each municipality and reported by Canadian Land Inventory (C.L.I.) class. The AF data also reports provincial average land values by C.L.I. class going back to 1970.

“Both of these databases will give someone looking to establish a value on their land a starting point,” said Nibourg.

The provincial data shows many “peaks and valleys” in different municipalities.

“Local factors, such as supply and demand or productivity issues, play into land valuation,” said Nibourg. “Anomalies in prices per acre also show up in the data. These anomalies show up mainly in price differences among various C.L.I. classes. It’s not uncommon to see higher prices for land in lower-classed categories. This is an indicator that values are not solely based on productivity but rather could be attributed to proximity to major centres or based on recreational value.”

A useful method for arriving at land values that takes in productivity is capitalization analysis.

“Capitalization value is determined by dividing cash rent by the Government of Canada benchmark 10 bond yield. At the time of writing the bond rate was 1.54 per cent. As an example, a piece of land yielding 40 bushels of canola per acre, 80 bushels of barley, and 55 bushels of hard red spring wheat would economically justify a cash rent of about $72 an acre. Applying capitalization analysis would give a value of almost $4,700 an acre.”

Other factors affecting land values include buildings, improvements, size and contiguous property. Nibourg recommends hiring a qualified real estate appraiser specializing in farm appraisals. Lenders and law firms typically have a stable of appraisers and the Canadian National Association of Real Estate Appraisers is another source for finding one.

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