Farmland fundamentals potentially bearish: FCC

Having tracked more double-digit percentage increases in Canadian farmland prices through 2015, Canada’s federal farm lender sees factors lining up for those values to retreat.

Farm Credit Canada’s latest Farmland Values Report, released Monday, logged a 10.1 per cent increase in average farmland values in Canada in 2015, down from a 14.3 per cent rise in 2014 and 22.1 per cent in 2013, based on values at benchmark properties from coast to coast.

A relatively strong ag sector, with strong crop receipts from 2010 to 2013 and low interest rates, helped support the increases seen in 2015 and preceding years, FCC’s chief agricultural economist J.P. Gervais said in a release.

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However, he said, farmers today are seeing lower commodity prices offset by low interest rates and a weak dollar, making for “a real tug-of-war between competing factors that influence farmland values.”

A weaker Canadian dollar, he said, makes exports more competitive and helps producers receive better returns on U.S.-prices commodities. It also continues to support farmers’ profit margins — and the demand for their commodities.

“The best-case scenario would be for the average value of farmland to reach a point of long-term stability, where any future increases or decreases are modest and incremental,” Gervais said.

Manitoba saw the largest jump in average farmland prices in 2015, at 12.4 per cent, up from 12.2 per cent during 2014 and 25.6 per cent in 2013 and 2012, FCC said.

Cropland in Manitoba was bought mainly by local producers expanding their farming operations as the next generation enters the industry, FCC said, while livestock producers in the province’s southeast expanded their operations and took on more land for manure management and crops. The oil sector’s slump hasn’t yet affected land prices in Manitoba’s southwest, FCC added.

Alberta booked the next largest increase in average farmland prices in 2015, at 11.6 per cent, the lending agency said. Price increases were seen in the province’s northern, eastern and southern farming regions, due mainly to strong pulse crop prices, while beef prices in 2015 spurred demand for grazing land.

Some areas in Alberta, however, “started to reflect the impact of the downturn in the resource sector or appeared to have reached the point where the demand for cultivated land lessened,” FCC said.

In Quebec, where average values rose 9.6 per cent, compared to the 27.4 per cent jump seen in 2012, the “most sustained demand” for farmland was observed in the Monteregie, Lanaudiere, Basses-Laurentides and Centre-du-Quebec.

“Non-traditional buyers” contributed to demand in certain areas of Quebec, mainly on lower-priced land, but FCC said farmers — mainly crop producers and supply-managed dairy, egg and poultry producers — remained the main buyers in the province.

In Saskatchewan, “limited” amounts of land on the market supported a 9.6 per cent increase in average land values in 2015, down from an 18.7 per cent hike in 2014 and 28.5 per cent in 2013.

The greatest increases, FCC said, were seen in values in areas where lentils, among other pulses, can be grown. Land on Saskatchewan’s “urban fringe” also rose in value, while the southeast saw values under some pressure as the energy sector’s slump eats into off-farm income. Lower prices in other crops and unco-operative weather in the growing season also ate into demand.

The next largest increases in average land values in 2015 were seen in Prince Edward Island (up 8.5 per cent, with values up across all areas of the province) and Newfoundland and Labrador (up 7.7 per cent after four straight flat years, as livestock producers sought land to grow feed rather than import from other provinces).

Ontario, British Columbia and Nova Scotia saw increases of 6.6, 6.5 and 6.3 per cent respectively, with the most notable hikes in Ontario’s Haldimand, Kent, Oxford, Stormont and Prince Edward counties, B.C.’s Kootenays and western Nova Scotia.

In New Brunswick, where average values rose 4.6 per cent, land in the west-central potato belt and southeast dairy region rose in value. Values were seen dropping in the province’s northwestern potato belt, mainly on “marginal” farmland and on parcels seen as more difficult to work.

Overall, despite recent strong performances in the ag sector, “agriculture will always be cyclical, so producers should be prepared for the ups and downs along the way,” Corinna Mitchell-Beaudin, FCC’s chief risk officer, said in Monday’s release.

Farmers, she said, “are encouraged to identify key risks and available solutions to manage these risks” — for example, softening of farmland values and/or future hikes in interest rates. — AGCanada.com Network

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