Average Alberta farmland prices were up three per cent in the first half of 2023, significantly below the Canadian average increase of 7.9 per cent.
The data, released in a Farm Credit Canada report on Oct. 3, shows the province is following a national trend.
“It’s not unexpected, given where we were at the end of 2022,” said FCC Chief Economist JP Gervais.
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“At the end of 2022, we had our first glimpse of higher interest rates, but with a limited supply of available land. It doesn’t take that many buyers to generate higher land values. And I think we got to go into that in 2022.”
Gervais says Alberta is where the data most closely matches his economic intuition.
“With increases of three per cent for the first six months, six per cent looking at the most recent 12 months, and 10 per cent for the previous 12 months, the pace of increase definitely seems to be slowing down in Alberta,” he says.
Like elsewhere in the country, Alberta is shifting growth away from higher-priced land.
“When you look at the average increases, the increases are higher for the lower-priced land-value areas, and when you look at the higher-priced lands, you’re seeing less of an increase when measured in percentage terms,” said Gervais.
FCC only looks at dryland in Alberta for its mid-year report.
“We don’t have enough transactions to accurately assess and measure the irrigated land markets,” explained Gervais.
In terms of projected and current farm income, Alberta is in a similar position as its prairie neighbours. It has been affected by the same weather patterns and drought conditions in 2021.
“Values are still going up as a function of the limited available supply and a positive, confident outlook for the long term,” said Gervais.
“We had this rebound in 2022 production after a difficult 2021 year and that’s pushed up revenues at the end of 2022, early 2023.
“Cattle receipts are high, which is a positive given all the challenges with regards to drought, but if you look at cash receipts for grains and oilseeds, it is up 24 per cent.”
An increase in cash receipts combined with a shortage of available land has maintained demand, while the higher cost of land in the province has dampened price increases.
“So, land values still continue to go up, but at a slower rate of increase,” said Gervais.
Saskatchewan saw the highest rate of increase across the country at 11.4 per cent. It was one of only two provinces (the other is Manitoba) that saw a significantly higher price increase in a 12-month span (July 2022–June 2023) compared to the last calendar year (January–December 2022).
Saskatchewan had growing conditions like the rest of the Prairies and income levels were roughly on par, but it is an outlier due to its proximity to Alberta.
“At the end of the day, Saskatchewan, in some areas, is still priced lower than it is in Alberta,” said Gervais. “I think buyers from outside the province might explain why demand seems to be a little bit higher.”
That is a function of the lower starting point for land values compared with other provinces combined with a positive outlook for farm income.
Average Manitoba farmland prices were up 6.4 per cent in the first half of 2023, slightly below the Canadian average.
Overall cash receipts were up 11 per cent in the first six months of the year compared to the first six months of 2022, with grains and oilseeds up 23 per cent.
“A year ago, that was roughly flat because we had challenges with the 2021 crop that was marketed in the first six months of 2022,” said Gervais.
There has also been some relief on input costs.
“So combined, I think that’s the reason why we have the increase that we have in Manitoba,” said Gervais.
While Ontario’s 6.9 per cent increase in land values was in line with the national average, the decline in volume of transactions stands out for Gervais.
“In Ontario, there are definitely fewer transactions. It’s one of the critical aspects we’ve seen. There’s no way for us to be aware of 100 per cent of the transactions, but the bottom line is that there is a significant decline in the number of transactions.”
Ontario also had a decline in farm incomes rather than the significant year-over-year increase seen in western provinces.
“For the first six months, grain and oilseed producers have seen a decline of three per cent in income,” said Gervais. “But that’s because the previous year was a really good year.”
In terms of farm income, Ontario had some healthy years in 2021 and 2022, particularly for grains and oilseeds, and none of the production challenges experienced on the Prairies.
“Higher interest rates and somewhat flat income for the first six months of 2023 explain why we’re seeing lower numbers for Ontario compared to what it was the previous 12 months,” Gervais said.
There remains a wide range of pricing across the province, with the southwest, central west and southeast regions leading in price per acre.
Elsewhere in Canada, British Columbia had no increase in farmland values in the first six months of the year. This is largely due to the high cost of agricultural real estate in the province.
At 10.6 per cent, Quebec had the second-highest growth rate in Canada over the last six months, with variability across regions. FCC did not provide data for the Atlantic region due to limited sales in its database over the first six months of the year.
Ever-decreasing supply is one factor affecting farmland values across Canada.
“Supply stands out to me as one of the things that we don’t talk about nearly enough and document nearly enough,” said Gervais. “When there is limited supply, there are limited options.
“A buyer looking at something available now might pull the trigger because it may not come back on the market for 40 years or so.”
Canada has seen several increases in the Bank of Canada interest rate over the past year, and Gervais said farmers shouldn’t expect any decrease in the short term.
“We’ve changed our forecast a bit recently. We pushed it later into 2024. We think there’s not going to be any relief from the Bank of Canada until very late in 2024. The battle against inflation isn’t over.”
Gervais said he expects the Bank of Canada to raise its overnight policy rate by another 25 basis points either later this year or early in 2024.
