While the rate of increase appears to be slowing, average farmland values in Alberta continue to rise.
“Farmland values rose rapidly in the 1970s but were met with a substantial decline in the 1980s,” says Aaron Lawson, program assistant, Alberta Agriculture and Forestry (AF). “For the most part, prices recovered by the mid-’90s, and farmland as an asset class has performed well ever since. Average farmland values across the province in 2016 were over $2,500 per acre. It’s been a strong run when you consider that the last major peak in 1982, prices topped out around $470 per acre.”
According to Farm Credit Canada, the national rate of growth in farmland values in 2016 was 7.9 per cent. P.E.I. had the highest rate of growth followed by Alberta at 9.5 per cent.
“The higher-valued land is generally along the Edmonton to Calgary corridor and into southern Alberta,” says Lawson. “Counties such as Taber and Lethbridge held the highest average farmland values in 2016, reaching over $5,800 per acre. One of the main reasons for this is that these areas are mostly in the black soil zone. More productive soil can be higher valued. There are other spatial factors that influence the value of farmland as well, such as proximity to city centres and main thoroughfares as well as access to irrigation.”
Lawson says that market factors have a major impact on farmland values.
“We sometimes overlook the most obvious things. Simple supply and demand plays a large role in determining the price of an item in the marketplace. There’s only so much land in Alberta and the supply of farmland available for sale each year is limited, as indicated by our data on number of acres transferred. Less supply often means more upward pressure on prices.
Lawson says the per-acre revenue-generating potential is also an important driver of farmland values.
“The decision to purchase land is often a strategic one. Producers may be expecting stronger commodity prices in the future. On the other hand, they might be trying to scale their land base to their equipment, or purchase land close to their existing holdings where they might be able to farm at a lower cost.
“Interest rates have also had an impact on farmland values. Interest rates have been generally declining since the 1980s making land purchases more attractive and potentially more feasible for producers.”