It’s easy to get a case of land fever, especially when those acres are nearby and would fit nicely into your operation.
But to keep things in perspective, it helps to have an objective tool for gauging affordability.
In a recent article, a Farm Credit Canada economist recommends using the price-to-revenue ratio (the per-acre land price divided by average expected returns per acre ).
In the article, Leigh Anderson uses Saskatchewan and Ontario as examples. In the former, the average price-to-revenue ratio was just above 3.0 for the period 2006 to this year. For the first half of that span, the ratio was below that average but over the last few years shot up to around 4.0. In Ontario, the average price-to-revenue ratio is much higher (just above 12.0) and, again, has been higher than that in recent years.
But it’s now falling in Ontario because crop revenues are rising faster than land prices while in Saskatchewan, it’s flatlining as “strong increases in farmland values are matched with equally strong projected yields and prices,” Anderson wrote.
And then there’s Alberta.
“The exception is Alberta, where farmland values increased 4.9 per cent through the first six months (of 2020) and revenue is projected to increase by 3.8 per cent based on current market prices and production estimates,” Anderson wrote.