The red-hot market for farmland is showing signs of cooling off.
“The more recent sales are still showing some increase, but the increases aren’t what they have been previously,” said Dave Weber, an appraiser with Serecon, an agricultural consulting company.
Alberta farmland values were increasing about one per cent a month during 2011 and 2012, he said. In early 2013, the rise in prices started to slow and by the second half of 2014, land was only going up by 0.3 per cent a month.
Serecon’s numbers are similar to the numbers reported by Farm Credit Canada. In its latest survey, Alberta farmland increased an average of 8.8 per cent in 2014 — a significant change from the sizzling gains of 12.9 per cent in 2013 and 13.3 per cent in 2012.
“Farm gross revenue is a major factor in land prices and over the past few years, grain prices have been good and yields have been high,” said Weber, who is based in Calgary.
Given that grain prices have softened and aren’t forecast to rebound any time soon, he foresees two potential scenarios in the coming years.
“The recent decline in oil price won’t necessarily impact land values, but if it carries through over a while, the effect on the economy will affect land values,” said Weber. “If commodity prices trend downwards over a number of years, interest rates rise, there isn’t an improvement in oil prices, and the economy starts rolling down, there could be a drop in land values. If we stay with the status quo, we’ll see a slow and steady rise over the next few years.”
Large farms getting larger is still a strong driver.
“As farmers continue to expand their operations, it’s going to be supportive of land values,” said Weber.
The most expensive land in the province can be found along the Highway 2 corridor and around Lethbridge, with demand for irrigated land especially strong. Expansion also fuelled a sharp rise in the Peace in 2014, but dry conditions and a reduced harvest had tempered that rise by year’s end.
Another factor is retired farmers who would rather rent than sell their land. The number of rented acres has increased over the past few years, and so when something comes up for sale, there can be a number of motivated buyers.
But perception of scarcity can change very quickly, said Weber, noting the 2008 recession hurt prices. So he recommends producers keep a watch on listings in order to gauge the market.
“During the recession there wasn’t a ton of sales,” he said. “If a large amount of farmland does become available and the listings expire without selling, it may be an indication that there might be some change in land values.”
High beef prices have increased the demand for pasture, especially in the central to northern-east portions of the province, and some marginal land that went into crops during the boom times may return to grass.
“If the beef herd increases, the ratio between pasture and cropland will diminish,” said Weber.
Finally, even though land prices have shot up, farm revenue has increased as well. In 2005-06, land was selling for about 4.5 years’ worth of the gross farm revenue it could generate. Today, it takes about 3.5 years of gross farm revenue.
Weber will be giving a presentation on Alberta farmland values at the Alberta Agricultural Economics Association’s Vision 2015 conference in Red Deer, which runs April 30-May 1.