It’s another good news story — especially if you’re selling farmland.
Despite the disruptions caused by the pandemic, Alberta’s farm economy was robust enough to fuel a six per cent jump in land prices last year. That’s the highest price rise between Quebec and B.C., and above the national average, according to the latest land price report from Farm Credit Canada.
“The national average of increase was 5.4 per cent in 2020, which compares to what it was in 2019 — 5.2 per cent,” said J.P. Gervais, FCC’s chief economist.
But the averages don’t tell the whole story.
For example, the Peace region saw an 8.2 per cent rise with an average price of $2,300 an acre, according to FCC data. You can find land for less than that in what FCC calls the northern region — an east-to-west slice of the province with Edmonton roughly in the middle — but prime land in that region can fetch $6,300 (or more).
But go a bit farther south and you really see a wide range: From a low of $2,100 to as much as $9,200 per acre with an average of $4,700 in central Alberta. That’s up a whopping 9.6 per cent from a year ago.
“Central Alberta was also one of the strongest areas” said Robert McDonald, an appraiser with Farm Credit Canada. “It seemed like the dairies were doing the best.”
There was also good demand from producers in the supply-managed poultry sectors, he said. But anyone in the market can expect some sticker shock.
“The prices held kind of strong for what I’m used to seeing,” he said.
The other factor at play is rock-bottom interest rates, which have fuelled a 20 per cent rise in residential real estate prices in the past year and are also affecting farmland prices.
“Interest rates are really helping, whether it’s farming or residential,” said McDonald. “Mortgage rates are quite low.”
“We are at historical lows,” added Gervais. “The average borrowing cost in 2020 came down to 2.25 per cent. It’s a historical low when it comes to averaging borrowing costs that businesses face, in terms of short-term rates, long-term rates, fixed rates and variable rates.”
But higher prices don’t seem to be dampening demand.
“In talking to realtors, there are no shortages of agricultural buyers,” said Dave Weber, an appraiser with Serecon, an Edmonton consulting firm that does farmland appraisals.
“Things that are listed seem to be moving fairly quickly. I guess part of that is some areas in southern Alberta had a good year with record yields.
“If there was a weakness, it would be north of Edmonton, with some of the wetter weather and disappointing yields. There’s a lot of regional variation.”
Strong prices for grain, oilseeds, pulses and other cash crops were also behind the demand for land.
“If you go to the Prairies it really is a story about strong income,” said Gervais, noting crop cash receipts were up nationally 18 per cent in 2020.
But the cattle and hog sectors were hit with disruptions on the processing side.
Given stronger crop prices late in 2020 and into 2021 along with continuing low interest rates, Gervais expects land prices across Canada will continue to rise during the first half of this year.
“It’s ironic in the sense that things are moving in the right direction because I do think that’s a strong indicator of future land appreciation possibilities,” he said.
“We’re at the second-highest-expensive point in time, but less expensive than last year (2019).”
McDonald, too, expects to see prices to keep climbing.
“Farmers are optimistic right now and a lot of grain has been shipped,” he said. “Oil has been on a downturn, and there might be more room on the rail for grain. The CN and CP guys will tell you they’ve shipped more grain than they have in a long time.
“Guys have more cash flow and a lot more optimism.”
That’s evident in the Irrigation Belt in southern Alberta, which saw an average price of $10,400 an acre — a rise of 7.6 per cent.
“We’re interested to see what happens to the irrigated land values in the south,” said McDonald. “Now that the province has announced that it will invest more in the irrigated districts, we’ll see how that affects the value of irrigated land. If there’s more irrigated land, what will that do to demand if the supply is increased?”
Weber will be watching that, too.
“It’s got where it is not uncommon for irrigated land to be above $10,000 an acre, especially if it’s an area where specialty crops can be grown,” he said.
Land prices in dryland areas are harder to forecast because of regional variability, Weber added.
“My expectation is that relative to yield and productivity, once you get away from the more central areas, land is cheaper because there is less competitive demand for it,” he said.
Lending rates will also continue to play a big role.
The Bank of Canada says it plans to keep interest rates low for the rest of the year, but rising bond yields — fuelled in part by fears of rising inflation — may disrupt that plan.
“Financial markets are now actually suggesting that a rate increase by the Bank of Canada is going to come up in 2022 — we’re not going to have to wait until 2023,” said Gervais. “It might be as early as mid-2022.”
But whether rates start climbing this year or next, farmers need to keep a close watch, he said.
“That’s an assessment that every operation needs to undertake and say, ‘What kind of financial risk am I exposed to?’”
The last Canadian census of agriculture was done in 2016, so Farm Credit Canada doesn’t have a lot of information on who is buying land, Gervais added.
While there are some new entrants in farming, it seems to be that larger enterprises are growing while the number of medium-size ones is shrinking, he said.
“There are a lot of smaller farms and a lot of bigger farms, and right in the middle is where they are losing,” said Gervais.