U.S. versus Canadian farmland prices

The average price for Canadian cultivated farmland was $6,900 per acre in 2025 compared to $8,150 (all figures Cdn$) per acre in the U.S. However, comparing value is a complex calculation, FCC economist Justin Shepherd wrote in an April 15 report.

 WHY IT MATTERS: Historically an advantage for Canadian crop producers, your land ownership costs per acre may not be the competitive edge they used to be.

For example, some U.S. farmland sits in zones with warmer climates and much longer cropping seasons, whereas some Canadian farmland stays snow-covered late into spring.

There are also variations in how Canadian farmland values are calculated.

To address this, Shepherd said, FCC calculated farmland value based on crop acres only and compared it to the equivalent U.S. value.

While U.S. cultivated farmland is more expensive, on average, than Canadian, the dollar per acre gap between the two countries has largely stayed similar since 2000.

Canadian land values have seen fairly consistent growth, averaging 8.7 per cent over the past decade, Shepherd said. U.S. growth rates have seen sharp spikes, such as between 2010 and 2015, followed by flat growth (2015 to 2020). The average growth rate for U.S. farmland was 5.6 per cent.

Since 2020, Canadian farmland values have risen faster than those in the U.S.

Canadian versus U.S. farmer revenue

Despite higher average land prices, U.S. farmers had a slight advantage over Canadians in ability to generate revenue from their land.

Using both countries’ agricultural balance sheets, Shepherd said FCC calculated the average farm is making mortgage payments on roughly 15 per cent of their farm’s real estate value.

Using the Saskatchewan Ministry of Agriculture’s formula for land investment cost, in 2025 newly-purchased Canadian farmland averaged a cost of $367 per acre. Owned land cost $143 per acre.

Using U.S. interest rates, newly-purchased U.S. farmland costs producers $381 per acre and owned land cost $127.

Last year, cultivated farmland payments accounted for 39 per cent of Canadian farmers’ grain and oilseed cash receipts.

“Meaning for every dollar earned, 39 cents went toward land payments,” Shepherd wrote.

The U.S. average was 33 cents per dollar of revenue.

“Although this calculation doesn’t include income from livestock or other sectors, it demonstrates that land costs as a percentage of grain revenues are comparable between Canadian and U.S. farmers,” Shepherd said.

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Highlights

• The farmland affordability index is at its highest level (least affordable) since 1983
• Ontario, Quebec have the least affordable farmland
• The average farmland payment in 2024 was 11 per cent of cash receipts

Rising faster than revenue

FCC reported on March 26 that its newly purchased farmland affordability index, which calculates the relationship between payments for the land and its income potential, rose to its highest level (least affordable) since 1983 at 138 in 2024. However, the metric was well below the record high of 207 set in 1981. Since 2020, farmland values and interest rates have risen faster than revenue.

All four Western Canadian provinces saw their indexes rise with Saskatchewan being the highest at 150, a level unseen in that province since 1990. Meanwhile, British Columbia was only a few points behind. Manitoba was at approximately 125, its highest level since 1983 and Alberta was at around 110, a six-year high.

However, farmland in Ontario and Quebec had the least affordability in Canada in 2024 and reached record highs at just above and just below 150, respectively. In Atlantic Canada, the index was at around 110.

The average farmland payment in Canada represented 11 per cent of farm cash receipts in 2024, the highest percentage ever recorded. The average was at nine per cent only three years earlier. Ontario had the highest percentage in 2024 at 17 per cent, while Saskatchewan had the highest in Western Canada at just above 10 per cent. Atlantic Canadian farmers paid the lowest percentage of their receipts at three per cent.

FCC warned that projected declines in grain and oilseed receipts, as well as persistent high costs and potential trade disruptions could tighten net margins in 2025, making farmland less affordable.

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That’s according to a recent online article by Farm Credit Canada (FCC) that delved into the dollars and cents of the renting-or-buying decision.

Generally, the cost to rent farmland is lower than financing a purchase, making renting a worthwhile option to explore, FCC said. It can support cash flow and minimize financial risk to the overall farm operation.

The best way to analyze this decision is what’s known as the rent-to-price ratio, which is the cash rental rate per acre divided by the value of that acre of land. The result is a ratio that is measured as a percentage.

For example, land worth $5,000 an acre, with a rental rate of $100 an acre, would have a rent-to-price ration of 2.0 per cent.

The largest increase in farmland values in 2023 were in Saskatchewan, Manitoba, and Quebec. With rental rates rising at a similar pace overall in those provinces the ratio remained stable. Alberta had a rent-to-price ratio of 2.4 per cent in 2023, down from 2.6 per cent in 2023. Saskatchewan was at 3.1 per cent both years. Manitoba was at 2.4 per cent both years.

The national rent-to-price ratio in 2023 was 2.52 per cent, a slight decrease from 2022. The lowest rent-to-price ratio provincially was Ontario, at 1.25 per cent in 2023, compared to 1.4 per cent in 2022. The highest was Prince Edward Island at 4.35 per cent in 2023, unchanged from 2022.

In 2022, Ontario saw the highest increase in farmland values with an average 19.4 per cent increase, with a more modest increase of 10.7 per cent in 2023. With the RP ratio decreasing this year, this indicates that cash rental rates agreements have not evolved at the same pace as farmland values.

Similar results were observed in Atlantic provinces with the rate of increase in rental agreements being lower than the rate of farmland value appreciation in both New Brunswick and Prince Edward Island. These provinces experienced higher than average increases in farmland values in 2022.

Cash rental agreements are often negotiated for longer periods, which encourages better land stewardship and more predictability for both parties. There is also considerable fluctuation in each province’s cash rental rates and farmland values. The high-end RP ratio is usually seen on farmland with the lowest value per acre in the province.

Specialty crops, like potatoes, are generally negotiated at higher prices than other crops.

Renting farmland can complement land purchases and is often part of long-term strategic growth plans, FCC says, but a lot goes into that decision.

Rent or buy?

Renting may be part of the business strategic plan when an operation is looking to expand their land base and grow their operation. Buying land can tie up available capital and reduce cash flow, leaving fewer financing options for machinery, input needs or future expansion opportunities.

While there are obvious advantages of land ownership, cash flow remains a key consideration for producers, as this is tied to the ability to service debt and maintaining agility for capitalizing on opportunities, FCC says. The difference in per acre profitability is generated by subtracting the cost of renting land from a newly purchased land cost, assuming a 25 per cent down payment and 25-year amortization length.

Since 2021, the three Prairie provinces have seen an increased cash flow benefit from renting land compared to purchasing. In 2023 in Alberta, rented ground returned $160 per acre more than newly-purchased land. The same story holds true for Manitoba as the per acre difference in profitability due to renting has doubled since 2020.

Saskatchewan has also seen the advantage grow for renting over owned land as well, but with smaller results.
Ontario and Quebec producers have also seen higher cash flow advantages when moving to rental agreements compared to newly purchased land. Ontario’s rent advantage was 2.5 times higher in 2023 compared to 2020, while Quebec is 2.1 times higher.

While the cash flow advantage of renting over financing is significant, producers need to understand their cost of production before entering into a new land rental agreement to ensure it meets the needs of their operation.

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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.

“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.

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Farm groups and lawmakers are concerned that land buys by investors and foreign countries are driving up farmland prices and threatening national security.

Booker’s Farmland for Farmers Act, introduced on Thursday, would ban most corporations, pension funds and investment funds from buying or leasing farmland.

“We must protect farmland from becoming an investment strategy for huge corporations,” Booker said in a statement.

Institutional investors – including Nuveen Natural Capital, a subsidiary of TIAA, and UBS Farmland Investors – own $15.9 billion of farmland, according to the National Council of Real Estate Investment Fiduciaries’ Farmland Index.

Several U.S. senators, including Iowa Republican Joni Ernst and Montana Democrat Jon Tester, have introduced bills in recent months to limit foreign ownership of farmland, citing concerns that adversaries might buy U.S. land to gain influence.

The Senate on Tuesday passed an amendment to the National Defense Authorization Act that would boost federal review of foreign farmland purchases and limit some by China, Russia, Iran and North Korea.

China holds less than 1% of U.S. foreign-owned farmland, according to the Department of Agriculture (USDA). Canada holds 31%.

Jordan Treakle, national program coordinator for the National Family Farm Coalition, said corporate ownership is the more pressing concern for rural communities because of its impact on land prices.

“Most farmers cannot outbid a multinational corporation,” he said.

The average price of an acre of farmland was $3,800 in 2022, a record high and up 75% from 2008, according to USDA data.

Booker hopes to pin his bill to this year’s farm bill, an omnibus package passed every five years that funds farm and nutrition programs, said a staffer.

–Reporting for Reuters by Leah Douglas in Washington.

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Farm Credit Canada’s latest analysis of farmland rental prices says they’re roughly maintaining their traditional linkage, says J.P Gervais, the organization’s chief economist.

“We were curious to see whether that would bring up land rental rates faster,” Gervais said. “Not yet, it appears. Land rental rates seem to be moving roughly at the same speed as land values.”

Why it matters: Understanding the rent-to-price ratio for farmland can help farmers decide whether renting land is a more viable option to free up capital for other needs.

However, there could be a lag in the effect that interest rates are having on the market. “I think we’re going to find out,” Gervais said, but pointed out it could take the better part of this year before it becomes apparent.

Incidentally, he said, while financial markets are predicting a rate decrease as soon as October, he sees that as overly optimistic. “We’ve had a pretty strong labour market, which is sustaining consumer spending,” he said.

“Yes, inflation is coming down, but the economy is still moving forward right now, and a lot of us thought that we would have seen a slowdown already, but we haven’t; the economy is more resilient than everybody expected. I think it’s a bit premature to say that we’re going to get a rate cut as soon as October. I’m starting to doubt even that’s going to happen in December.”

But interest rates are just part of a collection of market pressures affecting rental rates, he said. “There are several economic conditions that impact the cost of renting land in Canada. Land values, the availability of land and its quality can all drive rental prices.”

In mid-April, FCC released its annual analysis of the rent-to-price ratio for cultivated farmland in Canada. Across the country, the rent-to-price (RP) ratio in 2022 was 2.55 per cent, compared to 2.5 per cent in 2021. In Saskatchewan and Alberta, there were slight year-over-year increases. The RP ratio increased to 3.1 per cent and 2.6 per cent respectively, while all other provinces saw decreases.

FCC calculates the ratio by dividing the rental cost per acre by the land value per acre. A ratio trending lower suggests that cash rental rates are appreciating at a slower pace than land values.

Around 40 per cent of Canadian farmland is rented. Typically, renting is less expensive than purchasing, and the lower the ratio, the better the renting option becomes. For young farmers and new entrants, renting is seen as a viable option to free up capital that would otherwise be tied up in purchasing and instead can be put toward financing options for other needs, such as machinery or inputs.

Ultimately, the reason FCC began tracking the RP ratio three years ago was so that it could become a tool to help farmers decide whether renting is the right option for them.

Another important consideration when deciding whether to buy or rent is understanding the relationship between rental rates and cropland revenues. Rental rates as a proportion of crop gross revenues have declined since 2020, but crop input costs have increased significantly, putting pressure on profitability.

“We know that we have lower prices than we had last year,” Gervais said. “So, margins are likely to be lower.” Input costs increased significantly last year but have come down a bit this year.

“I don’t think that the decline is that significant, since, if you look at fertilizer prices, they’ve been trending down, but some of it has already been purchased. The bottom line is, those margins are tighter,” he said.

That said, Gervais warns against making snap decisions based on only a small part of the picture. The decision to purchase or rent land can have long-term implications.

“Do you have your strategic plan in mind? Where do you want to take your farm five years from now? What are the targets you have in mind?” Gervais said. Farmers will sometimes just look at the price differential and interest rates and pull the trigger if their costs per acre can be reduced a little.

While that’s an important factor, he says it shouldn’t be the determining factor. Gervais recommended that farmers stick to their five-year plan and only make decisions if they fit within that plan.

“If you start out looking beyond year one and have that five-year perspective, I think that opens up a bit of a different discussion and maybe different decisions, even facing the same set of numbers,” he said.

The Ontario Agricultural College at the University of Guelph, which surveys and analyzes farmland rents, prices and ratios in that province each year, cautions that rental rates and land values can vary considerably on a given parcel’s specific characteristics, limiting the RP ratio’s use as a guideline.

Also, OAC notes in its most recent survey report, such a ratio doesn’t account for “a host of important factors” such as property taxes and the rate of land appreciation over time — but is nonetheless useful for farmers wanting to compare and assess the returns on a land asset.

“Deciding whether to buy or rent is a strategic decision unique to each producer,” Gervais said. “There is a lot to consider, including interest rates, yields, commodity prices and input costs. Open communication and collaboration between landowners and renters creates a quality, long-term relationship. Matched with a risk management plan and business strategy, producers have the building blocks for success.”

— Don Norman reports for the Manitoba Co-operator from Winnipeg. Includes files from Glacier FarmMedia Network staff.

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“We think there’s between nine to 15 per cent of (farmland) transactions that are purchases made by non-traditional buyers. That’s significant,” J.P. Gervais told an online news conference last month.

Who are these non-traditional buyers?

“They own businesses, corporations and so forth that are buying land without the intent of farming it. They’re buying land to lease it,” he said.

However, FCC’s methodologies can’t verify the exact percentage of their purchases. Gervais said the nine to 15 per cent figure is a best guess. But these purchases are affecting farmland values, particularly on a local level.

“The presence of these buyers in the market is very local. It might be that in (particular areas) it’s quite significant. Even if the non-traditional buyer doesn’t end up buying the land, the mere presence of this buyer actually changes the dynamics between buyers and sellers and that has an impact we’re not able to estimate.”

Most farmland transactions are between farm operations, Gervais said. However, the presence of non-traditional buyers bears watching.

“There’s definitely an impact. It’s something to monitor going forward and hopefully, we can get a little more data over the years to understand what’s going on in this trend in the marketplace.”

Gervais’ comments come on the heels of FCC’s farmland values report for 2022 in March, which revealed that elevated interest and input costs had little (or at least delayed) effect on rising land values.

The average value of Canadian farmland increased by nearly 13 per cent (10 per cent in Alberta) in 2022, the highest such increase since 2014. It follows gains of just over eight per cent in 2021 and 5.4 per cent in 2020.

This was the opposite of what Gervais predicted would happen in 2022, when he expected the rate of increase to be smaller than that in 2021.

“At this exact same time a year ago, I said that I expected the rate of increase to be smaller than the 2021 rate of increase. Up until very recently, I did not think that we were going to get 12.8 per cent.”

The influence of non-traditional farm buyers speaks to the bigger issue of farmland supply, a factor Gervais said will require more attention in the future.

“Looking at this year overall, the economic environment and how it generated the results we have in front of us, I think supply plays a little bit bigger role than we’ve normally acknowledged in the past.”

Area is declining

There’s evidence that Canada is losing farmland, or at least farmland that is actually farmed. In some regions this trend is significant, said Gervais.

“If you look at the census data in Canada looking back at the last 10 years, we lost farmed areas in each of the provinces. In some of the Atlantic Canada provinces we’ve lost quite a significant large amount of farmland that is farmed.

“Quebec and Ontario lost about five per cent of farmed area. In the Prairie provinces, a little bit more. But nonetheless we’ve lost a little bit so that would explain as well the tight supply of land that is available.”

Statistics Canada reported a total Alberta farm area of just over 49 million acres in 2021, second only to Saskatchewan.

That number represents a decrease of just over two per cent since 2016, with most of that drop coming from loss of natural and seeded land for pasture, woodlands, wetlands and summerfallow area. Cropland increased from 2016 to 2021.

Supply is a farmland value factor that’s difficult to quantify, said Gervais.

“We’re never going to be able — even with our data set — to tell the story about supply. What we know is that when there is land available and because supply is really tight, it doesn’t take many buyers to create this competition for land, which results in some of the prices that we’re seeing today.

“I think the availability of land for sale is definitely one of the drivers behind the results we’re reporting for 2022.”

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That’s less than the 12.8 per cent average for the rest of the country, but it’s the largest increase the province has seen since 2015, when prices rose 11.6 per cent. Last year’s figure follows increases of 3.6 per cent in 2021 and six per cent in 2020.

The highest increase in cultivated farmland values was in the Peace region, with a range of $1,500 to $4,300 per acre, 13.6 per cent over 2022. Northern and central regions both recorded an 11.5 per cent increase, with value ranges of $1,700 to $7,600 and $2,400 to $10,900 per acre respectively.

The southern region had the lowest increase at four per cent, with a range of $2,200 to $9,000 per acre. But within that region, irrigated land values jumped 29.9 per cent in 2022, reaching a record high, with a value range of $8,100 to $20,200 per acre. This was attributed to larger contracts for specialty growers, mainly potatoes, and to land coming up for sale near major growers and storage sites.

Pastureland values for the province increased by 5.5 per cent last year. The north continued to show strong growth with a nearly 12 per cent increase, followed by the Peace region at just under 8.5 per cent.

In a news conference, FCC’s chief economist J.P. Gervais issued a caveat on the Alberta numbers.

“There’s a little bit of a lag now in how land titles are recorded in the province of Alberta so we don’t necessarily have the data that we would normally have.”

Supply and demand

Nationally, the 12.8 per cent increase was the largest since 14.3 per cent in 2014. It followed gains of 8.3 per cent in 2021 and 5.4 per cent in 2020. Gervais said the numbers were a bit of a surprise.

“At this exact same time a year ago, I said that I expected the rate of increase to be smaller than the 2021 rate of increase.”

He said he would have expected challenging economic conditions to slow the demand for farmland, but the picture became clearer in recent months.

“It’s all about supply and demand. On the demand side, we might find it a little surprising that demand remains as strong as it has, given high interest rates and high input costs. But the flip side of that is that we’ve had strong receipts as well,” he said, noting that receipts for grains, oilseeds and pulses increased by 18.3 per cent in 2022.

“And on the supply side, all the data that we collected weighed out to a very tight supply of farmland available for sale.”

The highest average provincial increases in farmland values were in Ontario, Prince Edward Island and New Brunswick, with increases of 19.4, 18.7 and 17.1 per cent respectively. Saskatchewan followed with a 14.2 per cent increase. Five provinces had average increases below the national average: 11.6 per cent in Nova Scotia, 11.2 per cent in Manitoba, 11 per cent in Quebec, 10 per cent in Alberta and eight per cent in British Columbia. There was insufficient data to fully assess farmland values in other regions of the country.

Gervais said there are a few things to note about the data.

Because it’s based on the calendar year, the effect of the drought on the Prairies in 2021 is still acting as a drag on land prices and may explain the difference in increases when compared to Ontario, which didn’t suffer a drought.

But Gervais said not to draw too much from those differences across provinces.

“It’s getting harder to generalize about what’s going on in the marketplace, even within a province,” he said.

The second thing to note is that interest rate increases haven’t yet worked their way through the system.

“We have not yet seen the full impact of higher interest rates on the demand for farmland,” said Gervais, noting the reason for the lag is that people locked in when rates were lower.

Another point is that land values relative to farm income are as high as they’ve ever been.

“In most, if not all provinces, we’re getting very near the top of the market ever in terms of the value of land relative to farm income,” he said.

Gervais acknowledged that higher farmland values pose a challenge for young producers, new entrants and operations looking to expand. What this means for farmers is that a strong risk management plan is critical, especially if they are looking to buy land.

“You need to have an elaborate strategic plan for your operation over the next five years and a strong risk management plan that goes with it.”

Gervais said that relative to income, land is now more expensive than ever.

“The ability to service debt and overall equity in the operation are critical factors of success going forward. The good news is that farmland value increases reflect a positive outlook for the demand for agriculture commodities and the quality food we produce in Canada.”

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Average farmland prices were up 12.8 per cent in Canada in 2022, the largest increase seen since 2014 when the increase was 14.3 per cent. The increase follows gains of 8.3 per cent in 2021 and 5.4 per cent in 2020.

J.P. Gervais, FCC’s chief economist, said the numbers were a little bit of a surprise.

“At this exact same time a year ago, I said that I expected the rate of increase to be smaller than the 2021 rate of increase,” said Gervais. “That was my expectation. Up until very recently, I did not think that we were going to get 12.8 per cent.”

Gervais explained that he had thought that challenging economic conditions would have been expected to slow the demand for farmland, but the picture became clearer in recent months.

“It’s all about supply and demand,” Gervais explained. “On the demand side, we might find it a little surprising that demand remains as strong as it has given high interest rates and high input costs. But the flip side of that is that we’ve had strong receipts as well,” he said, noting that receipts for grains, oilseeds and pulses increased 18.3 per cent in 2022.” And on the supply side, all the data that we collected weighed out to a very tight supply of farmland available for sale.”

The highest average provincial increases in farmland values were observed in Ontario, Prince Edward Island and New Brunswick, with increases of 19.4, 18.7 and 17.1 per cent, respectively. Saskatchewan followed with a 14.2 per cent increase. Five provinces had average increases below the national average: 11.6 per cent in Nova Scotia, 11.2 per cent in Manitoba, 11 per cent in Quebec, 10 per cent in Alberta and eight per cent in British Columbia.  There was insufficient data to fully assess farmland values in other regions of the country.

“We have not yet seen the full impact of higher interest rates on the demand for farmland.” J.P. Gervais. Graphic: Farm Credit Canada

Gervais says there are a few things to note about the data in the report.

Firstly, because the report is based on the calendar year, the effect of the drought on the prairies in 2021 is still acting as a drag on land prices and may explain the difference in increases when compared to Ontario, which didn’t suffer through the drought. But Gervais says not to draw too much from those differences across provinces.  “It’s getting harder to generalize about what’s going on in the marketplace, even within a province,” he said.

The second thing to note is that interest rate increases haven’t yet worked their way through the system. “We have not yet seen the full impact of higher interest rates on the demand for farmland,” said Gervais, noting that the reason for the lag is that people locked in when rates were lower.

Another point Gervais says is worth noting is that land values relative to farm income are as high as they’ve ever been.  “In most, if not all, provinces, we’re getting very near the top of the market ever in terms of the value of land relative to farm income,” he said.

Gervais acknowledges that higher farmland values pose a challenge for young producers, new entrants, and other operations that are looking to expand. What this means for farmers is that a strong risk management plan is critical, especially if they are looking to buy land. “You need to have an elaborate strategic plan for your operation over the next five years and a strong risk management plan that goes with it,” he said.

“Land is more expensive now, relative to income, than it’s ever been,” said Gervais. “The ability to service debt and overall equity in the operation are critical factors of success going forward,” he said. “The good news is that farmland value increases reflect a positive outlook for the demand for agriculture commodities and the quality food we produce in Canada.”

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Land prices jumped 5.9 per cent in Alberta in the first six months of 2022, according to the latest data from Farm Credit Canada, and that was smallest rise on the Prairies. 

Prices were up an even six per cent in Manitoba and 8.4 per cent in Saskatchewan. Ontario, Quebec and P.E.I. saw double-digit jumps, with Ontario leading the way at 15.6 per cent. 

“Strong farm cash receipts, buoyed by robust commodity prices, have managed to quell some of the profitability challenges from higher interest rates and farm input costs,” said J.P. Gervais, FCC’s chief economist. 

However, more than half of the interest rate hikes occurred after the ag lender’s latest survey. The Bank of Canada has increased them by three percentage points since the start of the year and has said more increases are inevitable. 

“An increase in interest rates is obviously going to reduce demand for farmland,” said Chad Lawley, agricultural economics professor at the University of Manitoba. “It increases risks for those who are already over-leveraged.” 

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While it’s been a long stretch of rising farmland prices, they have dropped sharply in the past, he noted. 

“Big increases in interest rates could cause big decreases in farmland prices, or at least they did in the past,” said Lawley. 

However, he isn’t predicting a repeat of the 1970s and ‘80s.

“I don’t know how out of control inflation is going to get, I don’t know where interest rates are going to go, and commodity prices remain strong,” said Lawley.

The 1980 farm crisis occurred when debt was high, inflation was rampant and interest rates rose dramatically to control inflation. Land values plummeted and there were many farm foreclosures. 

A repeat of that scenario doesn’t seem probable in today’s climate, said Gervais. 

“Nothing is impossible but I don’t think this is likely,” he said. There’s little doubt that higher borrowing costs will slow demand for farmland, but with rising farm incomes, Gervais said he is certain any repeat of the 1980s situation should be avoidable. Farm cash receipts climbed 14.6 per cent year-over-year for the first half of 2022, and with strong commodity prices, receipts are projected to increase 18 per cent relative to 2021.

“I think the outlook remains optimistic,” said Gervais. “When you think about the 1980s farm crisis, what made it a crisis (was) not only the high rates but also the low commodity prices.” 

While ag commodity prices may soften, he believes a crash is highly unlikely. 

“I have to work really hard to find a scenario in which we’re going to see prices collapse,” he said. “A lot of things can bring volatility to the marketplace. There are some scenarios in which you could see prices coming down, but it’s all about probabilities. 

“And I would say right now, there’s a higher likelihood of prices that remain elevated.” 

Still, farmers should consider the impact that lower commodity prices and higher interest rates could have on their business, said Gervais. 

On a year-over-year basis (as of the end of June), Alberta farmland prices are up 5.8 per cent and that’s well behind its prairie cousins, which are up 14 to 15 per cent. 

But prices here remain higher than in Saskatchewan and Manitoba, and the long-term rise has been extremely steep, according to FCC data. 

Back in 1996, the price of a dryland acre was minuscule compared to today: $324 in the Peace, $421 in the south, $494 in northern Alberta and $748 in the central part of the province. Irrigated land was the most expensive but averaged just $781 an acre. 

Over the next 15 years prices went up by two to three times for dryland, and irrigated land prices quadrupled. In 2011, bidders turned on the jets. 

By last year, $100 was a rounding error, with prices (compared to 1996) up more than six-fold in central Alberta ($4,900 an acre), more than sevenfold in the Peace and north ($2,400 for the former and $3,600 in the latter), and tenfold in the south ($4,400). 

Irrigated land in the south averaged $11,500 an acre, a whopping 1,472 per cent rise.

The post The price of farmland is defying interest rate hikes – so far appeared first on Alberta Farmer Express.