A mid-year review of farmland values by Farm Credit Canada (FCC) suggests climbing interest rates and poor growing conditions in 2021 have done little to temper demand for Canadian farmland.
“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,” says J.P. Gervais, FCC’s chief economist, in the press release summarizing the findings.
“Producers are still making strategic investments in their operations and buying farmland, which is in short supply and high demand. This healthy farmland market is a good indication there is confidence and optimism in the future of the industry among producers,” he says.
At the mid-way point of the year, the highest average farmland value increases were reported in Ontario (15.6 per cent), Prince Edward Island (14.8 per cent) and Quebec (10.3 per cent), followed by Saskatchewan (8.4 per cent), which was closest to the national average increase of 8.1 per cent. More modest increases were reported in the rest of the provinces.
Provinces with a higher percentage of arable land, such as Saskatchewan and Alberta, seem to experience a slower pace of increase in land values, suggesting that competition for land with limited supply, such as in Ontario, drives prices.
There were insufficient transactions in the Yukon, Nunavut, Newfoundland and Labrador to fully assess farmland values.
It should be noted that most land transactions were likely agreed to prior to the most significant interest rate increases.
Gervais says that increasing interest rates will slow demand over time, however increasing farm income is offsetting some of the impact.
Farm cash receipts climbed 14.6 per cent year-over-year for the first half of 2022, although grain, oilseed, and pulse receipts were slightly lower in the first six months, as expected due to the drought across many parts of the Prairie provinces in 2021. FCC says receipts are projected to increase 18 per cent for the full 2022, relative to 2021.