Even as inflation continues to grow and increasing borrowing costs have put pressure on farm incomes, farmland values across Canada rose 7.7 per cent in the first half of 2023, according to Farm Credit Canada’s Mid-Year Land Value report.
Tight supply has continued to support land appreciation for now, says FCC chief economist J.P. Gervais. But demand is likely to cool as rate hikes take full effect, pointing to a potential stabilization in prices going forward. As Gervais notes, land value growth is at a slower place than recent years — but still a significant appreciation.
Gervais, in conversation with RealAg Radio host Shaun Haney below, discusses the findings of FCC’s 2023 Mid-Year Land Value report — which tracks farmland transaction prices across the country — and says landowners are continuing to see farmland as a reliable investment, as tight supply continues.
“The return has been very good… you’d be hard-pressed to find a ratio of expected return relative to productivity that shows up better than farmland,” explains Gervais. However, after years of rapid gains, prices are at all-time highs relative to production potential. As borrowing costs rise, fewer buyers will be able to afford land purchases based on current cash rents. (Story continues below video)
“Going forward, I do think that this is going to continue to slow down demand, and with demand slowing down, I would suspect that would lead to a slower rate of appreciation,” explains Gervais. Despite some of the near-term challenges, Gervais remains optimistic about the agriculture industry’s long-term prospects, given global food security concerns.
Gervais anticipates farmland will likely lose some speculative value, but will continue to remain a solid investment.
Read more on the report here.
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