By Alice McFarlane

Farmland values increase despite lower revenues

Oct 8, 2024 | 10:45 AM

The mid-year value of Canadian farmland went up despite higher interest rates and less money in farmers’ pockets.

Farm Credit Canada said the price of farmland rose by an average of 5.5 per cent in the first half of 2024. Over the year from July 2023 to June 2024, there was a 9.6 per cent increase, representing a slowdown compared to the previous year, likely the result of lower commodity prices and elevated borrowing costs.

For the second consecutive year, Saskatchewan recorded the highest average six-month increases in the country, at 7.4 per cent. The rates in Quebec, New Brunswick, British Columbia, and Alberta all settled in the 5.4 per cent range, 5.2 per cent, 5.0 per cent, and 4.6 per cent, respectively. Manitoba recorded a growth rate of 3.9 per cent, closely followed by Nova Scotia at 3.8 per cent. Ontario recorded a lower increase at 2.1 per cent, with Prince Edward Island concluding the list at 1.7 per cent.

(submitted photo/Farm Credit Canada)

Interest rates play a significant role in a farmers’ investment decisions.

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The economic environment of the previous two years has been characterized by high interest rates due to inflation. The Bank of Canada recently made reductions in its policy interest rate, with the initial adjustment coming a little less than a month before the analysis period of Jan. 1 to Jun. 30.

By late January 2024, financial markets were fully pricing in the first rate cut of the Bank of Canada to occur in June. The expectation at the time would be that the Bank of Canada policy rate would be lowered by 1 per cent by the end of the year. These expectations pushed down interest rates in financial markets and lowered borrowing costs slightly.

Lower interest rates, or expectations of lower borrowing costs, enhance buyers’ willingness to pay, thereby driving up demand. Yet farm revenues matter too.

High input costs continue to squeeze profit margins, possibly limiting farmers’ capacity to invest in new land and moderating farmland value growth.

(submitted photo/Farm Credit Canada)

In British Columbia, farmland values in the Peace-Northern region showed the most significant growth in the province. The Okanagan and South Coast regions are also experiencing value increases.

In Alberta, the trend has been toward selling smaller parcels of land, as large holdings are divided into smaller groups to attract more buyers.

Saskatchewan’s farmland values keep rising, leading the nation in appreciation. Northern and central areas are nearing double-digit growth, while southern regions show smaller but positive gains.

Manitoba’s 3.9 per cent growth is primarily in the Westman region, with additional support from the Parkland region.

High-quality farmland in Ontario remains in demand and sells well, while average to lower quality land either struggles to attract buyers or fetches lower prices.

The economic pressure of higher interest rates and lower commodity prices has resulted in a much less pronounced increase in Quebec’s land values compared to recent years.

New Brunswick’s growth rate is near the national average at 5.2 per cent. The market for potato-producing land there is limited, with larger operations purchasing land at record prices.

Nova Scotia continues to attract a few out-of-province buyers, but interprovincial migration has slowed.

Prince Edward Island has seen minimal changes with growth reported at 1.7 per cent.

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alice.mcfarlane@pattisonmedia.com

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