SW Ontario farmland value growth slows

After two consecutive years of growing in value by 25 per cent, growth in Southwestern Ontario farmland values slowed to 10 per cent in 2023, according to a recent report. However, per acre costs remain at record highs.

Ryan Parker, partner with London area real estate appraiser Valco, has been authoring an annual report on farmland values in Southwestern Ontario since 2010. In the latest analysis, he says it’s clear higher interest rates, lower commodity prices, and increased cost of production dampened the zeal for land sales and acquisition in 2023.

Why it matters: Further effects of rising interest rates, lower commodity prices will likely be felt in Ontario’s land market. However, significant variability in per-acre prices appears to be the new standard, rather than overall deflation in farmland values.

Combined, the 11 counties comprising Southwestern Ontario saw farmland values rise by approximately 10 per cent last year, compared to 25 per cent in 2022 and 2021. The 10 per cent increase seen last year is much closer – albeit at the top end – to what is considered a typical longer-term increase.

A significant drop in commodity prices are a major factor, including a 35 per cent drop in corn from the start to end of 2023. Parker says in the report that following an even more significant commodity price drop in 2013, farmland values in the 11 Southwestern counties slowed to growth rates of 2.9 to 9.7 per cent, “until 2020-2021, when interest rates decreased and commodity prices increased.”

“The logical theory would be that we will see lower farmland value increases for the foreseeable future if that future involves greater than five per cent interest rates and less that $5.00 corn,” says Parker. Regardless, the “overall price for land remains very strong.”

Parker’s 2023 report also notes with interest the “buzz in the countryside” where land values had previously sold between $30,000 and $40,000 per acre, was more about the few sales occurring under $30,000 per acre.

Conversely, other sales in the same general area set new highs, indicating an extremely variable market.

“It is this variability and extensive range that I believe will best describe our farmland market in 2024,” writes Parker. “For those farmers that have the means (think cash flow rather than equity) there will likely be several buying opportunities in 2024. The key for those producers will be picking their spot as there will be farms that garner big interest and result in big prices, as well as farms that have limited demand and will result in the potential for a ‘deal’.”

Speaking later, Parker reiterates the significance of localized variability, and the fact that land values are increasing or at least holding value despite lower commodity prices, higher inputs, and cost of production. In a perceived break with historical norms, 1980s-era adages about the correlation between land values and interest rates do not appear to be manifesting in Ontario’s current farm landscape.

“Buyers are definitely more picky. Which is a good thing. That should be what’s happening. It remains to be seen whether some farms will go for lower or just take longer to find the right buyer,” says Parker. “What historically happened – when rates go up, farms sell for a fraction of what they were in a previous year. It seems like this last 10 to 15 years, and the last few in particular, have not born this out…I feel the sector is extremely strong and can withstand significant change in income.”

However, he says prolonged periods of poor commodity prices, combined with steady or further increases in interest rates, could generate a different story.

Southwestern Ontario 2023 land value report highlights:

• 10.2 per cent increase: average value change among all 11 counties
• $25,571 per acre: median land value across the region
• 18.5 per cent increase: Wellington County, largest change in land values 2022-2023
• 15.9 per cent increase: Bruce County, largest change in land values 2010-2023
• $157,600,000: Grey County, lowest top farm cash receipt in 2022 (beef)
• $1,086,540,000: Essex County, highest top farm cash receipt in 2022 (greenhouse vegetable)