Farmland value growth slowed in 2023

Glacier FarmMedia – Farmland is still getting more expensive, but not quite as quickly as in recent years, according to the latest farmland value report from Canada’s biggest agricultural lender.

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Farm Credit Canada (FCC) put average national farmland value growth in 2023 at 11.5 per cent, down from 12.8 per cent in 2022.

Ontario’s growth in farmland value slowed to 10.7 per cent in 2023, down from 19.4 per cent growth in 2022.  

“We had three consecutive years of . . . land values climbing. And so we’re seeing a little bit of a pullback,” FCC chief economist J.P. Gervais said. “It’s still double-digit, still a very significant increase.”

Given global geopolitical events, which have led to significant market volatility in the last few years, Gervais was expecting even more of a pullback.

There was significant variability. Land value growth in some provinces, including Ontario, remained above 10 per cent, while British Columbia’s pace actually dipped into the red by 3.1 per cent (although that province also had the highest average land value on a per-acre basis).

The highest average provincial increases in farmland values were found in Saskatchewan, Quebec and Manitoba, with increases of 15.7 per cent, 13.3 per cent and 11.1 per cent, respectively. That’s up from 14.2, 11 and 11.2 per cent, respectively, in 2022.

Rates from other provinces included 7.8 per cent in Nova Scotia (down from 11.6), 7.4 per cent in Prince Edward Island (down from 18.7), 6.5 per cent in Alberta (down from 10 per cent) and 5.6 per cent (17.1 per cent in 2022) in New Brunswick.

That’s a change up from 2022, when Ontario, Prince Edward Island and New Brunswick topped the list for the quickest growing farmland values.

Eastern Ontario saw greatest value growth

FCC reports that real estate professionals reported fewer bidders on available properties in the province, but good land close to established operations sold quickly, ad marginal land stayed on the market longer.

Demand for Ontario land came from a variety of sources, the report said, including large intensive, supply-managed farm operations, cash crop producers, part-time farmers and investors.

The only region in the province FCC says had a higher growth rate than what was reported in 2022 was land in the eastern region, where values increased by 15.5 per cent. However, FCC said the average price per acre in the region was still lower than most of the regions in the province, so the gap in values is narrowing.

In the Northern region, FCC reported farmland values increased by 8.9 per cent and said this  increase appeared larger than it was because of the low price per acre in the region.

Farmland values increased by 13.3 per cent in the southern region of the province. FCC said with the exception of the central part of the region, most areas saw an increase in farmland value growth.

The typically higher-priced region of the southwest saw an increase of 13.1 per cent, the third highest for Ontario, FCC said.  The midwestern region increased by 8.5 per cent overall, and FCC said certain pockets in the region that had seen large increases in the past saw a levelling off of values.

Other areas that were slower to increase still experienced “relatively good increases” in 2023, the report said. There was an increase in values of 8.9 per cent in the central west region. This area is closer to urban areas, and FCC said properties faced higher pressure from full and part-time producers as well as investors looking for rural properties close to the city.  

The second smallest increase of 2023 was in the southeast region, with eight per cent growth.  This region had one of the highest growth values reported in 2022.

The central east region had the smallest average increase for all of Ontario, at 1.8 per cent overall.

A cautious year ahead

It was a generally unaffordable year to buy land, Gervais noted, pointing to the double hit of high interest rates and flagging commodity prices. Actual farmland sales declined slightly from 2022 as producers exercised more caution around investment decisions.

He expects that caution to extend well into 2024 due to continued high interest rates, high input costs and lower grain prices.

In fact, he said, farmland in many parts of the country is less affordable right now than it’s ever been. Fiscal circumstances have also opened up operations to more financial risk.

“It makes it more difficult for young farmers and young operations that have a desire to expand into the industry,” he said.

In the short term, farm receipts of grains, oilseeds and pulses are projected to decline by 13.2 per cent in 2024, in comparison to a 0.4 per cent increase in 2023. Gervais predicted a 4.8 per cent decline in 2024 earlier this year.

He urged producers to action to manage these losses.

“An important part of preparing for inevitable, yet unpredictable, economic changes is not only creating a risk management plan, but also updating it as those shifts in the economy unfold,” he said.

Pastureland values

The newest report also marked the second year FCC reported on pastureland values. Due to insufficient sales in Ontario, Quebec and the Atlantic provinces, it focused on data from pastureland sales in Western Canada.

The most significant of those were in Manitoba, which saw an average growth of 19 per cent. Saskatchewan recorded a hike of 12.7 per cent, followed by Alberta at 9.6 per cent and B.C. at 7.4 per cent.