Farmland values to moderate, says Re/Max

While Canadian farmland values posted serious year-over-year increases in most rural communities, lower commodity prices are expected to temper appreciation in coming months, says a report by Re/Max.

Limited inventory levels, reported in virtually all agricultural centres, continued to contribute to strong upward pressure on the price per acre in 88 per cent (15 of 17) of the markets examined in the report. Peak commodity values and low interest rates created the ideal climate for expansion over the past 12-month period, spurring unprecedented demand for farmland, it says.

“No real fallout has been experienced as a result of diminished commodity values so far this year,” says Gurinder Sandhu, executive vice-president and regional director, Re/Max Ontario-Atlantic Canada. “Yet, some moderation is likely, given several years of back-to-back record-setting gains. Some investment funds have already scaled back on purchases, still moving ahead but at a more cautious pace. We expect the trend to continue, with prices stabilizing at current levels. Demand, on the other hand, is expected to remain healthy for the foreseeable future, given the positive long-term outlook for global agricultural markets.”

To date, percentage increases in land values range from market to market, with the greatest upswing noted in Saskatchewan and Alberta, says the report. In the east, gains were strongest in London-St. Thomas’ Middlesex West area, followed by Windsor/Essex County and Kitchener-Waterloo. Only the Annapolis Valley in Atlantic Canada and the Fraser Valley in British Columbia reported that prices held firm year-over-year.

Cash cropping land continues to be most sought-after, with bare land in greatest demand (no buildings or residences). Tiled and irrigated land for specialty crops are also fetching top dollar. Premiums continue to be paid for tracts abutting or adjacent to existing farm operations. Livestock farmers are also getting into the cash-cropping business, with some in Western Canadian markets converting good pasture land to grainland.

“The primary drivers in the market continue to be end-users – established farm operators expanding existing operations,” says Elton Ash, regional executive vice-president, Re/Max of Western Canada.” Be it cashcropper or livestock farmer, the economies of scale continue to support expansion. There are many buyers waiting in the wings, but momentum is hampered to some extent by a shortage of farmland listings. Investors – both institutional and individual – are still active in Canadian agricultural centres, but their presence has subsided in recent months.”

The Re/Max report also found that private and exclusive transactions still account for as much as 50 per cent of farm sales, with deals among neighbours commonplace. Some multiple offers have been reported, but most properties are moving at or close to fair market value. While demand remains exceptionally strong, there is some evidence that cooler heads are now prevailing, says the report. There has been an increasing number of properties that did not move at tender or auction, only to sell for good prices on the open market – indicative that buyers are exercising greater caution and diligence. The lack of success at tender/auction may also provide a much needed but modest boost to farmland listings going forward, says Re/Max.

“Whether it’s owning, renting, investing or securing farmland for residential purposes, it’s clear the market for Canadian farmland remains strong from many angles,” says Sandhu. “Regardless of purpose, motivation remains the single greatest common thread. The desire to bury money in the ground is clearly evident. The long-term confidence in the performance of Canadian farmland from both an investment and agricultural perspective remains strong.”

To download the Re/Max Canadian Farmland – Price Per Acre report, click here.