Soaring commodity values and limited supply continue to push Canadian farmland values to new heights, with price per acre now commanding top dollar in most markets across the country, says RE/MAX.
The RE/MAX Market Trends Report, Farm Edition 2012, highlighting trends and developments in 16 markets throughout Canada, found that prices have increased almost across the board this year with only the Annapolis Valley, parts of Windsor/Essex, and the Fraser Valley reporting levels on par with 2011. Tight inventory has been an issue in all markets, restricting year-over-year sales activity to a large extent. While low interest rates, high commodity prices, and nutrient/supply management requirements have been the primary factors fueling the trend toward expansion, increased advancement in farm equipment has also been behind the push for additional acreage.
“Farmers have yet to be deterred from expanding their operations, despite rising values and tight supply,” says Elton Ash, regional executive vice president, RE/MAX of Western Canada. “Pent-up demand has been building, with some farmers making their move after years of sitting on the fence, waiting for prices to correct. Most now believe that there is room for further growth, given the upward momentum of commodity values.”
Percentage increases in land values—in some cases, close to doubling year over year—have not gone unnoticed. Price per acre this year ranges from as low as $800 in Saskatchewan and Southern Alberta, to a high of $40,000 to $60,000 in the Fraser Valley, with Bruce/Grey/Huron, Kitchener-Waterloo, Woodstock/Stratford, and London-St. Thomas chalking up some impressive gains over last year’s figures. Some markets have experienced multiple offers on farmland. Even south of the border, where overall real estate prices have plummeted over the past five years, farm values have steadily increased.
“The global desire to ‘bury money in the ground’ is not without merit,” says Gurinder Sandhu, executive vice president and regional director, RE/MAX Ontario-Atlantic Canada. “Investment funds are taking a hard look at farmland as a result, with well-known asset managers calling farm returns among the best investments out there. And while this endorsement has attracted a growing number of investors to the Canadian market, it has also provided little incentive for farmers to sell productive farmland. In fact, the reverse is true, with many looking to further amass parcels of land and expand existing operations.”
Poor crop yields elsewhere have also served to accelerate demand for Canadian farmland. Weather has been instrumental, playing a substantial role in driving wheat, corn, barley and other crop prices higher this year—given extreme cold in some areas of Europe and hot and dry conditions in South America and parts of the southern United States.
Lending institutions, particularly those servicing the farming industry, are tuned into growing global demand, so cash-crop farmers have had little issue with financing, especially given today’s low interest rate environment. In some instances, banks are vying for business. Financing is decidedly tighter for non-supply managed operations, particularly beef and hog.