Manitoba farmland values, up 25 years in a row, increased an average of five per cent in 2017 Farm Credit Canada (FCC) says in its 2017 Farmland Values Report released April 23.
“In general, Manitoba saw higher-priced land values remaining relatively stable, while low- to mid-priced land values recorded increases,” the report says.
Manitoba’s percentage increase was the second smallest among nine provinces behind British Columbia Columbia at 2.7 per cent and below the national average of 8.4 per cent, the report says. (Newfoundland and Labrador lacked sufficient data to report.)
But the national increase is double what J.P. Gervais, FCC’s Vice President and Chief Agricultural Economist, predicted a year ago.
“The fact that we recorded an average in 2017 (in Canada) that was greater than the year before may raise a few eyebrows,” Gervais said. “Some could even ask if this is the beginning of a new trend. I would say no to that.
“I think it’s rather a sign of a stable and strong farm economy.
“That means that Canadian farms are generally in a strong financial position when it comes to net cash income and balance sheets.”
Some risks
However, Gervais warned farmers to be cautious, especially in regions such as Ontario where land prices are rising faster than farm income.
“No matter what type of operation, or where you happen to be, it’s always a good idea to have a risk management plan…” Gervais said. “You have to review it on a regular basis and then protect yourself or your operation against unforeseen circumstances or events.”
Canadian farmland values rose in 2017 due to record low interest rates in early 2017 (rates have since risen) higher crop receipts helped by a weak Canadian dollar, and in some regions, pressure from expanding supply-managed farmers, he said.
“If you look at the national level… (2017) crop receipts will reach a record high (up an estimated 1.5 per cent from 2016),” Gervais said.
The story is much different in the United States where land prices have been falling for several years, along with farm incomes that plunged 50 per cent since 2013 due to lower crop prices.
In comparison Canadian farm cash receipts were eight per cent in 2017 versus the previous five year average, Gervais said. Canada’s weaker dollar was the biggest difference, he added.
Manitoba is expected to see a 13 per cent increase in 2017 crop receipts thanks to a bumper crop, he said.
“For this reason I expect… farmland values (in 2018) are going to trend up in Manitoba…” he said.
Last year Manitoba farmers set new provincial yield records for crop insured canola, red spring wheat, feed wheat, oats, barley, field peas and flax, Manitoba Agricultural Services Corporation data show.
Many factors
The report says “strong demand from supply-managed farm operations and cash crop producers competing for a limited amount of available land” contributed to a 9.4 per cent average increase in Ontario farmland values, double 2016’s 4.4 per cent rise.
Supply-managed farms were also cited as contributors to higher land prices in parts of Quebec and Nova Scotia.
Under supply management domestic production and imports are restricted to meet demand and prevent price-depressing surpluses. Some consumers and free market advocates condemn the system, arguing it leads to high consumer prices for dairy and poultry products and prevents export opportunities for farmers and processors.
There’s also a perception supply-managed farmers are better off financially than other producers. Asked if supply management is distorting land prices, Gervais replied: “In none of the 51 regions… would I say the increase we’ve reported is a function of what is happening in the supply manage sectors.”
A lot of factors affect land values and it’s difficult to parse the impact of just one, he said.
While Canadian dairy production has risen 19 per cent over the last four years increasing revenues, prices are lower, Gervais said. Some dairy farmers haven’t been able to produce as milk as they were allotted, he added.
“Some (dairy) producers have had to make a lot of investments in terms of expanding their barns,” Gervais said. “I would say there are some challenges as well in dairy. It’s not just everything is so positive. It’s not an industry without challenges. I think milk producers are doing well in the current situation. Some dairy producers decided to expand their land base because they were expanding their overall operation.”
Farmer driven
Non-farm buyers can push farmland prices higher, but such transactions had little, if any impact, in Canada last year, Gervais said.
“The vast, vast majority of transaction are one farmer selling to another,” he said.
Manitoba’s five per cent increase in farmland values last year, is down from 2016’s 8.1 per cent rise and the lowest increase since 2011’s 4.4 per cent.
But between now and then Manitoba farmland values skyrocketed, jumping 25.6 per cent in 2012 and 2013, followed by average increases of 12 per cent in 2014 and 2015.
The rapid rise and more recent slow down in Manitoba farmland values makes sense, Gervais said. “If you look at the price of land compared to crop receipts in a province like Manitoba, especially with the growth we’ve seen in 2017 (crop receipts) that ratio — the price versus what you get off the land in terms of income on a per acre basis — is close to where it’s been historically.
“Farmland values (in Manitoba) are at where they should be. I don’t know exactly what that ratio should look like. From a historical standpoint that market is in line where it has been over the last 25 years or even 40 years.”
Gervais expects Canadian farmland values will cool off in 2018, but still rise, despite an expected small increase in interest rates and trade uncertainty related to NAFTA negotiations and a possible trade war between the United States and China. The forecast also assumes the Canadian dollar will average below 80 cents U.S.
“Despite all the uncertainty and volatility I want to emphasize that (Canadian) farm income is still projected to grow (in 2018) and I think it’s critical to be able to sustain land values into the future,” he said.
Over time land prices should increase by the rate of inflation and increased productivity, which these days is about two per cent a year for each, Gervais said.
Farmland values in Saskatchewan saw the largest percentage increase in 2017 at 10.2 per, versus 7.5 per cent in 2016.
FCC benchmarks farm properties to monitor variations in cultivated land values across Canada, its report says.
FCC appraisers estimate farmland market value using recent comparable arm’s length land sales. Selected sales are reviewed and adjusted to the benchmark farm properties.
The reference value published by FCC is derived from the average value of its benchmark properties and the average sales price in each region.
Source: Manitoba Cooperator