The News & What it Means – Amid Doom and Gloom, Farmland Values Tick Higher Still

By John DePutter & Dave Milne – April 8, 2020
The News:

Canadian farmland value gains continued to slow in 2019, before the current covid-19 pandemic.

Syngenta website article, April 6, 2020
What it means:

It means lots of things. Let’s talk about four.

1. If nothing else, farmland values are testament to agriculture’s resiliency.

Let’s face it; farmland had every excuse to backtrack in 2019. Coming off a year in which nationwide realized net farm income was already down a whopping 41% to $4.2 billion, amid a big jump in expenses, it seemed like 2019 would have been a good year for farmers to pull in their horns and put any expansion plans on the backburner.

Yet Farm Credit Canada’s Farmland Values Report on Monday showed the average value of Canadian farmland increased by 5.2% this past year. Admittedly, it was the smallest annual increase in a decade and well off the 19.5% and 22.1% gains seen in 2012 and 2013 but it, was an increase, nevertheless.

And while the report did suggest at least some of the buoyancy in some areas was due to speculators and developers, it also noted that plenty of the land-buying interesting was still coming from already established producers looking to expand their operations.

2. Optimism amid challenges.

It’s an amazing display of confidence, especially considering the hurdles farmers have faced in addition to the poor financial year many of them had in 2018.

US President Donald Trump’s trade war with China badly hurt the agricultural markets in general. Meantime, the Canadian government’s own spat with the Chinese government over Huawei executive Meng Wanzhou has now cost Prairie farmers a good portion of their canola export business.

Excessively wet weather meant some producers in parts of Ontario and Quebec didn’t get all their corn and soybean crops seeded last spring. The same problem on the Prairies in the fall meant many crops had to be abandoned in the field.

Those were only a few of the problems. But, somehow, farmland demand from west to east was still greater than the supply in 2019, pushing prices higher again.

Even in Saskatchewan and Alberta, where the weather problems seemed to hit particularly hard, farmland values were up 6.2% and 3.3% in 2019, respectively. It’s also worth noting that in January-September, 2019 crop receipts in Saskatchewan were down 2.4% from the same period in 2018, although Alberta did see an increase.

3. Dark clouds gathering

 But there are ominous signs. FCC’s own analysis shows that Canadian farmland values have become more expensive relative to farm income. The so-called price-to-revenue ratio – which measures the price of farmland as a multiple of crop receipts – reached an all-time high in 2019.

That’s just one measure, but an important one. It suggests that, overall, farmland is overpriced in relation to what can be produced on the land. Which in turn suggests an adjustment may be needed in the future. The adjustment will have to involve either more value in the crops and livestock coming off the land, or lower prices for the land, or both, to bring the ratio back into balance.

4. Land is valuable because people still need to eat, but…

Through thick and thin, farmers have always endured and the fact that people still need to eat will ensure they continue to endure. The higher farmland values of 2019 suggest some producers are expecting not just to endure, but to thrive.

The old Will Rogers quote: “A farmer has to be an optimist or he wouldn’t still be a farmer,” rings truer than ever.

Farmers also need to be realists.

The reality is that virus-related issues are developing today, all along the food chain. Some of these changes are bullish – they’re creating sudden demand spikes for farm products. Other virus-related changes are hammering certain commodities, such as hogs and cattle. And then there is the hard-to-assess impact of the global economic recession that’s underway.

These new issues are inserting many moving parts into the equation that determines farmland prices.

Land will always be an important and highly-valued base for the food we eat in this country and the world, but that doesn’t mean the price of land can only go up, year after year.

It’ll be interestinging to see where land values check in, for the calendar year 2020!

We’ll keep you updated.

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