Ontario Farmland: What the Market Tells Us

Friday, February 10, 2023

Whether you are buying or selling, it pays to be aware.

By Colleen Halpenny

Farmland across the province continues to be in high demand. As producers evaluate their current holdings and opportunities for growth, cost per acre is a number that most keep their eyes on.

As a finite resource, producers have long been aware that while land may become available, there is no new land to find. To better understand current markets, and explore new ways to grow, we talked with those in the know – to find Ontario producers the best solutions and strategies.

Values increasing, but now stabilizing

The national land review published by Farm Credit Canada (FCC) in October observed an overall 8.1 per cent increase in farmland values over the six-month period from January to June 2022. Bolstered by strong commodity prices and strengthening farm receipts, the increased interest rates and higher input prices had minimal impact on the demand for offered parcels of land.

The highest national increase was observed here in Ontario, with an overall average of 15.6 per cent jump. Noting the variability across the regions in the province, FCC found that the most important increases were observed in the south-east and central-east regions.

With statistics on farmland values dating back to 1985, FCC reports that other periods of rising interest rates coincided with increases in the appreciation rate of farmland values – truly highlighting the importance of considering factors beyond borrowing costs when evaluating your business borders.

Phil Spoelstra, real estate broker of record with Farm Ontario, shares that the market is settling somewhat after a frenzied two years.

"Prices are finally stabilizing with interest rates being what they are. Currently, the market is really balanced. But at the end of the day, producers know farmland is a finite resource, and they don't hold back when they come to the table to bid."

Spoelstra shares that there is a delicate balance currently being established between urban growth and the need for agricultural land.

"A rapidly increasing population in southern Ontario is putting significant pressure on farmland. We've had a number of clients who have owned land in these areas which have been sold to developers, and those have obviously been lucrative sales for them.

"Other farmers have looked at those dealings and previously went on to target block buying on city limits as a future investment with strategic payoffs," he says.

All about location

Statistics Canada reports on value per acre nationally and provincially, and Ontario stands out as the costliest location to purchase land. In 2017 StatCan reported an average value per acre of $10,310. By 2021 this had climbed to $13,813.

For Spoelstra, this increase in pricing has come from "the overall economies of scale of profitability and viability in the agriculture sectors. This change in profit returns is how producers are continuing to not only expand and grow their land base but invest back into their operation when they sell those higher value pieces."

The 2021 Ontario Farmland Value and Rental Value Survey, as conducted by Professor Brady Deaton at the University of Guelph, compiled rental and purchase prices across the province from 1,735 respondents.

Ranges in average price, per acre of average quality cropland, were as moderate as $2,600 in Lennox and Addington, to a high of $40,000 in York.

For many, the family farm location has been generationally specific. This situation, however, is changing.

When exploring the initial cost per acre, availability, and overall opportunities of an area, some farmers have found that the most logical location is not where it has always been.

Spoelstra acknowledges the regional barriers that exist, and he has assisted young producers in finding new opportunities.

"We've helped many younger farming families from southwestern Ontario, from a variety of different ag sectors, sell and move to eastern Ontario.

"When they can sell a modest 100-acre parcel in an area of high demand, and purchase a larger acreage with lower barriers to access, then they've done the right thing.

"In the grand scheme, moving across the province is only a few hours of travel. But if farming is the goal – that's the lifestyle you want for your family and what you want to get your kids into – that shift is something to seriously consider," he says.

Adam Balkwill, who resides in Drumbo and works alongside his cousin on a cash-crop operation of 600 acres, knows all too well that purchasing their ideal location is also their biggest challenge.

"As a small operator, our biggest hurdle is gaining access to new land. We've got big competition in the area, so we've fine-tuned our operation to find niche markets so we can capitalize on each square footage of ground we work with," he explains.

Partnerships between municipalities and Place to Grow, a provincial government agri-food innovation initiative, connect those in high-pressured areas from southern regions of the province, and assist with increased cultivation of northern acreage.

The Northern Ontario Farm Innovation Alliance reports a total of 4.4 million acres of land as Class 2, 3 and 4 soils in northern Ontario. Infrastructure improvements, such as tile drainage, are improving the quality and productivity of land, while warming trends and research and development are expanding cropping potential.

Buying vs. renting

Farm Credit Canada reminds producers that renting land can be a way to reach a desired scale of operation and mitigate financial risk. FCC suggests using a rent-to-price (RP) ratio, which is the reported cash rental rate per acre, relative to the value of the farmland per acre.

In the 2021 Census of Agriculture from Statistics Canada, 153,687,771 acres of total farmland were reported nationally, with 63,541,372 of those acres being reported as rented or leased from others. Provincially this broke out to 11,766,071 acres owned and 3,949,854 acres rented by producers in Ontario.

Balkwill says that "we keep ads up on places like Kijiji, putting our name out there for anyone considering selling or renting their land, with marginal success.

"We are always keeping ourselves aware of other farmers in the area who are considering retiring, and then we need to discuss if that investment will pay off for us.

"Unfortunately, purchasing is becoming further out of reach. Having the banks give you that lending capital when you're relatively small, or just starting out, is hard to do."

Spoelstra encourages young entrepreneurs to think differently, and he suggests "renting lower-quality parcels of land, taking yourself out of competition against those larger cash-croppers in the area.

"Instead, work on outfitting yourself with the proper equipment and be very knowledgeable about your crops.

"We've seen it where a young, passionate producer is able to work their way up, and they have been able to slowly buy ongoing operations and build their equity with additional years of experience," he says.

Partnerships that aren't family linked are on the rise, Spoelstra says.

"Align yourself with a mentor who is deeply rooted in ag and who is looking to help a younger generation get started. Especially in those situations where they may not have an interested family member, perhaps consider a rent-to-own agreement, or potentially assist with mortgaging a property.

"At the end of the day no option is too out-there if you're willing to work towards your desired outcome of farming," he believes.

"We've had good years recently with improved cash receipts, and the quota boards continue to support their farmers and give increases. Overall, there's high optimism in the industry, and a strong wave of passionate young farmers looking to enter and expand." BF

Preserving our farmland

For Martin Straathof, executive director of the Ontario Farmland Trust (OFT), preserving all current farmland should be a priority for everyone in the industry.

It's an issue that goes beyond current farmland values.

"It takes at least 100 years to replenish just one inch of soil, and even that varies depending on climate, vegetation, and other factors," he explains.

"It's not as simple as looking at unused land and considering moving agriculture to those areas.

"Furthermore, specialty crops like tender fruit grow where special microclimates meet unique soil qualities. This isn't something that can just be relocated to other available land."

Straathof notes that the most productive land is often "the most vulnerable to land conversion."

It's unnecessary to lose this land "when there are means to develop in ways that would avoid urban sprawl, curb our demand for aggregate resources, and protect farmland for future generations."

Straathof explains that the OFT is "the only non-profit organization in Ontario to focus solely on preserving farmland and its associated natural features." He says that "the easement agreements we assist to put in place on farm properties protect the land for agriculture use only, so it removes speculative purchasing and keeps land costs lower so that the next generation can more easily get into it."

He says that "if land prices continue to rise the way they are, it will lessen the next generation's ability to get into agriculture, which would be detrimental to our country." BF