Ontario's farmland value growth rate lags behind national rate

Monday, April 11, 2016

by SUSAN MANN

The average value of farmland in Ontario increased by a much smaller percentage last year compared to previous years, and Farm Credit Canada advises farmers to consider a softening of land values and possible interest rate increases when doing risk management planning.

According to the Crown corporation and agricultural lender’s Farmland Values Report, released Monday, the average value of farmland in Ontario increased 6.6 per cent in 2015, about half as much as its jump in 2014 of 12.4 per cent. In 2013, the average value of farmland increased by 15.9 per cent.

Average farmland values have continued to increase since 1988 in Ontario.

Ontario’s increase was smaller than the country as whole, which saw the average value of farmland go up by 10.1 per cent last year compared to 14.3 per cent in 2014 and 22.1 per cent in 2013.

Corinna Mitchell-Beaudin, Farm Credit Canada executive vice president and chief risk officer, said in an April 11 press release despite the agricultural sector’s recent strong performance, “agriculture will always be cyclical so producers should be prepared for the ups and downs along the way.”

She encouraged farmers to “identify key risks and available solutions to manage these risks should they emerge in their business.”

Dale Litt, Farm Credit senior appraiser, said the lower average farmland value last year in Ontario was due to a drop in crop prices. However, “the favourable Canadian dollar helped out with that and boosted that up a little bit.”

There are “still lots of positives” impacting the farmland values picture, he said. “The two key drivers were steady growth in the agricultural sector and favourable interest rates that are at all-time lows.”

Furthermore, “most farmers had very good yields last year so that was in their favour,” he said.

Brady Deaton, a professor in the University of Guelph’s department of food, agriculture and resource economics, agrees the smaller increase in average farmland values last year was due to farmers adjusting to decreased commodity prices, which have declined during the past couple of years. “On the other hand, the exchange rate has probably been beneficial to farming,” he said.

Litt said most of the farmland sales were farmer-to-farmer. Buyers were from all sectors, dairy, beef, cash crop and others, and were looking to expand their operations. One observation Farm Credit noted in its report was buyers were showing more patience last year. Properties were listed on the market for a longer time period compared to the previous year when sales happened before properties were even listed.

In 2015, “people weren’t jumping on things right away,” Litt said. “They were making sure it made sense for them financially.”

However, Litt said the farmland market is still “very healthy with lots of sales.”

In Ontario, the most significant farmland price increases occurred in Haldimand, Kent, Oxford, Stormont and Prince Edward counties, according to the report. Increases in those areas were higher than the 6.6 per cent average for the province as a whole, but Litt declined to say by how much.

Farm Credit doesn’t release information on farmland values by area, just for the entire province, he noted.

In most cases farmland values across Ontario “were stabilized and in some cases there was a slight downward trend, but not drastic,” Litt said. He also couldn’t say in what areas of the province farmland decreased.

Another observation Farm Credit noted in its report was in northern Ontario the demand was mainly for large parcels of land and existing dairy operations. Some of the buyers were southern Ontario farmers looking to get cash crop land and others were local dairy farmers wanting to expand their operations.

Litt said southern Ontario buyers of land in the north were both purchasing farms so they could move to the north and to get additional parcels. “We’re seeing relocation and we’re seeing expansion of their farm base. They (southern Ontario farmers) may sell some acreage down here (in southern Ontario) and they can buy three to four times the amount of acreage up there (in northern Ontario).”

There are also some farmers who take their equipment up to work their northern Ontario acreages and bring it back down to their southern Ontario farm, he said.

Deaton said the disparity in land prices between southern and northern Ontario “must be high enough to justify that.” BF