Realtor disputes link between crop returns and land prices

Wednesday, October 29, 2008

by BETTER FARMING STAFF

“Because we have a bumper year (in crop prices) I don’t think the values go up,” said Bruce Sworik, on Tuesday, the day after Farm Credit Canada released its semi-annual report on farmland values across Canada.

Sworik noted that if commodity prices remained high for a longer period of time they might have an effect – on land suitable for those crops. That was the case during a stretch of “extremely poor” commodity price years that ended two years ago, he said. “What we had were maybe more farms available and fewer buyers for them; consequently if someone’s highly motivated for it they may accept a lesser value.”

Yet interest rates also shape farmland value, he pointed out. Current low interest rates mean farmers can afford to pay more to acquire land than they could in the early 1980s when interest rates reached double digits. “I think that probably has a larger or an equal impact than just the value of the crop.”

The report cites “commodity prices which increased substantially in the fall of 2007 and continued to rise in 2008” as the reason behind a 4.6 per cent increase in Ontario’s farmland values between January and July 2008. It claims the six-month increase is the second largest in the last 10 years.

Robert Wilson, a senior appraiser with FCC’s Manitoba and Ontario evaluation centre, said the Ontario numbers are based on the weighted average of 64 property evaluations across the province. The properties are all “cash crop land” and those in heavier cash crop areas would carry more weight. 

Sworik said farmland values have grown at a rate of three to five per cent over the past four to six years in his association’s area of jurisdiction, which includes Elgin and Middlesex counties.

While land speculation by developers drove up values in areas close to London and St. Thomas a few years ago it is no longer as much of a factor, he said. The speculation has, however, reduced the availability of good quality farmland.

Farmers expanding within an area of reduced land availability are the main drivers of the increased land values, he said.

He noted the percentage rise in farmland values varies within the association’s jurisdiction. Right now properties close to London’s west end are very valuable while those further west are less so because of limitations such as too many watercourses or the lack of water, tiling or appropriate road access.

Along with high commodity prices, the FCC report suggests “urban buyers relocating to rural areas and strong general demand” are influencing values but problems within the hog and beef industries, including higher feed costs, do not appear to be having an effect.

The report also notes landlords wanting a share of cash crop revenues has driven up land rents. BF