Ontario and PEI led farmland value growth for Canada in 2022, but each province showed a strong gain in value, according to the annual farmland report put out by Farm Credit Canada (FCC).
As a whole, Canadian farmland value increased 12.8 per cent in 2022, an increase from 8.3 per cent growth in 2021, says FCC.
“Challenging economic conditions could have been expected to slow the demand for farmland and the resulting price buyers paid for land in 2022,” says J.P. Gervais, FCC’s chief economist. “But the underlying fundamental factors in the farmland market tell another story.”
FCC estimates that receipts of grains, oilseeds and pulses in Canada have increased 18.3 per cent in 2022, and are projected to grow 9.4 per cent in 2023.
Gervais says that while interest rates have been climbing, the data suggests supply is tight for farmland, “Perhaps tighter than we think,” he says, in relation to the strong numbers in Saskatchewan.
FCC is currently operating under the assumption that the Bank of Canada will hold interest rates where they are now for the year ahead, however there is growing support by some analysts for a return to rate increases late in 2023.
Gervais says that 15 per cent of FCC customers are going to have to renew loans in next two year, meaning that the market likely has not seen the full impact of higher rates on demand for farmland.
Farmland values saw the highest increase since 2014 and follow gains of 8.3 per cent in 2021 and 5.4 per cent in 2020.
British Columbia is the only province to have recorded a single-digit increase at eight per cent, but it is also a market where land values are the highest on average.
“It’s good practice to have and maintain a risk management plan that takes into account possible economic changes,” says Gervais. “When producers ensure their budgets have room to flex if commodity prices, yields or interest rates shift, they’re better off in the long run.”
FCC also suggests producers exercise caution, especially in regions where the growth rate of farmland values exceeded that of farm income in recent years, which was the case in most provinces.