The march higher in Canadian farmland values slowed through the first half of this year, likely due to lower commodity prices and higher interest rates.
In its mid-year update Wednesday, Farm Credit Canada (FCC) reported the average value of cultivated farmland was up 5.5% in the January-June period. Over the 12 months from July 2023 to June 2024, farmland values saw an average increase of 9.6% - still below the 11.5% rise recorded in 2023 and the 12.8% gain posted in 2022.
Although recent Bank of Canada interest rate reductions – which taken the Bank’s key rate from 5% down to current 4.25% since June - should help give buyers more confidence, FCC cautioned that farm revenues are likely to remain severely constrained “as commodity prices show no signs of rebounding.”
Lower interest rates, or expectations of lower borrowing costs, enhance buyers’ willingness to pay, thereby driving up demand, FCC said. Yet farm revenues matter too. “High input costs squeeze profit margins, possibly limiting farmers' capacity to invest in new land and moderating farmland value growth.”
Although weaker than the previous year, FCC said the January-June increase in farmland values was probably at least partially due to strong farm cash receipts in 2023. The limited availability of farmland remains a supportive factor as well, it said.
In Ontario, FCC said high-quality farmland remains in demand and sells well, while average to lower quality land either struggles to attract buyers or fetches lower prices. The Central West region saw the highest increase in land values through the first half of this year, unlike the Mid-Western region, which showed no growth.
Saskatchewan’s first-half gains were driven by the northern and central areas - which are nearing double-digit growth - while southern regions showed smaller but positive gains.
The most significant Alberta farmland value increases in the January-June period were noted in the northern parts of the province, while Manitoba’s growth was primarily fueled by the Westman region, with additional support from the Parkland region.
FCC will release its next annual farmland values report in March 2025.
