Prairie farmland valuations up in 2022, thanks to higher crop yields

The price of Canadian farmland rose unexpectedly across the Prairies last year, according to a report by Farm Credit Canada (FCC).

FCC data uncovered farmland values increased by 14.2% in Saskatchewan, 11.2% in Manitoba and 10% in Alberta, marking the most significant year-over-year increase (12.8%) in a decade.

On March 9, FCC vice-president and chief economist J.P. Gervais said he found the rate of increase surprising, owing to current economic conditions.

"I was a bit surprised to see [a 12.8% increase] being the result this year," he said, adding he expected "challenging economic conditions."

"I would have expected that perhaps high input costs and higher interest rates would have slowed the demand for land a little bit and perhaps resulted in an increase that would not have been as high as 12.8%."

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According to the 2022 annual Farmland Values Report, the subsequent highest year-over-year increase in land value occurred in 2021 (8.3%) and 2020 (5.4%).

The FCC has monitored land values nationwide for 38 years, and the average Canadian farmland has not decreased since 1992. Over the past three decades, average land values increased 850% overall, meaning a $100,000 evaluation in 1991 is worth $950,000 in 2022.

In comparing regions, the rate of increase varied on crop yields.

In drought-affected areas with underwhelming yields, demand for additional farmland is less than in regions with good moisture, higher yields, and more robust revenue growth.

While the increased value of Albertan farmland (10%) fell below the national average (12.8%), Farm Credit Canada (FCC) points to higher agricultural revenues for the heightened demand for farmland.

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He attributes the increase in farmland value to "a positive outlook for the demand of agricultural commodities and the quality food we produce in Canada."

According to Statistics Canada, gross income from selling grains, oilseeds, and pulses nationwide increased by 18.3% last year.

The FCC report suggested intense competition for farmland in areas with average or above-average yields last year, especially for farmers looking to expand their operations.

FCC data revealed that farmland in the Peace region of Alberta jumped 13.5% in value at $1,500-$4,300 per acre.

"The fact is that when land is available [in those areas], the competition is very fierce," said Gervais. "And it doesn't take too many operations looking at the same parcel of land to generate quite a bit of competition."

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"Higher farm revenues are driving the demand for farmland, but higher borrowing costs and increased input prices are expected to lead to declines in the number of sales in 2023," he continued.

"Having and maintaining a risk management plan considering possible economic changes is good practice. 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."

"The net result of all of this [there] appears to be very strong demand still, and I think that speaks to the positive growth and outlook for agriculture," added Gervais.

But the chief economist forewarned that rising prices mean the land is more expensive now relative to income than ever. 

"[While] the farmland available for sale is very limited…the ability to service debt and overall equity in operation are critical factors of success going forward," he said. 

Gervais expects farmland valuations to continue rising this year but hinted the pace would likely slow down moving forward.