Buyers welcome modest growth in farmland values

One might think a drop in average farmland values would cause at least some grief for an ag realtor like Saskatchewan’s Tim Hammond.

But that’s not the case. In fact, it’s not even close.

Earlier this month, FCC reported farmland values across Canada have continued tapering off during the first half of 2019.

FCC says the national average for farmland values fell from a 6.6 per cent increase in 2018 to a three per cent increase in the first half this year.

And FCC expects the trend to continue through the rest of the year.

“There might be some minor market adjustments along the way, but the days of sharp increases in farmland values have been replaced by more modest growth,” said J.P. Gervais, FCC’s chief agricultural economist.

Surprising ripple effect from priced calming

Some might expect modest growth to mean modest sales activity, too.

But at Biggar-based Hammond Realty, one of the country’s biggest farm real estate companies, Tim Hammond and his eight sales agents have realized a flurry of buying activity since the price calming.

They’ve charted $150 million in sales this year, with a full quarter still to go. That beats the previous record of $140 million, and represents a significant increase over 2018, when sales reached $100 million.

“Buyers are entering the market now that sellers have stopped testing the waters with prices,” Hammond says. “Sellers are motivated and, as a result, buyers feel like they have more negotiating power than they did a couple of years ago when there was very little land for sale.

Back then, he says, his firm had 10 buyers for every farm. So, there wasn’t much negotiating going on.

“Now the number of buyers and sellers is more balanced, and they’re asking us to help broker a fair deal,” he says.

A softening of the farm real estate market brings balance to the number of buyers and sellers. Tweet this

Five provinces report lower increases

The FCC report said British Columbia, Alberta, Saskatchewan, Ontario and Quebec showed lower increases from 2018. Manitoba was the only province showing a slightly higher increase.

Publicly reported transactions in four Atlantic provinces have yet to be reviewed and assessed.

In Ontario, Don Kabbe, general manager of Great Lakes Grain in Chatham, says weather took some of the steam out of land prices there.

“Ontario has been hit with a challenging growing season with delayed planting and less heat this summer, resulting in lower than expected crop yields,” Kabbe says. “It’s slowed from the high of 2011-2015.”

Ontario farmers expected prices to stay the same or rise

How does all this compare to farmers’ expectations?

Brady Deaton Jr. at the University of Guelph, who holds the McCain Family Chair in Food Security, polled Ontario farmers about their perceptions regarding changing farmland prices in 2019.

Almost half of the respondents thought prices would stay the same, while nearly 30 per cent thought they would increase.  

“I suspect that farmer expectations we picked up in our survey result from a general sense that the rapid appreciation of farmland values in the past must be reconciled with moderate changes in the near future,” Deaton says.

For his part, Gervais urges producers to prepare for unpredictable circumstances by maintaining a risk management plan but remaining focused on the big picture.

“Demand for Canadian agricultural products is projected to remain strong at home and abroad in 2019-20, so there is a long-term positive future in agriculture,” Gervais says.

Bottom line

Sharp increases in Canadian farmland values has been replaced by more modest growth. Experts say sellers are motivated and buyers feel like they have more negotiating power. Overall, producers should be prepared for unpredictable circumstances with a risk management plan.  

Article by: Owen Roberts