The days of soaring, double-digit annual increases in farmland prices in Southwestern Ontario are over.
The days of soaring, double-digit annual increases in farmland prices in Southwestern Ontario are over, the fallout of lower crop prices, a new private outlook suggests.
But demand for turf will still remain strong, only with more modest increases in land value, in the region that’s one of the nation’s richest farm belts.
“Increases of 20 to 30 per cent are not going to happen, but it is a good healthy market out there right now with lots of sales,“ said Ryan Parker, an appraiser and partner at Valco Consultants Inc., in London.
Parker predicts agricultural land values in 2016 will follow the more recent trend of modest year-over-year growth.
If you’re a city resident, you might not even have noticed the changes in the value of the area’s pay dirt, unless you’re affected at the grocery store.
But while a cool-down in rising land values might not please older farmers looking to cash out, one observer says land price stability can be a good thing for an industry that’s a backbone of Southwestern Ontario’s economy.
“It allows you to do long-term planning,” said Mark Wales, a director of the Ontario Federation of Agriculture and an Elgin County cash crop and vegetable farmer.
Last year, in the 10 counties covered by Parker’s report — Middlesex, Huron, Perth, Oxford, Elgin, Chatham-Kent, Lambton, Essex, Bruce and Grey — land values rose an average 3.83 per cent, far short of the explosive spikes of just a few years ago. Prices then shot up an average 29 per cent in a single year with land in Lambton soaring 69 per cent from 2011 to 2012.
The average price change for the 10 counties from 2010 to 2015 was 101.9 per cent, according to Parker’s study. For that, farmers can thank historically low interest rates, he said.
“To me it is the No. 1 catalyst that got this all going and then, a really good shot in the arm was commodity prices,” he said.
Moving into 2015, Parker said the main reason behind the slower rise in land values was lower prices for corn and soybeans, down from record prices from 2011 to 2013.
Continued, historically low interest rates mean larger operators with a strong equity base are still in the market for land, but there can be wide variation in the prices paid.
“In many areas, you can point to a handful of buyers. On certain days, if all those buyers happen to be buying, then you can have a big swing up. If there happens to be a farm certain buyers don’t want, it can swing it down,” Parker said.
Most often when farms in the region are bought, he said, it’s bigger operations buying smaller ones.
Parker also found significant price differences within counties, depending on the main types of enterprises. In Huron, Perth and Oxford counties, prices remained strong throughout the year where there was a dense population of livestock operations with quota.
Oxford County had the highest median land values in 2015 at just more than $18,000 an acre. The cheapest land was found in Bruce County, at slightly less than $8,000 an acre.
While the outlook for commodity prices isn’t favourable in the short term, with crops priced in U.S. dollars, the lower Canadian currency will help cash flows on Ontario farms and provide support for land values in the year ahead, he said.
For farmers, the spectacular increases in land values in the last five years has been both good and bad, said Wales. “It all depends on where you are in your farming career.”
Any sudden run-up in prices is good if you want to sell, such as a retiring farmer not trying to pass their land on to the next generation.
“Then it is great. What you have worked for your whole life is worth a whole lot more,” he said.
But for younger farmers trying to get into the business or expand, it’s a problem.
“It can create some real challenges for those who want to grow their businesses,” said Wales.
The best scenario is stable farm land prices, he said.
While Ontario doesn’t put controls on who buys farmland, Parker said almost all of the farmland sales in Southwestern Ontario have been farmer-to-farmer sales. Canadian investment funds have done some buying, but that’s only a tiny portion of sales, he said.
“The reality here is it is existing farm operations that are buying farmland. They are getting bigger.”