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Sask. posts highest increase in 2013, FCC says
The average value of farmland in Saskatchewan increased by 28.5 per cent in 2013, the highest increase in Canada, according to the latest farmland values report released Monday by Farm Credit Canada (FCC).
Photograph by: BRYAN SCHLOSSER, Regina Leader-Post
REGINA — The average value of farmland in Saskatchewan increased by 28.5 per cent in 2013, the highest increase in Canada, according to the latest farmland values report released Monday by Farm Credit Canada (FCC).
Yet the average land price in Saskatchewan is still less expensive than in the neighbouring provinces, the report said. It’s part of a trend that shows farmland values rising in that province since 2002. Saskatchewan farmland values increased by 19.7 per cent in 2012 and 22.9 per cent in 2011.
The average value of Canadian farmland increased by 22.1 per cent in 2013, with the majority of this increase occurring in the first half of the year, said the Regina-based federal Crown corporation. Low interest rates, growing world food demand and the resulting strong commodity prices in the first half of the year supported the increase, FCC said.
This annual change represents the largest increase since FCC began reporting in 1985. The second-highest increase was 19.5 per cent in 2012. Farmland values last decreased in 1992, when they dropped by 2.1 per cent.
“The positive overall health of the agriculture industry during 2013 is reflected in recent land value trends,” said Michael Hoffort, FCC’s chief risk officer. “It’s an indicator of the industry’s strength, and it’s good news for producers who hold land as an asset,’’ he said in a press release.
“At the same time, it can be a challenge for those who want to buy farmland to expand their operations. There’s often a limited supply of land available for sale and land that’s offered for sale is strongly pursued.”
The two most important drivers of farmland values are crop receipts and interest rates, according to J.P. Gervais, FCC’s chief agricultural economist. However, he cautions producers not to use the past few profitable years — when crop prices were abnormally high due to the 2012 U.S. drought — as the basis for purchasing more land.
“Recent long-term outlooks for crops suggest world stocks of grains and oilseeds will rebuild, bringing prices closer to their long-term average,” Gervais said. “Margins will be tighter and eventually interest rates will increase,” he said. “Producers need to look at their operations and ensure they can manage through a number of scenarios when it comes to revenues and expenses.”
Tighter crop margins may also affect the land rental market. Rental rates usually take a little time to adjust downward following lower grain and oilseed prices. Multi-year leases are also gaining in popularity. Yet Gervais expects rental agreements to move over time in the same direction as crop receipts.
“For the next several years, we expect the demand for farmland to slow down, which supports a so-called soft landing scenario,” Gervais said. “We don’t anticipate farmland values to collapse, but we do expect slower increases due to potentially lower crop receipts.”
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