Originally published April 20, 2020 on Alberta Farmer Express
By Jennifer Blair
The formerly red-hot market has cooled considerably, but the price of land isn’t getting cheaper
The pandemic seems to be impacting almost everything, but not the price of farmland.
“I would expect that impacts are going to be minimal,” said J.P. Gervais, vice-president and chief agricultural economist for FCC. “We still have a very limited supply of available land for sale. That was the case in 2019. It was the case in previous years. I would expect it to be the case in 2020.”
Agriculture has been left relatively unscathed compared to many other sectors, and interest rates have fallen, he said.
“Right now, rates are close to historical lows. We’re probably close to the lowest that we’ll see, but I’m not discounting the possibility of those rates coming down lower.”
Some prices for ag commodities, such as wheat, initially dipped but then rebounded, he noted.
“Overall, I expect this pattern of down and up to keep going for a while as the entire marketplace tries to figure this out,” he said.
While no one knows what harvest will be like this year, farmers last year “had challenges all across the board, from literally coast to coast.”
“If it’s the case that yields go back to the trend, then it’s not out of the question that we’ll have a good year,” Gervais said.
Still, margins are tight and he expects “more caution from sellers and buyers.”
“Land is getting more expensive relative to farm income,” said Gervais. “No matter where you live, the price of land relative to expected revenue on a per-acre basis is significantly higher now compared to what the average over the last 50 years has been.”
Nationally, prices went up by an average of 5.2 per cent last year — the smallest increase in a decade.
Alberta land values increased 3.3 per cent last year — less than half of the 7.4 per cent gain in 2018.
Central Alberta saw the largest change, with a 5.3 per cent increase last year and an average value per acre of $4,327. But the Peace Region only saw a 1.1 per cent increase (averaging $2,141) while the Edmonton region saw a 1.5 per cent gain (averaging $3,423 per acre). Southern Alberta prices rose 3.9 per cent with average values of $6,399 per acre.
The pandemic ups the importance of having adequate liquidity and cash flow, Gervais said.
“It’s going to create some adjustments in the balance sheets for producers, but the last thing you want is a long-term negative impact,” he said. “I do think we have some very resilient farm operations that have been dealing with quite a few things in the marketplace. It’s one more thing, and it’s quite significant, but hopefully, we’ll get through it.”