The value of farmland showed immense growth over the course of 2022, according to a report from Farm Credit Canada (FCC).
The average price of farmland across the nation rose by 12.8 per cent last year amid rising input prices and interest rates paired with strong farm income, an FCC news release outlined.
Among the provinces with available data, Saskatchewan (14.2 per cent) ranked fourth highest with its increase in land value, behind Ontario (19.4 per cent) Prince Edward Island (18.7 per cent) and New Brunswick (17.1 per cent).
Average land values have rapidly increased in Saskatchewan in the past three years, according to FCC.
A 5.4 per cent gain was recorded in 2020, followed by 7.4 per cent in 2021.
“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,” J.P Gervais, chief economist for FCC, said in the release.
Among the issues posed by rising land values, is the fact that new farmers and operations looking to expand will see a decline in availability.
“Land is more expensive now relative to income than it’s ever been. The ability to service debt and overall equity in the operation are critical factors of success going forward,” Gervais said.
“The good news is that farmland value increases reflect a positive outlook for the demand of agriculture commodities and the quality food we produce in Canada.”
With rising land prices, FCC recommends producers use fiscal caution going forward.
“Its good practice to have and maintain a risk management plan that takes into account possible economic changes,” Gervais said.
“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.”
In a similar way to land prices, farm cash receipts (FCR) for grains, oilseeds and pulses are projected to grow by 9.4 per cent in 2023. This follows an increase of 18.3 per cent in 2022.
Crop prices in general are remaining above the five-year average due to a “tight balance between global supply and demand,” FCC’s report read.
Corn and soybeans are expected to continue with strong revenues while of the prairie crops, canola is expected to grow the fastest, with peas and lentils close behind.
Wheat is also forecast to produce increased revenues as well.
After a steady increase in the latter half of 2022, cattle prices remain above the five year average at the start of 2023.
“The demand for red meat remained strong domestically amid elevated retail food inflation,” the report said. “Global demand for beef and pork is strong but has weakened in certain parts of the world (e.g., China).”
FCC projects that demand for Canadian cattle and hogs will remain robust, with an FCR increase of 3.4 per cent for cattle and 7.7 per cent for hogs.
For dairy products, 2022 ended with a projected increase of 11.5 per cent following two increases in the farmgate milk price.
The increases are expected to continue with a rise in the support price for butter, which is expected to lead to a 2.2 per cent increase to the price of milk.
“Milk production should grow given limited butter stocks, although imports and retail inflation could tamper with domestic market requirements,” the report said.
Overall FCR for dairy is expected to grow by 5.7 per cent in 2023.