Canadian farmland prices up 8%, 25th consecutive year of increases

Canadian farmland prices bucked the declining trend in many other Western countries to post gains in 2016, supported by a boost from a weak Canadian dollar and low interest rates.

Farm Credit Canada, Canada's biggest agricultural lender, said that Canadian farmland prices rose by an average of 7.9% in 2016 - increasing for a 25th consecutive year.

Although the rise was slower than the 10.1% growth recorded in 2015, and the slowest pace in six years, it contrasted with falls seen in many other countries.

In the neighbouring US, Midwest values fell by 1% last year, while those in the southern Plains dropped by some 6%, according to central bank data.

Boost to growers' returns

"A healthy agriculture sector - supported by a low Canadian dollar and low interest rates - helped sustain increases in farmland values in 2016," said JP Gervais, the FCC chief agricultural economist.

Canada's slowing farmland price growth:

2016: 7.9%

2015: 10.1%

2014: 14.3%

2013: 22.1%

2012: 19.5%

"Demand for Canadian agricultural products remains strong at home and abroad."

Canadian producers' returns have been supported by strong exports of many crops, helped by softness in the Canadian dollar, and global squeezes in supplies of the likes of pulses and canola, of which the country was a major producer.

In lentils, for instance, growers in 2015-16 enjoyed a 65% surge in farmgate prices on a harvest which was 16.2% higher at 2.54m tonnes, according to official data, with values supported by rain damage to output in the key Indian market.

Prices of canola rose Can$20 a tonne to Can$509 a tonne, on a harvest up 12.0% at 18.38m tonnes - and with both prices and output pencilled in by officials as higher over 2016-17.

Caution against 'overconfidence'

However, FCC also flagged that the farmland market had "lost steam" in most provinces over 2016, in terms of a lower pace of price growth, flagging a "levelling off" in commodity prices.

"Hopefully, this moderating affect will turn into a trend," Mr Gervais said.

Indeed, he cautioned producers "not to become overly confident.

"Although we have just come off of several years of record farm receipts, agriculture is a cyclical business and producers should always plan for different market conditions."

Saskatchewan slowdown

The FCC also stressed that the data showing overall price growth last year hid a varying range of local performance, with values in seven of 51 regions surveyed showing "no increase in farmland values" last year.

In Saskatchewan, the top grain-growing province, "some rural municipalities saw land prices trending downward, while other areas remained stable".

Average prices in Saskatchewan grew by 7.5% last year, down from 9.4% in 2015, and the weakest pace of growth in six years.

Saskatchewan has imposed measures to curb purchases of land in the province, after a furor following a Can$128m purchase of land by the Canada Pension Plan in 2014.