Farmland values in Manitoba soared 25.6 per cent in 2013 compared to a year earlier and shot up a startling 28.5 per cent in Saskatchewan, the biggest appreciation since Farm Credit Canada (FCC) began tracking price trends in 1985.
Across Canada, the average value of farmland increased 22.1 percent last year, up from 19.5 percent in 2012, according to the FCC's annual report on farm properties.
"Most of the increase was driven by strong commodity prices," FCC chief economist J.P. Gervais said in a video accompanying the 2013 report.
Most of the increase occurred during the first half of the year before crop prices began to falter. A surge in cattle prices and a record harvest in the second half of the year helped maintain optimism in the farm sector.
Big players are entering the farmland market. The Canada Pension Plan Investment Board recently paid Assiniboia Farmland, a fund that owns and manages a large portfolio of farmland in Saskatchewan, $128 million for 115,000 acres of farmland.
However, some see prices cooling off because of lower crop prices, large carryout, rising input costs and high rental rates for land. That combination will reduce farm profits and the prices that farmers are willing to pay for land.
"We do really expect a slowdown in farmland values in 2014 and beyond," said Gervais.
Average crop prices over the next 10 years are expected to be lower than they have been in the 2005-13 period, although they will be higher than they were in the 1990-2005 period, according to Agriculture Canada.
Interest rates are the other main driver for farmland values. Gervais expects short-term rates to remain low for the next 12 to 18 months, which will provide a "soft landing" for farmland values.
He expects the national average to mimic what has happened in British Columbia, where farmland values have been fairly stable every year for the past five years. Farmland in Alberta appreciated by 12.9 percent.
Agricultural Producers Association of Saskatchewan vice-president Arlynn Kurtz said the FCC numbers appear to be accurate based on what he has seen in his area near Esterhazy.
He thinks the numbers are worrisome for the future of agriculture. "It's going to make it very difficult for young producers to get into the business," said Kurtz, who recently retired from farming.
