Canada Markets

Farm Credit Canada (FCC) releases two Farmland Values reports annually to indicate price trends over the first-half and the last-half of the year for each province along with data for the entire country. This survey has been released since 1985. These reports can be seen at farmlandvalues.ca.

The most recent release covered price movements on farmland over the last half of 2012. As seen in the first column of the attached chart. The 10% increase for the country in the last half of 2012 was the largest increase seen since the reporting began in 1985. The second highest increase was in the first half of 2012, at 8.6%.

Overall, land prices have risen for the past 10-years. The three fastest growth rates in the last half of 2012 took place in Quebec (19.4%), Ontario (11.9%) and Manitoba (13.9%). Of the provinces shown on the chart, the lower price increases were seen in the prairie provinces of Alberta (7.2%) and Saskatchewan (9.7%).

One interesting point is the number of drivers behind land price appreciation. Of course the two large ones are high commodity prices and low interest rates, while differences from province to province also included:

-- the types of crops grown, such as special crops grown under irrigation in southern Alberta

--the presence of supply-management and intensive livestock industries, given their need for expansion for manure management purposes.

-- the presence of lifestyle farmers

-- the desire to grow operations

-- increases in yields and productivity, and also

-- interest from out-of province buyers, which may include investor groups or even foreign buyers

Just one small example of the changing demand for land is found on a west Coast financial program that I follow, where a regular guest and real-estate commentator promotes the option of selling west coast property and buying small tracts of agricultural land in Saskatchewan as a cheaper living alternative/investment. Producers across the country are also experiencing the competition from land investment funds and even rumored Chinese buyers, while Hutterite expansion on the prairies also tends to raise the bar for land pricing.

With the sharp drop in commodity values this week, such as gold and oil, headlines are making their way to the press suggesting the commodity super-cycle is over. The gold bubble has burst, they say! China's growth rate is now estimated to be 7.7% in the first quarter of 2013, down from 7.9% in the last quarter of 2012 and the phone lines jam with sell-orders! Can it really end so quickly?

A recent DTN poll on the U.S. DTN site asked "What best describes your opinion on the rapid appreciation of Corn Belt farmland since 2006?" Of the respondents:

-- 50% suggested that farmland is forming a bubble and risks crashing

-- 39% suggested that farmland values are forming a bubble but will have a soft landing

-- 9% suggested farmland values aren't close to a top yet and will continue to rally and

-- 2% responded to "other"

Bear in mind that this is focused on corn ground, with values in Iowa trading in excess of $20,000/acre.

Positive signs do remain in Canada which may be supportive to land prices. In February, the USDA released their Agriculture Baseline Projections, which presented commodity projections to 2022. While findings indicated commodity price pressure in the first few years of the 10-year period due to the impact of recent high prices or as they say, high prices cures high prices, in the longer term, "world economic growth and demand for bio-fuels combine to support longer-run increases in consumption, trade, and prices for agriculture commodities." Seems like 2015 onward is a period to look forward to.

The low cost of capital in Canada is also a supporting factor for land prices, and should remain so for the next foreseeable future. Bank of Canada Governor Mark Carney repeatedly warned Canadians of impending interest rate hikes, although has certainly changed his stance in recent months. Canada's growth rate continues to slip, while inflation is well below Canada's targeted rate.

In today's news, the International Monetary Fund (IMF) reduced their projection for Canada's GDP growth rate to 1.5% in 2013, down .3%. Along with this came a warning that "The beginning of the monetary tightening cycle should be delayed until growth strengthens again." While there have been forecasts for higher rates in late 2014, this notion is currently being challenged.

Cliff Jamieson can be reached at cliff.jamieson@telventdtn.com

(AG)

© Copyright 2013 DTN/The Progressive Farmer. All rights reserved.