J.P. Gervais

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Farmland values in Canada's smallest province have remained steady during the first half of 2021, according to the mid-year review conducted by Farm Credit Canada.

The study shows Island prices increased 0.4 per cent during the first six months of the year and there was a 1.5 per cent increase in the period from July 2020 to the end of this June. Last year, Island farmland increased 2.3 per cent last year, less than half of the national average of 5.4 per cent. It was a far cry from 2019, when the province led the country in the rate of farmland growth at 22.6 per cent.

In 2020, Kings County saw the greatest increase in land values at 8.6 per cent with an average value of $4,100 an acre. The value range, which represents 90% of the sales in each area and excludes the top and bottom 5%, was $2,600 to $5,600.

Values in Queens County increased 2.4 per cent with an average value of $4,800 and a value range of $2,400 to $5,500. There was no change to farmland values in Prince County with an average price of $4,300 and a value range of $2,800 to $6,000.

Nationally, there was a 3.8 per cent increase in the first six months of the year and a 6.1 per cent increase in the 12 month period between July of 2020 and this year. J.P. Gervais, who is the chief economist at FCC, said the modest increase was driven by a combination of strong commodity prices and low interest rates.

“While the drought across most of western Canada and the pandemic have captured most of the headlines, strong commodity prices and low interest rates have been quietly supporting a vibrant farmland market for the first six months of 2021,” he said. “Higher-than-normal prices for wheat, canola and corn have improved the profitability of many operations in the second half of 2020 and early 2021, putting them in a better position to invest in farmland as the opportunities arise.”

He said the increase is in line with mid-year results over the past six years, which showed single-digit increases for the full year. However, Gervais cautioned the full impact of widespread drought this summer has yet to be weighed.

In general, Prairie and Atlantic provinces reported the most modest increases, while Ontario, British Columbia and Quebec had the largest increases. The chief economist said buyers from different sectors are competing for the limited amount of land on the market.

Interest rates declined at the outset of the pandemic and remain historically low, which is also supporting the demand for farmland and weakening the supply of available land for sale in the market.

“While many crop producers have benefited from the high commodity prices and have been able to take advantage of low interest rates to buy land, not everyone is in the same boat,” Gervais said. “The outlook for revenues is murkier for 2021 and 2022 given exceptional production challenges in parts of the country.”

He noted livestock producers, for example, have seen their cost of production increase and profits shrink as a result of the drought.

“The overall economic environment of the next 12 months bears watching. The possibility of higher interest rates, inflationary pressures and the demand for agricultural commodities could influence the demand for farmland,” Gervais said.

He recommends farm operators continue to exercise caution, especially in regions where the rate of farmland values growth significantly exceeded that of farm income in recent years. He also recommends operators maintain a risk management plan to protect their business from unpredictable circumstances.

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