Exploring Trends in Farmland Ownership and Rental
There are many interesting trends happening in farmland ownership and leasing. The "Exploring Rural Land Use Conference", held in Guelph on May 14th was offered by the University of Guelph, Institute for the Advanced Study of Food and Agricultural Policy by FARE (Food, Agricultural and Resource Economics). Many aspects of farmland trends were discussed. Presentations can be viewed at
Farm Ownership Trends
Alfons Weeksink presented farm ownership trends based on surveys of farmers who rented land. He found that:
- 60% of land was held by owners who were on their own land;
- 8% were held investment companies,
- 13% held by owner investors; and
- 3% foreign ownership.
Rental agreements were typically 1 year handshakes that tend to get renewed annually but carry on for longer than10 years. 80% are cash rent as opposed to share crop or other types of agreements. Rates were generally higher where locals own the land.
Alfons posed the question "Does the environment lose with land rental"? His studies indicated this was not a significant issue. Owners usually only maintain contracts with farmers that manage the land in a way that landlords felt was reasonable. Since the supply of land is limited, landlords have some power to enforce this. He also found that renting farmers tend to manage their rented land the same as their own, using the same equipment and products. He did find a decrease in woodland, pasture, and other ecological features being retained, and perhaps less investment in soil. Long-term impacts may result so further study is needed.
Farmland Value Trends
James Bryan, Farm Credit Canada, suggested that land prices were strongly influenced by interest rates, cash receipts, government policy and world markets. In 2012, Canadian farmland values increased 19%, the highest rate ever. Values have generally increased more than 10% annually since 2007. North Dakota had the highest single year increase in land prices of 37.4%. Bryan suggested that farmland has been a better investment than S&P500 in the last 12 years, but it is about the same in the longer term.
Trends In South-western Ontario
Marleen Van Ham, an appraiser with Agri-Choice Real Estate Appraisals, discussed "Land value Trends in South-western Ontario". In the 1990's, it was new immigrants who were buying farmland, but not anymore. The trend for livestock farms to purchase land to meet obligations under the Nutrient Management Act (i.e. sufficient acreage for manure spreading) has also been satisfied and is no longer affecting prices. Class of farmland does not always impact values, but the location and ability for quick conversion to cropland often does. Pasture land is definitely being converted to crops, woodlots are being cut, and fence rows and ditches are being removed. Census data from 2006 and 2011 show a loss of 714,000 acres of forage acres (484,000 of hay and 229,000 of pasture).
Van Ham indicated that there is a real "hunger" for land right now. Much of it being driven by dairy and poultry producers who are not as able to expand, so are becoming the new cash croppers. She described it as a trend in farmland amalgamation, with surplus, older farmsteads being removed. Recent farmland values recently peaked in January/February, slightly lower in March, with the following "per tillable acre" prices:
- Elgin $6-18,000/acre,
- Norfolk $8-14,000 (with ginseng and potatoes soils at high end),
- Haldimand $6-10,000,
- Oxford $15-22,000,
- Brant $8-13,000,
- Waterloo $9-15,000,
- Perth $12-20,000,
- Huron $9-15,000.
The price slowdown was attributed to people taking a breather from getting caught up in the hysteria of land sales. Interestingly, land purchasers acknowledge that under these conditions, the price paid cannot be covered by the income generating potential of the land.
The sale of farms to operating farms is putting the squeeze on the straight cash cropper. They really can't pencil the land purchase themselves and are reliant on retired and other farmers to supply land to the rental market. However, now the retirees are selling the farms to active supply management farmers, so the cash cropper land base is shrinking. As land rental availability gets tighter, it becomes more competitive and costly.
Van Ham indicated that the value of vacant land is higher than land with buildings, houses and outbuildings that pose a risk and added cost to the purchaser. The presence of water courses and woodlots also detract from land values. Buyers are looking for tillable land in large parcels with no fence lines or obstructions for big equipment. Farmers generally don't want to be house landlords because it can be difficult to find good tenants. Even with good tenants, the costs of taxes, heating, and maintenance can erode any chance of generating a positive balance sheet on this activity.
For more information:
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Ian McDonald, Applied Research Coordinator/OMAF and MRA
|Creation Date:||01 June 2013|