While Southwestern Ontario prices are rising, it's the opposite story in the nearby American corn belt
Farmland value appraiser Ryan Parker of Valco Consultants says Canadian farmland is increasing in value while the opposite is true in the USA. (DEREK RUTTAN, The London Free Press)
They grow the same cash crops, raise the same livestock, use similar production systems.
But this year there’s a big difference between Southwestern Ontario farmers and their corn belt counterparts on the other side of the Great Lakes.
While Ontario farmland prices are forecast to hold steady or edge higher after years of spectacular, and what some call unreasonable increases, many American farmers are staring this year at the steepest drops in more than 30 years.
A report released this month by Purdue University predicts farmland values in Indiana this year will tumble 8.2 to 8.7 per cent, a decline that comes on top of a state wide decline of farmland values in 2015 of about five per cent.
Some other Midwest farm states are experiencing similar jarring drops.
Ontario farmland has increased in value every year since 1988 and land appraisers have predicted 2016 will continue the streak with prices rising another two to four per cent.
Authors of the U.S. farmland study blame the dropping land prices on low commodity prices rippling through the agriculture sector.
On this side of the border, analysts say there are a number of factors behind the different farm value picture here, some that have nothing to do with what the land can actually produce.
“Part of it is there is a lot more urban pressure in Ontario than there is in most geographies in the U.S.,” said Peter Johnson, a London-area agronomist with Real Agriculture.
“To a lawyer in London, they frankly don’t care what the price of corn, soybeans or milk is, they want that piece of property as either an investment or a place to live and they just go buy it. The productive value doesn’t relate to the price they’ve paid,” said Johnson.
With farms in the London region trading as high as $18,000 to $25,000 an acre, Johnson and others say the price no longer relates to what the land can produce.
“In terms of the productive value and profit potential from cropping that land, there is no way you could pay what we are currently paying and make it work. You couldn’t pay half of what we are paying and get the job done, it is not possible,” Johnson said.
Ryan Parker, an appraiser and partner at Valco Consultants Inc. in London, agrees it is nearly impossible for anyone to buy land at current prices and grow a crop that will pay for it.
Farmers that are buying more land are ones that are already established and paid substantially less for land in the past.
“It is usually they bought 500 acres for under $2,000 an acre, they buy the next chunk for $20,000 an acre, but the average they can make payments on,” Parker said.
While urban pressure may be playing a role in farmland prices in small pockets around centres such as London, Kitchener-Waterloo, Guelph and Toronto, Parker said there are other factors at play across the region.
A big one is the value of the Canadian dollar.
“While they are getting $3 a bushel for corn (in the U.S.), we’re getting $4.50. The Canadian dollar has helped out three sectors in particular — the cash crop guys, the hog guys and the beef guys. It has helped them stay more profitable than their American counterparts,” Parker said.
Supply management, the system in which production is controlled and prices set on a cost of production formula for the dairy and poultry sectors, is still a big factor in Southwestern Ontario, he said.
And then there is the availability of money for farmers from good quality banks at low interest rates, Parker said.
“That really good, low interest rate has allowed a lot of guys to keep moving forward and buying land,” he said.
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London region: Top farmland sold in 2015 for as much as $18,000 to $25,000 an acre
U.S. corn belt: Average value per acre in 2016 (converted to $ Cdn dollars at current exchange rates)
Source: U.S. Dept. of Agriculture