Record rise in Canada land prices heralds slowdown

Farmland prices in Canada rose at their fastest in at least 29 years, supported by strong crop prices and low interest rates, but are poised for a slowdown, the country's top agricultural lender said.

Canadian farmland values rose 22.1% in 2013, up from the 19.5% achieved the previous year and indeed the fastest on records going back to 1985, Farm Credit Canada said.

The increase was led by the Prairies provinces of Manitoba - where values rose by 25.6%, extending an unbroken run of growth since 1992 – and Saskatchewan, where growth reached 28.5%.

The growth was fuelled by "low interest rates, growing world food demand and the resulting strong commodity prices in the first half of the year", said the lender, whose portfolio of borrowings exceeds Can$26bn.

"The positive overall health of the agriculture industry during 2013 is reflected in recent land value trends."

Canadian farmers also enjoyed record harvests of canola, the rapeseed variant, and wheat last year.

'Multi-year slowdown'

However, the lender cautioned that most of the 2013 rise in land prices was seen in the first half of the year, and forecast that growth in farmland values should "slow down… for the next several years" as the rally's two main drivers – crop receipts and interest rates – become less supportive.

"Long-term outlooks for crops suggest world stocks of grains and oilseeds will rebuild, bringing prices closer to their long-term average," said JP Gervais, the FCC's chief agricultural economist.

"Margins will be tighter and eventually interest rates will increase."

Farmers should not "use the past few profitable years – when crop prices were abnormally high due to the 2012 US drought – as the basis for purchasing more land", he said.

 Logistical setbacks

In fact, the benefit to grower profitability from the 2013 record harvests has been eroded by logistical problems blamed on the cold weather, which forced trains to run at smaller lengths and lower speeds, cutting the volumes they could carry.

That has reduced substantially the prices received by farmers unable to call upon road transport as an alternative, or unwilling to pay soaring fees charged by in-demand trucks.

US Department of Agriculture staff warned last week that "the cost of the [Canadian] delays have been significant – lost sales, a drop in prices, producers unable to deliver and unable to pay back loans, demurrage costs and damage to the Canadian reputation of being a reliable supplier".

"Even if the industry can regain the ground lost during the slowdown that occurred during the winter months, current estimates call for a significant carry-over," which is expected to curb farmers' enthusiasm for sowing this year.

The bureau forecast that total Canadian production of wheat, barley, oats and corn this year will tumble by 22% to 51.4m tonnes, hurt by expectations of lower plantings besides a presumption of a return to less outstanding yields than last year.

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