Reduced demand for acreages has blunted the rise in farmland values, say Central Alberta Realtors.
Farm Credit Canada’s semi-annual Farmland Values Report concludes that agricultural land in Alberta appreciated by 2.2 per cent in the second half of 2008, the smallest six-month increase in five years. By comparison, values jumped 6.7 per cent during the first six months of last year, and by 10.3 and 6.4 per cent in the second and first half 2007 respectively.
Wayne Sommers, an agent with Sutton Group — Landmark Realty in Red Deer, said the earlier run-up in prices reflected competition for rural property by non-farmers.
“That was the main pressure was the people who wanted to live in the country and wanted an acreage.”
Speculators also pushed the numbers up, he said, including in the case of farmland with development potential along the Hwy 2 corridor.
The downturn in the economy and tight credit markets, said Sommers, has curbed many people’s appetite for land.
Kenneth Poffenroth, a Lacombe-based agent with Re/Max Real Estate Central Alberta, agreed that activity in the acreage market has dropped “substantially.”
“Prior to about six, eight months ago, there was always a strong demand for recreational-type land, and that was usually marginal (farmland),” he said.
“So marginal land was selling for a lot more than it should, in comparison to good farmland.”
Poffenroth also echoed Sommers’ assessment about the dwindling interest in land for industrial or commercial use.
“We’ve got a saturated market for development land. There are a lot of projects started, or about to get started, and that market is way different than it was a year and a half, two years ago.”
Cliff Majak, a broker with Imperial Land Services of Red Deer, cautioned against placing too much reliance on the FCC numbers. He pointed out that the 2.2 per cent figure is based on values across the province, and actual numbers can vary even within a region.
“If you’re talking out of the corridor area, it’s probably accurate,” he said of the slight rise in values. “For the corridor area, we’ve probably seen a drop in price, and definitely a drop in demand.”
Poffenroth said the significance of the 2.2 per cent figure is that it shows farmland values have resisted the downward pull affecting residential land.
“What I’m telling people is that farmland has remained strong.”
Sommers thinks many farmers are interested in expanding their operations, but won’t bid up prices the way aspiring acreage owners did.
“They won’t pay ridiculous amounts of money.”
Poffenroth also believes there is continued demand for “good arable land.” But producers’ desire to grow is being tempered by the high cost of inputs like fuel and fertilizer.
“We’ve got a lot of guys now that are looking at a hundred dollars an acre just for fertilizer. Arguably, that’s double from what it was a couple years ago.”
A news release issued by FCC said the smaller advance in Alberta farmland values reflects lower farm commodity prices and reduced farm expansion, as well as less land speculation and urban sprawl. The latter two factors were attributed to the economic downturn.
Across Canada, farmland values in the second half of 2008 remained constant in Prince Edward Island and increased in every other province, with Saskatchewan leading the way at 8.8 per cent.
The national average was 5.6 per cent, which was the third-highest figure since 1997. The Canadian number was 5.8 per cent in the first half of 2008 and 7.7 per cent for the final six months of 2007.
Rémi Lemoine, a senior vice-president with FCC, said farmland values have remained steady or increased despite volatile commodity and input prices.
“Even though there have been adjustments to prices in the grains and oilseeds sector, producers remain optimistic about the future of agriculture,” he said.
Lemoine pointed out that land values tend to be a “lagging” economic indicator, and that FCC’s Farmland Values Report reflects numbers from last fall.
FCC’s full Farmland Values Report can be found at www.farmlandvalues.ca.