The interplay of supply and demand affects the prices that Alberta farmers receive for their crops and livestock every year.
The same factors are now pushing up the value of the land they rely upon to produce those crops and livestock.
The 2014 Re/Max Farm Report describes a hot market in Central Alberta, where prime agricultural land is selling for $4,500 to $7,500 per acre, as compared with $3,400 to $6,500 a year ago.
“In some areas it’s probably jumped 20 per cent or 25 per cent, and some places it hasn’t been that dramatic,” said Ken Poffenroth, a Realtor at the Lacombe office of Re/Max Real Estate Central Alberta.
Various factors are at play, said Poffenroth, including several profitable years in the agricultural sector that were capped off by the bumper crop of 2013. But the rising land prices primarily reflect a fundamental rule of economics.
“If I had to point to one single factor over all the others that’s driving the prices of land, that’s simply supply and demand.
“There are way more buyers than there are sellers.”
While many farming operations, some of which consist of two or three generations of operators, are anxious to expand — fewer older landowners are looking to cash out.
“They no longer need to sell because they have enough financial wherewithal that just living off rent is adequate enough for them to sustain themselves,” said Poffenroth.
He added that urban sprawl is having a minimal impact on farmland prices. However, the trend of affluent Albertans seeking to buy their own piece of rural paradise is exerting upward pressure on pasture land prices.
“Parcels with the right combination of forest, hills, creeks and other natural features can sell for upward of $500,000 per quarter section, making it difficult for beef operations to compete,” said the Re/Max Farm Report, which Poffenroth helped to write.
The report anticipates that the farmland market in Central Alberta will remain tipped in the sellers’ favour for some time. Even a poor harvest would be unlikely to impact prices dramatically, agreed Poffenroth.
But the 30-year veteran of the rural real estate industry has seen his share of cycles, and he doesn’t expect the current price climb to continue.
“This type of increase, in my view, can’t sustain itself.”