Canadian Farmland: A Worthwhile Investment?

by: Toro

Investing in farmland is becoming in vogue these days so I wanted to see how well prices of farms have done as of late. Below are the growth in farmland values for Canada, which were attained from Farm Credit Canada. I will address American farmland in a future post.

Canada farms 08

Since 1995, the compounded annual growth rate in the nominal price of farmland in Canada has been 5.6%. Adjusted for inflation, farms have risen by 2.9%, slightly faster than the rate of economic growth in the country. In 2007 and 2008, the nominal price of farmland rose by 18%, or 8.7% compounded, well above the 14 year-trend.

BC farms 08

In British Columbia, the nominal price of farms has increased by 8.2% per year since 1995. BC has experienced the highest rate of price appreciation over the past four years, with farms rising by 75.2%, or 15.1% compounded, an unsustainable rate.

Alberta farms 08

In Alberta, the nominal price of farmland rose by 7.9% compounded since 1995. Over the past two years, prices rose 28% in total, or 13.1% compounded.

Saskatchewan farms 08

In Saskatchewan, Canada's breadbasket and location of the country's greatest football team, prices before inflation lagged, rising only 3.8% per annum. However, the past two years saw significant gains, with nominal prices rising 27.6%, or 12.9% per year.

Manitoba farms

Manitoba did slightly better, rising 5% per year before inflation since 1995. Prices rose 20.8%, or 9.9% compounded in 2007 and 2008.

Ontario farms 08

Farms in Ontario were up on average 6.5% over the past 14 years. Prices lagged in 2007 and 2008, rising 10.8%, or 5.3% compounded. The economy of Central Canada has been relatively weak as the strong Canadian dollar hit the province's manufacturing base. High commodity prices benefited the West, which is reflected in stronger farmland prices over the past few years.

Quebec farms 08

The best performing farmland prices since 1995 have been in La Belle Province, Quebec, where nominal farm prices increased on average 8.3%. The past two years were steady as she goes, rising 8.2% on average in 2007 and 2008.

Prices went ballistic over the past few years as the ocean of global liquidity flooded Canada's farms. The question now becomes whether the country will see a repeat with the tsunami of money being unleashed on the global economy by the world's central banks.

My bet is that after a pause this year, Canada's farms, as well as most real assets, will rise higher as governments continue to promote policies which will lead to a resumption in asset inflation.

Disclosure: No position