The farm industry, once dominated by small mom and pop operations, has given way to big business in Manitoba. Amalgamation of farmland operations has created “uber-farms” ranging in size from 5,000 to 8,000 acres.
These farms, on serious growth trajectories, are consistently looking to expand, and tend to act swiftly when quarter and half sections come to market, according to a new RE/MAX report.
Despite a severe shortage, sales of farmland in Southwest Manitoba were up 16 per cent in the first half of 2013, compared to the same period one year ago.
Values continued to appreciate, with the price per acre of dryland rising from $1,200 to $1,500 in 2012 to $1,350 to $1,600, with some prime parcels selling for $2,000 an acre or more.
Irrigated land, especially those tracts designated for specialty crops such as potatoes, commanded even higher values, ranging from an estimated $3,500 to $4,500 per acre.
While Canadian farmland values posted serious year-over-year increases in most rural communities, lower commodity prices are expected to temper appreciation in coming months, according to the RE/MAX Market Trends Report: Farm Edition 2013, highlighting trends and developments in 17 rural communities throughout Canada.
The report found that limited inventory levels — reported in virtually all agricultural centres — continued to contribute to strong upward pressure on the price per acre in 88 per cent (15/17) of markets examined. Peak commodity values and low interest rates created the ideal climate for expansion over the past 12-month period, spurring unprecedented demand for farmland.
“The primary drivers in the market continue to be end-users — established farm operators expanding existing operations," says Elton Ash, regional executive vice-president, RE/MAX of Western Canada.
“Be it cash-cropper or livestock farmer — the economies of scale continue to support expansion. There are many buyers waiting in the wings, but momentum is hampered to some extent by a shortage of farmland listings.
“Investors — both institutional and individual — are still active in Canadian agricultural centres, but their presence has subsided in recent months," he added.
Price is not as great an issue for larger operations in Manitoba, according to the report, given that the vast majority has been accumulating acreage at various price points over the past decade, starting at a low of $350 per acre in some instances.
While the larger players are by far the most aggressive buyers, investors, smaller farmers, and new immigrants account for the remaining purchasers in the marketplace. Investors represent a minute percentage of overall activity, attracted to the return on investment.
In recent years, there have been purchases of large tracts of land that have been rented back to local farmers—typically at a return of five or six per cent. For immigrants looking to begin new lives as farmers in Manitoba, the shortage has been a challenge, prompting some to look for parcels in locations north of the desired Yellowhead area, closer to Parkland.
While demand for both dryland and irrigated land remains unprecedented, the cattle industry has softened, with fewer purchasers in the market for beef farms. As a result, some livestock farmers are converting good pasture to grainland.
Low interest rates and rising commodities values have served to stimulate purchasing activity in recent years, but new market realities may have somewhat of an impact moving forward, with prices for cereal grains, including wheat, barley, and canola well off peak levels. However, a good yield in 2013 should serve to offset the impact of lower commodity prices in the short term.
“Burying money in the ground simply makes sense for many farmland purchasers, whether they intend to own/operate, rent the land, invest for the future, or secure farmland acreage for residential purposes," said Ash. “The single greatest common denominator among purchasers in this segment remains confidence. The promise and potential of the land is something farmers have believed in for years.”
Overall demand for farmland is expected to remain consistent for the remainder of the year, while values in Southwest Manitoba are forecast to hold steady, according to the RE/MAX report.