The FCC Farmland Values Report showed increases for 2023, elevating land affordability challenges for farm operations. Typically, the price to hire farmland is decrease than financing, making it a worthy different to assist money move and reduce monetary danger. Location is all the time a key issue, and with many rental agreements locked in for a number of years, farmland worth will increase received’t instantly affect the underside line.
Hire-to-price ratio evaluation
Whereas completely different sorts of rental agreements are utilized in agriculture, we’ve targeted on money rental agreements.
The nationwide RP ratio in 2023 was 2.52%, a slight lower from 2022 (Desk 1). This 12 months, no charges are revealed for British Columbia as knowledge in a number of areas had been deemed inadequate to offer an correct common RP ratio.
Desk 1. 2023 rent-to-price ratio by province, with minimal and most vary by province, together with 2022 rent-to-price ratio.
Saskatchewan, Manitoba, and Quebec noticed the most important will increase in farmland worth in 2023. Rental charges rose equally in these provinces, and the RP ratio remained secure.
Ontario noticed the best enhance in 2022, adopted by a extra modest enhance of 10.7% in 2023. This 12 months’s lowering RP ratio signifies that money rental fee agreements haven’t advanced as shortly as farmland values.
Related outcomes had been noticed in Atlantic provinces, with the speed of enhance in rental agreements being decrease than the speed of farmland worth appreciation in each New Brunswick and Prince Edward Island. These provinces skilled higher-than-average will increase in farmland values in 2022.
Money rental agreements are sometimes negotiated for longer durations as a danger mitigation follow for renters, encouraging higher land stewardship. Every province’s money rental charges and farmland values fluctuate significantly, so solely the weighted provincial and nationwide common is disclosed right here. The high-end RP ratio is normally seen on farmland with the bottom worth per acre within the province. Specialty crops, like potatoes, are usually negotiated at larger costs than different crops.
Renting farmland can complement land purchases and is usually a part of long-term strategic progress plans. For a deeper look into how renting versus buying can have an effect on money move, read our full blog post in FCC Economics.