By Kevin Hursh
Prairie farmers have become accustomed to the price of land increasing each year, often quite substantially. Depending upon how the rest of 2025 unfolds, there may be a pause button on that long-standing trend.
Times have been good for most grain operations over the past couple of decades. However, if we’re brutally honest, rising land prices have contributed more to the growth of net worth than the actual farming operation. It’s like two separate enterprises – land investment and farming.
In Farm Credit Canada’s Farmland Values Report for 2024, cultivated farmland values increased an average of 7.1 per cent in Alberta, a nation-leading 13.1 per cent in Saskatchewan and 6.5 per cent in Manitoba. The year-over-year increase was substantial, but not as large as some previous years.
Digging further into the numbers reveals some regions where farmland prices did not increase or increased very little. In southern Alberta (the area below Calgary), average prices stayed the same as the previous year on cultivated dryland. There was, however, an 8.8 per cent price increase on irrigated land.
In southwestern Saskatchewan, the farmland price increase was only 4.1 per cent, far below the 11.1 to 19.9 per cent increases seen in other regions of the province.
Southern Alberta and southwestern Saskatchewan have been hit with hot, dry summers in recent years, so it makes sense that land price increases are muted. What’s more difficult to explain is why those same regions are recording the greatest increases in the value of pastureland.
Alberta pastureland in the southern region saw a value increase of 10.6 per cent, far above the zero to 2.2 per cent recorded in other regions. Southwestern Saskatchewan pastureland increased in value by 15.9 per cent, far above the 1.8 to 5.7 per cent increase elsewhere.
Perhaps with strong cattle prices, producers in those dry regions were particularly motivated to increase pastureland holdings. Perhaps some pastureland was purchased in the belief that it could be converted to grain production.
As this is being written, tariffs by the U.S. and China are clouding the outlook for agriculture. While cattle prices are holding up quite well, most crop prices are soft. Canola, Canada’s most important crop, is particularly hard hit.
There’s tremendous pent-up demand for farmland as many operations would love to expand. However, if a big drop in grain farm profitability occurs, it would be reasonable to expect land prices to stabilize and perhaps even drop in some areas.
Land always seems too expensive relative to the income it can earn, but over the past 20-plus years all you had to do was wait a year and the price would be even higher. Those who bought the most at their earliest opportunity have seen amazing growth in their net worth.
The psychology changes once prices stabilize and potentially start to decline. Net worth drops each year and equity erodes. Lenders can get nervous.
Landlords, including investment companies, can decide it’s time to cash out and crystalize their returns. That puts more land on the market.
Not many years ago, land was relatively cheap in much of Saskatchewan. You could rent out your land and the rental payment would provide a four or five per cent annual return. Cash rents have increased, but not as quickly as land prices. Now, a two or three per cent return on the value of the land is much more common.
Some farmland owners are one or two generations removed from the farm. Sentimental value has diminished and even though land has been a great investment on paper, you can’t spend the money that’s tied up in land. This is another reason why the supply of land on the market could increase. Increasing supply could mean more downside price pressure.
Predicting the future is difficult at the best of times and these are times of rampant uncertainty. That said, it seems a reasonable bet that farmland prices aren’t going to be as buoyant this year as compared to what we’ve come to expect.
