During the early days of the mortgage business, brokers would require a lot of paperwork…
Now you can listen to our blog post, “How Much is Farm Land to Rent Per Acre?” while on the go.
In 2021, farmland values nationwide increased to an all-time high as a result of high commodity prices and low mortgage rates. According to a favourable commodity price prediction for 2022, even in a climate with increased interest rates, there may still be a demand for farms.
A different option for companies to achieve their desired operational scale and reduce financial risk is to rent land. The research below uses the collection of farmland benchmarks from our FCC farmland value report to give a broad picture of cash rental rates in a few provinces.
Analyses of rent to price ratios
For particular benchmarks related to agriculture, we gather cash rental rates in each province. In order to reduce the reported diversity in cash rental rates observed within regions, we concentrate on a Rent-to-Price (RP) ratio. The reported RP ratio compares the value of farmland per acre to the cash rental rate per acre (based on the gross rent price generated by the land).
The ratio of Rent to Price (RP) in percentage terms = per-acre cash rental rate / farmland value per acre
Even if rental rates do not rise proportionately, a higher average price of farmland will lead to a lower RP ratio. The weighted average RP ratio for cultivated land in Canada is 2.50%, down 0.2% from the previous year.
How much does 1 acre of farm land cost in Canada?
The cost analysis of 1 acre of farmland in Canada is given below for every province. Read it to have a fair comparison of one-acre farm land cost each year.
Range of Rent to Price Ratio of Farm Land in each province
In Ontario, farmland values rose quickly in 2021 (a rise of 22.2%), and the RP ratio for that year was 1.45% as opposed to 1.70% in 2020. As rental rates are frequently negotiated and established over a period of years, it might be challenging or just take longer to catch up to significant rises in agricultural values.
Alberta and New Brunswick had the same average RP ratios as last year, which is in line with the provinces’ average agricultural values changing the least overall.
In Saskatchewan, the typical RP ratio was 3.30% in 2020 and is now 3.00% in 2021. With a few exceptions, most of the province’s areas experienced stable rental prices this year, resulting in a lower RP ratio given the general growth in agricultural values. The same findings apply to Manitoba, Quebec, and Nova Scotia.
The average RP ratio in Prince Edward Island was 5.50% in 2020 compared to 5.20% in 2021. Compared to other provinces, PEI has a broader variety of RP ratios. Particular crops like potatoes typically generate better income than grains and oilseeds on an acre-by-acre basis. Rent prices are under pressure to rise as a result. Additionally, land that can support these specialist crops is frequently less readily accessible for a rental than other properties that can help income crops.
This year, there are no rates for British Columbia because it was determined that there was not enough data from various regions to calculate an accurate average RP ratio.
The Bottom Line
Prices for farm land, rental rates, and agriculture income are all correlated. However, the two other indications may lag behind any movement in one of these indicators. Given the robust commodity prices in the current market, land prices are rising, and the forecast for agricultural income is favourable. They tend to move in unison over time, and any departure from their long-term equilibrium may portend significant changes to the farmland market.
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