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Looking for a Farm Mortgage? Be Prepared to Pay Top Dollar

5 December 2012

It seems as though we’re going back to our roots in Canada – literally. Farmland has become more popular than ever with just about every market seeing these lots go for top dollar, and even attracting many investors.

According to the Re/Max Market Trends Report, there are only three places in all of Canada right now where prices for farmland are still on par with where they were last year; those are the Annapolis Valley, Windsor/Essex, and Fraser Valley. Every other market of the 16 that Re/Max compared saw farmland mortgages fetching high prices, and maybe even greater demand.

The report pointed to a few reasons for the sudden increase in farmland popularity. Those were mainly a diminishing supply, low interest rates, high prices on the commodities grown on farmland, and the advancements that have been made in farmland equipment.

“Farmers have yet to be deterred from expanding their operations, despite rising values and tight supply,” says Elton Ash, regional executive vice-president of Re/Max of Western Canada. “Pent-up demand has been building, with some farmers making their move after years of sitting on the fence, waiting for prices to correct. Most now believe that there is room for further growth, given the upward momentum of commodity values.”

The report also indicated just how high those prices have gone. In the past year alone prices on farmland have increased 20 to 25 per cent, with an acre of dry land now ranging anywhere from $2,000 to $4,500 and the average price sitting around $3,300 an acre.

One reason for the increase has been a simple lack of supply. As farms are bought up and cities continue to expand outwards, where those crops would otherwise be, there’s just not a lot of places left that are suitable for farming.

“Inventory has been a considerable challenge, as a shortage of listings continues to characterize the market,” Re/Max also stated in their report. “As a result, sales are off last year’s pace and are expected to remain below year-ago levels through to year end. Cultivated dry land remains in greatest demand, with prices at record levels, as existing farmers continue to eye expansion.”

But let’s not forget what we just saw the U.S. go through this summer. With very little rain, especially in the areas of farming where it was needed most, those crops all but dried up and we saw a severe shortage in many of these crops, namely corn and many oils. Farmers (and sellers) have been watching and know this, and they see an opportunity. Buy land, farm the goods that are currently experiencing a shortage, and make lots of money. And this is increasing demand, putting further pressure on prices.

“Oilseed prices in Alberta hit some record highs in June reaching an index value of 158.5,” says Todd Hirsch, senior economist with ATB Financial. “Alberta’s major oilseed crop is canola, and it tracks fairly closely to some of its agricultural substitutes, notably corn and soybeans in the U.S. Because of the severe droguht and heat south of the border this year, corn and soybean prices have risen sharply – and have risen even more through July and August.”

CREW Online has also reported that it’s not just farmers looking for farmland, but investors too. Outside of Western Canada, returns on farmland have seen a 50 per cent year-over-year growth, making this an even more attractive option for many investors than even housing developments.

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