Southwestern Ontario farmland values continued to soar in 2022, with some of the most significant increases occurring in what were, at one time, historically undervalued counties.
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According to the latest farmland values report from Valco, a London-area real estate appraiser, farmland values across the 11 Southwestern counties increased by 25.65 per cent.
This, said author and company partner Ryan Parker, “is eerily close to the 25.63 per cent increase” seen between 2020 to 2021.
Overall, the last two years featured the highest increase since the 29.71 per cent rise in value seen between 2011 and 2012.
Why it matters: Demand for land from in and outside of the agriculture sector continues pushing land prices to record highs in many areas.
Perth, Oxford, and Wellington counties continue taking top price spots — particularly Perth, with median land values reaching the neighbourhood of $35,000 per acre.
Four counties saw value changes in the mid-30 per cent range:
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- Grey – 36.94 per cent
- Elgin – 36.06 per cent
- Essex – 35.93 per cent
- Perth – 34.01 per cent
“The similarities between 2020-2022 and 2010-2013 remind us of the major factors that influence farmland values in Southwestern Ontario and beyond. Both timeframes saw rapidly decreasing interest rates, with the 2009 recession being the former catalyst and the 2020-2021 pandemic being the latter,” writes Parker.
“The other common element was significantly elevated crop prices. Corn prices alone increased from an average of $3.96 per bushel in 2010 to an average of $5.64 per bushel in 2011-2012 (a 42 per cent increase).
Parker continued: “Fast forward to recent history and corn prices increased from an average of $4.62 per bushel in 2020 to an average of $7.00 per bushel in 2021-2022 (a 52 per cent increase) … Tripling of interest rates has been a shock to our senses given the relatively low level of interest rates in the last dozen years. However, land values have not yet responded to this increased borrowing cost. Farmland values have remained strong. It is my opinion that they will continue to be strong this year, albeit at a lower annual increase, given good crop prices and prior year surpluses.”
In an interview with Farmtario, Parker said he was not surprised by the overall rate increase. The fact that many new areas would see such high numbers was already clear halfway through 2022.
Some areas did show comparatively low value increases — particularly Lambton County, at 10.69 per cent — but such numbers are likely anomalies resulting from low numbers of land exchanges.
“It’s getting tougher and tougher to find stuff under $15,000 [per acre], let alone $20,000. It’s not a surprise but certainly a shock,” said Parker. “We’re only five years away from a time when $20,000 was a big number, to now it’s getting at the bottom end of values.”
Counties like Grey and Essex have been late comers, he added, long having a historically slow rate of increase compared to the rest of Southwestern Ontario.
“That has really, really changed. They were just too low for too long,” said Parker. Northern migration, particularly by the province’s Mennonite community, has been a major value driver in Grey County. In the relatively densely populated County of Essex, demand for land from industry, the greenhouse sector, and urban populations have all contributed.
Prices may be daunting, but Parker remains optimistic about the viability of Southwestern Ontario farm businesses. He notes that, despite the financial challenge, more young people than ever are interested in and entering the sector. This type of environment has strengthened land values over the last 10 to 15 years, leading him to believe strength in the region’s agriculture sector “can be sustained as our young producers learn to manage new risks on the way to buying that next perfect farm.”
“There hasn’t been a sale in some of these places that a farm can pay for itself. It’s been this way for years,” Parker said.
Still, he sees many, many younger people coming back to the farm.
“There is as much or more desire now to farm if you’re 20 years old than there has been in a long, long time. Even with [higher] interest rates I still see a lot of land demand out there.”