This past year, farmland values across the 11 Counties in Southwestern Ontario increased by 25.65%, which is eerily close to the 25.63% increase from 2020 to 2021. This 2 year period is the highest increase since 2011-2012 when the same area increased by 29.71%.

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. 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 (42% increase). 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 (52% increase) (source: OMAFRA new crop cash weekly prices). The correlation between farmland values and the interest rates-crop prices combination is undeniable.

This correlation of course leads us to thinking of our current situation. Crop prices are relatively unchanged, although there has been some minor softening from the 2021-2022 highs. The bigger changes have come from interest rates which have risen rapidly since early 2022. 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. Perhaps the current inversion of the interest rate market (long-term rates lower than short- term rates) is hinting to a rather short-term elevation of rates.

There remains significant optimism in the sector given the past 10-15 year period of relatively good margins and this is why we see so many young people involved in agriculture. It is this type of environment that has strengthened land values over the same period, and I believe that strength can be sustained as our young producers learn to manage new risks on the way to buying that next perfect farm.

Read the full report in the Spring 2023 Intelligent Farmer Newsletter.