Agricultural real estate transfers

“Selling and purchasing farmland entails strategic decision-making where one must navigate a complex interplay of financial, market and long-term investment considerations,” says Azam Nikzad, market analyst/coordinating researcher with the Alberta government. “Additionally, it requires careful assessment of the factors influencing trends in farmland prices. This article will delve into farmland price trends in Alberta and the factors influencing these trends.”

Over the past decade, Alberta's farmland prices across all classes have consistently shown an upward trend, reaching a new average high of $3,530 per acre in 2023, as illustrated in the first figure below. Class 1 land holds the highest value among all classes, reaching $5,724 per acre, followed by Class 2 at $3,912 per acre in the same year. Class 1 encompasses soils with no significant limitations for crop use, while Class 2 includes soils that necessitate moderate conservation practices. This data, along with data for each county and municipal district, can be found on Alberta’s Open Government website.

The average annual increase over the past decade was 5.7% across all land classes. Class 2 had the lowest average annual increase of 4.4%, followed by Class 1 with a rate of 5.3% during the same period. Class 6, characterized by soils with some natural grazing potential had the highest average annual increase at 8.5%, but it started from a much lower price level.

Figure 1. Provincial Agricultural Real Estate ($/acre)

“The number of acres transferred has decreased over the past decade, as shown in the second figure below. The number of acres transferred experienced an average annual decrease of 4.2% across all land classes during the same period. The decline in the number of acres transferred indicates a situation of low supply and high demand for farmland.”

Figure 2. Provincial Agricultural Real Estate (acres transferred)

“Farmland prices are influenced by a range of factors, with some exerting more influence than others,” explains Nikzad.

The first factor is farm cash receipts. Alberta total farm cash receipts reached $23.3 billion in 2023, a fifth consecutive year of record highs. Alberta led all provinces in total farm cash receipts and accounted for 23.6% of the national total. 

“The surge in cash receipts is fueled by strong cattle prices and robust demand for crops. Farm income, in terms of net cash income and realized net income, have performed well in recent years as well. Strong farm cash receipts and farm income encourages farmers to expand.” 

Another factor is interest rates. Interest rates were low for many years, which made financing the purchase of farmland easier. Borrowing costs have recently increased due to higher interest rates and this can impact buyers' purchasing power. However, this financial constraint seems to have been outweighed, so far, by factors such as strong farm cash receipts and farm income. On the flip side, those with cash on hand are sometimes willing to buy farmland outright. 

For decades, the trend has been towards expansion to capture economics of scale and to maximize capacity of larger farm equipment. Many producers would like to see their operations passed down, and to bring in the next generation often requires expansion of the farm’s land base. This means that if any good quality land becomes available for sale, local buyer demand is usually present. 

“Generally good financial performance and increasing land prices may have kept some farmers from putting their farmland up for sale, even though the average age of a farmer in Alberta continues to rise. This led to a seller's market with limited supply. How long will farmland continue to perform well? It is anyone’s guess. Despite recent challenges such as higher interest rates, elevated farm input prices and volatility in commodity markets, the agricultural real estate market remains strong,” says Nikzad.

Contact

Connect with Azam Nikzad for more information:

Phone: 780-422-0264

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