Eye-popping farmland prices may have peaked, experts say

How would you react if your house was valued at $400,000 at the start of the year and, by the end of the year, it was appraised at $514,000? Would you be wondering, "How high can it go?"

It's the same question for agricultural land except the premise — the sharp increase in just one year — is very real. According to a survey by Farm Credit Canada, farmland values shot up by 28.5 per cent in Saskatchewan between Jan. 1 of 2013 and Dec. 31 of the same year. Nationwide, farmland prices increased by 22 per cent.

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"It was actually the largest increase that we've seen since we've been doing our study for the past 20 years," Michael Hoffort, from Farm Credit Canada, told CBC News. The federal Crown corporation provides a range of financial services to the agricultural community.

A guy came and offered us a goofy price.- Recently retired farmer Melvin Buehler

For some, the recent spike in land prices was an opportunity not to be missed.

At a new condo in Regina, recently retired farmers Melvin and Carolann Buehler proudly display the latest aerial photo of their farmyard near Richardson, Sask. After 35 years of working the soil the couple decided to make the soil work for them. So they sold their farm, advancing their retirement plans.

"A guy came and offered us a goofy price," Melvin Buehler explained with a chuckle. "It was way more than I ever thought would ever happen."

"We don't know whether the land prices will stay this high, so we took the money when we were offered it," Carolann Buehler added.

In the Richardson area, east of Regina, a quarter section of land can fetch $250,000 according to farmland real estate agents.

Saskatchewan's price increase was the biggest in the country and continues what has become a decade-long trend. While prices have been steadily increasing since 2003, land values really took off after 2007.  

The modern day land rush on the Prairies is being attributed to bumper crops, relatively high grain prices and low interest rates.

Another factor cited by some is a change in land ownership regulations, opening the market to non-Saskatchewan residents and institutional buyers such as investment groups or funds like the Canada Pension Plan.

Prices may have peaked

"I think we're going to see some levelling off," Bob Lane, an agent with Realty Corp., told CBC News. Lane has specialized in selling farm and ranch properties for 33 years.

He said he doesn't expect to sell farmland at higher prices in 2014, compared to 2013, especially considering that commodity prices have started to fall.

Lane also thinks land prices have reached a point where outside investors are more cautious as they weigh the cost of land against what they can get from renting out the land.

"With our commodity prices dropping off recently, in the last year, it will probably not support their return on investment that they're looking at," Lane said.

Prices daunting to new farmers

While higher prices are attractive to older farmers looking to cash in, the price tag can be daunting to the next generation looking to expand their holdings.

But, Hoffort, the FCC's Chief Risk Officer, said he believes young farmers can still build successful businesses.

"As of right now we're quite comfortable that the economics still work with what we're seeing in farmland prices," Hoffort said, but he also cautioned that some forecasts suggest farmland prices will soften.

"[It is] not so much that these land prices are overpriced," Hoffort explained, "but that we'll see less increase. What some folks would call a soft landing."

Selling easy, buying tough    

Selling farmland is not a typical real estate transaction for people whose lives are tied to the land. The Buehlers had to come to terms with selling off land that had been in their family for three generations. As an economic decision, however, it was not difficult to make the sale.

"My equipment was getting older," Buehler said. "Replacing it was going to cost a tremendous amount of money and I just didn't want to be saddled with a big debt at my age any more."

The question of debt is also a real one for young farmers who must decide how much debt they want accumulate to expand their operations.

Near Edgeley, Sask., Franck Groeneweg, 37,  is getting his equipment ready to seed this year's crop. When he immigrated to Canada 12 years ago to pursue his dream of farming, the France-born farmer couldn't believe how cheap it was to get started.

"It felt like whole Saskatchewan province was for sale," Groeneweg recalled. "So we tried to buy as much land as we could."

Back then, in the early 2000s, he would pay $70,000 for 160 acres. A year ago the same quarter section cost more than $200,000.

The spike in prices has slowed his expansion plans. He is also trying new farming techniques and considering growing specialty crops, all in an effort to improve his profits per acre.

Groeneweg remains optimistic, but he has adopted a cautious stance about investing too much, too fast in a business notorious for sharp upturns, and downturns.

The one thing he is counting on is remaining on the land and working alongside his son Luke, now 10.

"We've got a bright future for agriculture, for my kids," he said.