Farmland rental rates keeping pace with farmland value appreciation: FCC analysis

Apr 19, 2024

There is alignment between farmland rental rates and the appreciating value of farmland across Canada according to a new analysis from Farm Credit Canada (FCC).

The farmland rental rate analysis presents the rent-to-price ratio for cultivated farmland in Canada. The ratio leverages insights from data sets on cash rental rates and the Farmland Values Report. A ratio trending lower suggests cash rental rates are appreciating at a slower pace than land values. Conversely, an increase in the ratio indicates that rental rates are increasing faster than land values.

The national rent-to-price ratio in 2023 was 2.52%, reflecting a negligible decline from the previous year. Notably, the three provinces that recorded the highest farmland value increases in 2023, Saskatchewan, Manitoba, and Quebec, also saw increases in rental rates, maintaining stability in rent-to-price ratios.

“There are challenges that come with buying land amid increasing land values and elevated interest rates,” said J.P. Gervais, FCC’s chief economist. “Renting land can serve as a strategic way for new entrants to get established or grow their operations without being burdened with all the upfront costs that come with land purchases.”

The analysis provides a detailed breakdown of rent-to-price ratios by province, highlighting variations in rental rates and farmland appreciation across different regions. Notably, provinces like Ontario and select Atlantic provinces have witnessed divergent trends, with rental price agreements evolving at a slower pace compared to farmland values.

“In regions where farmland values have outpaced rental rates, renting land emerges as a suitable option for producers seeking to optimize their cash flow and operational flexibility,” Gervais adds.

“Producers must carefully evaluate the trade-offs between renting and purchasing land, considering factors such as cash flow, financing options and growth potential,” advises Gervais. “Ultimately, the decision should align with their long-term strategic objectives, financial capabilities and risk tolerance.”

By sharing agriculture economic knowledge and forecasts, FCC provides solid insights and expertise to help those in the business of agriculture and food achieve their goals. For more economic insights and analysis, visit FCC Economics at fcc.ca/Economics.

FCC is Canada’s leading agriculture and food lender, dedicated to the industry that feeds the world. FCC employees are committed to the long-standing success of those who produce and process Canadian food by providing flexible financing, AgExpert business management software, information and knowledge. FCC provides a complement of expertise and services designed to support the complex and evolving needs of food businesses. As a financial Crown corporation, FCC is a stable partner that reinvests profits back into the industry and communities it serves.

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Video: The Investment Opportunities of Industrial Hemp

The fledgling U.S. hemp industry is decades behind countries like Canada, France and China, but according to impact investor and this week’s podcast guest, Pierre Berard, it could flourish into a $2.2 billion industry by 2030 and create thousands of jobs.

To reach its potential, what the hemp industry needs most right now, Berard said, is capital investment.

Last month, Berard published a report titled “Seeing the U.S. Industrial Hemp Opportunity — A Pioneering Venture for Investors and Corporations Driven by Environmental, Social and Financial Concerns” in which he lays out the case for investment.

It’s as if Berard, with this report, is waving a giant flag, trying to attract the eyes of investors, saying, “Look over here. Look at all this opportunity.”

Berard likens the burgeoning American hemp industry to a developing country.

“There is no capital. People don’t want to finance. This is too risky. And I was like, OK, this sounds like something for me,” he said.

As an impact investor who manages funds specializing in agro-processing companies, Berard now has his sights set on the U.S. hemp industry, which he believes has great economic value as well as social and environmental benefits.

He spent many years developing investment in the agriculture infrastructure of developing countries in Latin America and Africa, and said the hemp industry feels similar.

“It is very nascent and it is a very fragmented sector. You have pioneers and trailblazers inventing or reinventing the field after 80 years of prohibition,” he said. “So I feel very familiar with this context.”

On this week’s hemp podcast, Berard talks about the report and the opportunities available to investors in the feed, fiber and food sectors of the hemp industry.

Building an industry around an agricultural commodity takes time, he said. According to the report, “The soybean industry took about 50 years to become firmly established, from the first USDA imports in 1898 to the U.S. being the top worldwide producer in the 1950s.”

Berard has a plan to accelerate the growth of the hemp industry and sees a four-pillar approach to attract investment.

First, he said, the foundation of the industry is the relationship between farmers and processors at the local level.

Second, he said the industry needs what he calls a “federating body” that will represent it, foster markets and innovations, and reduce risk for its members and investors.

The third pillar is “collaboration with corporations that aim to secure or diversify their supply chains with sustainable products and enhance their ESG credentials. This will be key to funding the industry and creating markets,” he said.

The fourth pillar is investment. Lots of it. Over $1.6 billion over seven years. This money will come from government, corporations, individual investors, and philanthropic donors.

The 75-page report goes into detail about the hemp industry, its environmental and social impact, and the opportunities available to investors.

Read the report here: Seeing the U.S. Industrial Hemp Opportunity

Also on this episode, we check in with hemp and bison farmer Herb Grove from Brush Mountain Bison in Centre County, PA, where he grew 50 acres of hemp grain. We’ll hear about harvest and dry down and crushing the seed for oil and cake.