What affects farmland values?

By Rachel Kraynick, P.Ag Regional Farm Business Management Specialist

            Many farmers and ranchers are interested in changes in farmland values as they make purchase and/or sale decisions in order to strategically plan for the future.  Many agribusinesses understand how fluctuations in values can affect farmers’ decisions regarding capital purchases. Even the financial institutions are interested in the future movement of land values because they understand how these values affect the customer’s balance sheet and ultimately his or her collateral position.  Since farmland values are the largest driver in both farm assets and farm debt it is important to monitor how these values change and understand what affects them.

            According to Farm Credit Canada’s Farmland Value Trends information, Saskatchewan farmland values have been trending upward since 2006.  Whether these values will stay the same, drop or increase will depend on a number of factors.  Some of these factors include the current commodity prices, average net farm income, land rental rates, technology and production, availability of land, regulations/laws, individual’s available credit, interest rates, currency and even urban sprawl.

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            One of the ways land is valued is by multiplying the assessment of land by a certain multiple to arrive at a fair market value.  Before doing this, it is important to note that SAMA (Saskatchewan Assessment Management Agency) conducts revaluations based on a four-year cycle. The year the last revaluation was done was 2013 and the 2017 revaluation will see assessed values updated to reflect a new base date as of January 1, 2015.  The legislated base date means that 2017 values reflect a property’s value as of January 1, 2015.

            The reason values may change every four years may be due to one of two things occurring. The real estate market may have changed. Market forces are the usual cause of a change in assessments, or a property may also have been changed. For example, the buildings may have been upgraded and this change in physical properties can happen at any time.

            SAMA has just completed the revaluation for 2017 and has forwarded the new assessments to each of the rural municipalities, which will in turn make ratepayers aware of these values when sending out their tax notices. Producers can also view the new 2017 property assessment values on the SAMA website at http://www.sama.sk.ca.

            “Other ways of finding out what land is trading for in your area can include viewing the Farm Land Securities board comparable land sales database, talking to your local real estate agents or by contacting our Yorkton Regional Office,” it said.