Farm land prices in Ontario increased by 15.6 per cent over the first six months of this year, reports Farm Credit Canada.
The survey was taken after interest rates went up by 1.5 per cent, but not before they rose an additional 1.5 per cent.
Chad Lawley, economics professor at the University of Manitoba, said land prices will begin to decline as interest rates rise.
But J.P. Gervais, senior economist with FCC, said he does not foresee a repeat of the crash of farm values in the early 1980s that bankrupted many optimistic farmers who loaded up on debt to buy farms and expand operations.
Then inflation spiked higher than 20 per cent and mortgage interest rates from commercial lenders went as high as 18 per cent.
Lawley said “big increases in interest rates could cause big decreases in farmland prices, or at least they did in the past.
“I don’t know how out of control inflation is going to get, I don’t know where interest rates are going to go, and commodity prices remain strong,” he said, so there probably won’t be a repeat of the 1980s disaster.
Gervais said “I do think rising interest rates are going to slow down the rate of appreciation, but I think the outlook remains optimistic.
“When you think about the 1980s farm crisis, what made it a crisis were not only the high rates but also the low commodity prices” and he doubts there will be a repeat of that this time.
“I have to work really hard to find a scenario in which we’re going to see prices collapse. A lot of things can bring volatility to the marketplace,” he said.
“There are some scenarios in which you could see prices coming down, but it’s all about probabilities. And I would say right now, there’s a higher likelihood of prices that remain elevated.”
The FCC was bankrupted by the 1980s crash and only survived because the federal government backed it with hundreds of millions of dollars.
