REGINA — What are guys paying for cash rent in your area? The just-released farmland rental rate report from Farm Credit Canada sheds a bit of light on the question.
Cash rental rates for farmland are something of a black box. No public reporting system exists, and since it’s a competitive market, most farmers would rather not divulge what they’re paying.
While the FCC report doesn’t put dollar per acre values on cash rents in each province, the rent-to-price ratio they report, when combined with their farmland values information, lets you decipher some ballpark rental rates.
In Saskatchewan, FCC says the rent-to-price ratio, in other words, rent divided by farmland value, has remained steady with last year at 3.1 per cent. In other words, cash rent is keeping up with the increase in land prices.
The wide range in the rent-to-price ratio must be noted. While the average rent-to-price ratio is pegged at 3.1 per cent, it ranges from 1.8 to 4.6 per cent.
If, however, you use the 3.1 per cent and assume a land value of $3,000 an acre, the cash rent comes to $93 an acre. If you use a land value of $4,000 an acre, the average rent-to-price ratio gives you a cash rental rate of $124 an acre.
As land prices increase, the trend is for a lower rent-to-price ratio, and that can be seen in the numbers for other provinces.
The average rent-to-price ratio in Manitoba is 2.4 per cent. In areas of Manitoba where land is selling for $5,000 an acre, that ratio computes to a cash rent of $120 an acre. Alberta is in a similar situation with an average rent-to-price ratio of 2.35 per cent.
In Ontario, where land commonly sells for $15,000 to $25,000 an acre, the average rent-to-price ratio is much lower at only 1.2 per cent. On $20,000 per acre land, this computes to a rental rate of $240 an acre.
The FCC analysis is designed mainly for comparing cash flow when renting land as compared to new purchases of land. Over recent years, the cash flow advantage of renting has been increasing. However, the increase in land values is eclipsing the cash flow advantage on farm balance sheets.
