Approximately one-third of the farmland in Saskatchewan is leased, with 80% to 85% of that land owned by retired farmers and their families. This demographic controls a significant portion of Saskatchewan's farmland, and recent trends indicate a notable shift in their approach to farmland investment.

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Historical Perspective

From 1992 to 2012, retiring farmers typically sold their farms to finance their retirement and transition to the next phase of life. Farming from 1985 to 2005 was often challenging and not highly profitable, prompting retirees to exit farming entirely and use the proceeds from the sale of their land to fund their retirement.

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Trend Reversal

Around 2012, a new trend emerged. Retiring farmers began opting to rent out their farmland instead of selling it. Several factors contributed to this shift:

• Financial Stability: Many retiring farmers had sufficient savings to purchase their retirement homes, travel, and simply enjoy life without needing to liquidate their farmland.
• Investment Yield: With interest rates low, the rental yield from farmland (4.0% to 5.0%) was significantly higher than the returns on traditional investments like GICs (1.0% to 2.0%).
• Positive Farmland Value Trends: The appreciation of farmland values and positive outlook made holding onto the land a more attractive option.

This change in behavior led to a dramatic reduction in the amount of farmland available for sale. From 2012 to 2023, the number of farms publicly listed for sale dropped by an astounding 75%. This scarcity contributed to and further fueled the upward trend in farmland values.

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Current Market Dynamics

Today, we are witnessing another shift. Farmland values have reached all-time highs, with average prices increasing from $950 per acre in 2012 to $2,900 per acre in 2023—a 300% increase. Interest rates have risen significantly, making traditional investments like GICs much more attractive offering risk-free returns in the 5.0% range.

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Although values have appreciated by 300%, farmland rental rates have not kept pace. Current lease rate returns are between 2.5% and 3.5% of market value, nearly half of what they were 12 years ago.

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For farmers who have been retired for a while, the conversation at the kitchen table has shifted from retirement planning to estate planning. Retired farmers frequently leave farmland to their families, who often do not share the same attachment to the land and are more likely to sell the inherited farmland rather than continue renting it out for a modest return. If the retired farmer doesn’t sell their land, the family or beneficiaries might.

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Future Outlook

This past winter, we observed an increase in retired farmers putting their previously leased farmland on the market. The current market conditions—high land values, modest lease rate returns, attractive alternative investments, and the aging demographic of retired farmers—are driving this trend. If this pent-up supply continues to come to the market, it could impact market dynamics. While demand is strong enough to absorb a modest increase in supply, the question remains: how much of an increase can the market handle?

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Ag Expert Insights

As experts in agricultural real estate, we understand the complexities and evolving trends in the farmland market. Our insights highlight a potential shift in how retired farmers approach their farmland investments. Whether you're a potential buyer looking to seize opportunities in a dynamic market or a seller contemplating the best time to divest, our expertise can guide you through every step. Trust us to provide you with the latest market analysis, strategic advice, and personalized support to make informed decisions that align with your goals.

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