Questions Regarding Canada’s Agricultural Sector Economic Outlook
As the weather warms up and a new growing season begins, many individuals are interested in the state of agriculture in Canada and its economic outlook. The agricultural sector presents unique alternative investment opportunities for investors. With that being said, weather changes, supply chain issues, and other factors are affecting both farm and agri-business operators.
This raises a question for investors; what will Canada’s agricultural sector economic outlook be in 2022? Without a crystal ball, it is difficult to be definitive. However, some observations and expectations are clear. The following article written by Shawn Bustin, President of AgriRoots Capital Management Inc., explores this sector’s economic outlook here in Canada.
Land Values Continue to be Strong
Land values increased on average 8.3% in Canada in 2021, following 5.4% in 2020. The largest increase occurred in Ontario – increasing 22.2%, with Alberta experiencing the lowest growth factor of 3.6%.
While the growth continues to be strong, it is interesting to note that land values experienced significant gains between 2012 and 2015, moderating somewhat since then. Nationally, land values do continue to increase but at a more moderate pace than what is being experienced in residential real estate.
The AgriRoots team watch trends in land values closely in assessing risk exposure as expressed in loan to value ratios. The long-term stability of Canadian Farmland is fundamental in our investment thesis, but we are beginning to see increases in long term fixed interest rates and that could lead to softening in real estate values. It should be noted that the short-term nature of our loan commitments – 12 months – allows us to closely monitor borrower performance, adjust rates as necessary and evaluate the value of our security on a regular and on-going basis.
The ongoing war in Ukraine, along with surging demand, has caused farm commodity outputs to continue to show strength in pricing with most grains, oil seeds, and livestock sectors at or near record nominal price levels.
Availability of Key Farm Inputs May be Challenging
The supply/availability of some key farm inputs – including fertilizer, packaging, and farm chemicals, as well as farm machinery – may be challenged for the 2022 growing season. The cost of these noted inputs along with diesel fuel and natural gas, are up sharply over the last several months which is expected to impact farm production yields and profitability in 2022. At AgriRoots, we continue to be focused on supplying capital to support Canadian farm families and agri-business operators to help protect and enhance domestic and international food security.
The Need for Alternative Lending in Agriculture Will Increase
Adverse weather, the financial outcomes of rising interest rates, and potential margin compression in farm operating results, are expected to increase demand for alternative lending solutions – but it is also a clear illustration of how AgriRoots is not only an advantageous addition to financial portfolios for ESG purposes but a significant impact investment for agriculture and food security in Canada.
– Shawn Bustin, President of AgriRoots Capital Management Inc.
Investment Opportunity in Canada’s Agricultural Sector
Could an investment in Canada’s agricultural sector through Raintree with AgriRoots be an advantageous way for you to diversify your portfolio? We encourage you to contact one of our Private Wealth Advisors to further explore the agricultural sector economic outlook, learn more about AgriRoots, and find out if this type of alternative investment could be right for you.