Ontario and Quebec farmers can’t count on stable farmland rental rates staying there, especially when rental rates have lagged farmland price growth.
After several years of significant farmland value increases, FCC senior economist Justin Shepherd told Farmtario that rental rates typically lag behind purchase prices by a few years — and 2026 might be the year when rental rates for Ontario farmland begin their predicted catch-up.
A recent article written by Shepherd and FCC senior analyst Megan Mailloux shares this caution: “While the cash flow advantages of renting have remained stable over the past three years, potential changes may arise from 2026 onward.
“Producers are advised to continually assess their options for expansion (through either rental or purchase), considering their individual financial circumstances and carefully weighing short-term profitability against long-term asset growth.”
Shepherd says FCC’s annual analyses of farmland values and rental rates are completed by members of an “evaluations team” through meetings and conversations with FCC clients, loan advisors and others in the farm financial sector. He agrees that tracking rental rates is “a bit more challenging” than farmland values — for which reported sales form the basis of the annual report — but expressed confidence that the “informal survey” origin of the rental data does accurately reflect a region-by-region average of on-the-ground reality.
“It’s fairly high level,” Shepherd said of the FCC analysis, adding it reflects a provincial average of farmland rental rates.
Margins for certain commodities, urbanization pressures and competition for land within a certain region aren’t necessarily reflected in the province-wide graphs, he admitted, but farmers looking at either renting or buying can look at these FCC analyses and see where their situation fits compared to the provincial average.
“It’s really meant to be a guide so each side can have a good conversation leading into the negotiation.”
Benefits may vary
The annual analysis, published online, includes a series of graphs tracking “per acre difference in profitability for renting versus newly purchased land” across the country. These are based on FCC’s determination of land value by year, along with assumptions about interest rate and how it applies over a 25-year amortization period.
“The cash flow benefits of renting versus buying can vary significantly across different regions,” the article says. But with rental rates lagging behind the recent increases in farmland values, “since 2021, Alberta’s rent advantage increased by $87 per acre, Saskatchewan’s by $55 per acre, and Manitoba’s by $92 per acre.”
With an agricultural sector more dominated by higher-value commodities, meanwhile, central Canada saw “Ontario’s rent advantage over purchasing increased by $442 per acre, and Quebec’s by $255 per acre” over the same five-year period.
Conventional wisdom over the years — and reiterated in the recent FCC article — has been that young farmers starting out are the most likely to consider renting land while established farmers with some accumulated capital are more likely to expand through land purchase.
Wellington County-based chartered professional accountant Tom Blonde, however, suggested in a recent interview that this conventional wisdom is no longer the law of the land.
A partner in the Guelph/Elora office of Baker Tilly Canada, Blonde believes it’s inaccurate among the primary producers and agribusiness professionals he works with in Ontario to characterize the rental/purchase discussion in those simplistic terms.
Renting versus buying, he explained, “is a pretty common question” among the 75 per cent of his clients who are agriculture-based, “especially in situations where some change is happening, either as part of a farm succession plan or as a potential retirement plan.”
Renting as a retirement plan
He agrees that, in some cases, renting is the best and only option for a young farmer. But renting might be just as appealing for a farmer in their late 50s with several hundred acres owned but no offspring interested in farming and no retirement nest egg due to a career-long decision to invest money back into the farm in the form of state-of-the-art buildings and equipment.
That farmer, Blonde offers, might be best selling off several fields to ensure retirement stability and switching to renting so they can continue to work and take advantage of owning their machinery. In areas affected by urbanization, this could mean selling to an investor and renting the land back until the city’s sprawl makes it feasible for it to be turned into subdivisions.
In his experience, factors affecting decisions about renting versus buying vary depending on the commodity being farmed. Perhaps most importantly, they vary depending on the family and financial background of the farm and farmer.
For many young farmers these days, Blonde says, a strong family background in agriculture affords an opportunity for land purchase as an initial step into their own farming career.
“If it’s a farm where there’s a clear indication that there’s a next generation that wants to farm, especially if there are more than one family member that the parents are looking to set up with their own farm,” then land purchase becomes more desirable, he said.
Deductible or not
Blonde knows from experience that renting is sometimes a necessity. Growing up on a tomato farm, his parents needed fresh land to grow tomatoes each year under a several-years-long rotation regime. Each year, they would secure a one-year rental agreement with a nearby landowner to grow the high-value crop.
These days, however, it’s increasingly common in Ontario for farm families to operate thousands of acres spread in pockets across a swath of the province. He cited one instance of farms spread “right from Essex to New Liskeard. They have employees in each area; they have flatbed trailers to move around their equipment.”
In some cases, land in far-flung areas is rented as the family waits until a nearby property comes up for sale. More commonly, however, the various pockets are owned. That way, the farmers are assured access instead of facing uncertainty — especially if rental rates start rising in response to several years of farmland value increases — about whether the owner will continue the existing rental regime.
In addition, if an operator wants to enhance the farm through tile drainage, those costs are tax-deductible only for the owner.
Taxation can also play a role in a strategy of land purchase, Blonde stresses. Interest payments can be written off, but as a mortgage agreement ages, more and more of the payments go toward the principal, which aren’t deductible. The only way to continue avoiding taxes is to go deeper in debt, buy another farm, and start paying more interest again.
Farmland rental, meanwhile, is a straight-up tax deduction.
The post Financial advantages of renting over owning Ontario farmland remain, for now appeared first on Farmtario.
