In addition to commodity prices, climate change may also be becoming a factor in farmland values and crop insurance premiums, according to Farm Credit Canada.
In a website article Wednesday, Kurri Carlson, FCC Business Intelligence Analyst, wrote that with a shift in climate affecting the growing season, a producer’s finances have the potential to be impacted in different ways,
The most obvious of course is commodity prices, in that a changing climate has the potential to increase or decrease the production of certain crops, whether through planted area or yields.
But land values could also rise or fall, depending on whether certain areas see weather conditions improve or deteriorate profitability for extended periods.
The impact of reliable moisture is evident when considering cultivated land values in FCC’s latest Farmland Values Report, which was released in March. That report, which examined 2023 land values, showed the average value of irrigated land in southern Alberta was $16,600/acre, while the average dry land value in the same region was much lower at $5,000/acre. In west-central and southwest Saskatchewan, the average irrigated acre was $6,500/acre, versus average dryland values of $2,500 to $2,900.
Irrigable acres selling for roughly two and three times more than dry land show that reliable moisture is sought after, Carlson wrote.
“It's not a stretch to think that a shift in rainfall patterns could impact future values. There are more factors affecting farmland values than just water, but it's clearly part of the equation.”
Meanwhile, the impact of weather volatility can already be seen in the crop insurance industry. Many producers are buying 80% coverage for high-value crops and payouts are increasing. For example, for the years 2014 through 2018, premiums and payouts were close to balanced, while the years 2019 through 2023 saw payouts well above premiums. Premiums have started to increase; however, they are still lagging the payouts.
As with land values, there are several factors at play in crop insurance, including prices and coverage levels. Frequency of weather events isn’t the only variable, however, if these trends continue, “premiums are likely to increase,” Carlson said.
The full FCC article can be found here:
https://www.fcc-fac.ca/en/knowledge/agriculture-changing-climate
