Analysis says market correction could see values fall by 50 per cent
A technical analysis of Saskatchewan farmland values reveals they could be on the verge of tumbling by more than 50 per cent.
Trent Klarenbach, a grain marketing analyst, believes farmland values are reaching a peak and could soon be retracing to the previous high set in 1981.
His charts are telling him that the current inflation-adjusted price of $2,647 per acre could fall to $1,270 because the market is overdue for a correction.
Klarenbach is applying the same technical market analysis tools that he uses to analyze grain and special crop prices, such as logarithmic scale, relative strength index, exponential moving average, Fibonacci retracement and support and resistance analysis.
“Once you go down the technical analysis rabbit hole, you begin to see patterns that repeat throughout every marketplace,” he said.
Saskatchewan’s inflation-adjusted farmland values have been trending up since reaching a trough of $476.90 per acre in 1993.
Some people have the false impression that farmland values never fall. That is not the case, as evidenced by the drop to $476.90 after the peak of $1,270 in 1981.
That low point was a return to the previous inflation-adjusted 1922 high of $471.
Klarenbach emphasized that there is no certainty surrounding the timing of the correction, but after analyzing the charts, he is confident one is coming.
“I believe very strongly that that 1981 level gets retested at some point,” he said.
The current farmland price is approximately four per cent above the two-year exponential moving average of $2,547.
He believes the sell signal will be triggered once it drops below that average, and then a lengthy correction will be underway.
His advice to farmers is to exercise caution if they are considering expanding their operations.
“As a farmer, you really want to be careful of buying at these levels because they are quite extended and this could be an area of resistance,” said Klarenbach.
For those considering selling their land and getting out of farming, now might be a good time.
“There’s lots of ladies around Etonia who sold their farmland in the late-1970s, early 1980s, and they did quite well, and the people who bought went through farm debt mediation and lost their land,” he said.
Farmers who held onto their land hoping for a price rebound would have been bitterly disappointed because values fell for 12 years before stabilizing for another 14 years. They didn’t return to 1981 levels until about 30 years later.
“It takes a long time for that price to get back to where it was,” said Klarenbach.
He noted that today’s farmland values align with the upper trendline connecting the 1922 and 1981 highs, which makes him think prices will be trending down soon.
The relative strength index is 96.22, which is exceptionally high. Readings above 70 traditionally indicate overbought conditions.
However, it is possible that Saskatchewan farmland values could push through the upper trendline.
If that happens, the next potential turning point in the market could come when inflation-adjusted prices reach $3,185.
That is because the next Fibonacci retracement is about 60 per cent, which would take the $3,185 price back down to the 1981 highs of $1,270.
A free copy of the report is available on the Klarenbach research web site.