Nov 272013
 

I was watching the Buckner and Griffiths Exchange yesterday. It’s a business show on the CBC that only airs once in awhile. Anyway, they were talking about the booming ag sector in Canada. Apparently farmers are making a killing this year because of the bumper crop.13-11-lolx-crop-receipts

Rudyard Griffiths,Β a savvy social entrepreneur renowned for wearing his dashing red tie, raises a relevant concern about food affordability. The high growth rate of farmland prices may result in much higher food prices at the grocery store for consumers later down the road.

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I believe the cause for the steep price appreciation is due to excessive credit and low borrowing costs, which has also manipulated other asset classes. The S&P 500 stock market index, for example, is up 26% year to date 😯 Investors are desperately trying to find real returns and real yields, and farmland is an area where real yields are still relatively attractive. Farmland rent, at least where my farms are located, was roughly $30/acre just 5 years ago. But today they are going for $50/acre. There is no way you can raise your tenant’s rent by 11% every year in the city πŸ˜› But you can on rural property, because there are no city bylaws to thwart free market forces πŸ˜‰

But what can we do to protect ourselves against the likely trend of growing food prices? As Ms. BucknerΒ mentions in the show, the average age of farmers is 60 years old. And 75% of them don’t have a successor since their children don’t necessarily want to take over after they retire. So I think the answer is obvious. If you want to preserve your purchasing power, go become a farmer! πŸ˜€ Farmer’s incomes in 2013 totaled $7.3 billion in Canada, which is 31.7% higher than last year.

Did you get a 30%+ salary increase this year?
No? Neither did I πŸ˜• But the farmers sure did πŸ˜‰ I thinkΒ farmers have become the new investment bankers, haha πŸ˜€

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Speaking of farmland. As many of you may remember. I bought a farm at an auction earlier this year in April. Well the deal finally just closed πŸ™‚ So I can official say that despite being a city slicker, I am the proud owner of another farm in Saskatchewan πŸ˜€ Woohoo! Now I have 2 farms πŸ™‚13-11-farmb

I assumed the price I bought it for in April, $172,500,Β was fair market value because auctions are pretty efficient at reconciling supply and demand. The appraisal I’ve commissioned earlier this month has just come back and because it’s been 7 months since the auction I was hoping by now the price would be a bit higher like $175,000. But I was wrong…

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I was happily wrong πŸ˜› Holy macaroni! This means I have unknowingly increased my wealth by over $10K since April πŸ™‚ This is why I love to invest. I search for long market trends with good fundamentals like stocks, real estate, and farms, and then use a bit of leverage during periods of low interest rates to buy and hold on to these financial assets for the long run.

This new farm has on average made me $1,600 in capital appreciation every month since April. Hurray for passively building wealth πŸ˜€ Sometimes I feel a bit guilty because investors like myself can just make money passively while others have to actually work 😐 But hey, there’s nothing stopping anyone else from also buying farms.

And here are some comparable recent farm sales around the same location as where I bought mine. My farm is located somewhere on the map below as well πŸ™‚

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Is Canadian farmland in a bubble? I’m not sure, but I don’t think it’s any more overvalued than any other asset class like residential real estate, equities, mortgages, or bonds. But what I do know is over the next 20 years, Canada’s population is expected to reach over 45 million, and if anybody wants to own a piece of the growing agricultural sector either as an investment or a means of production, then now would not be a bad time to start accumulating πŸ™‚ For those like myself who can’t afford an expensive farm in cash you can finance it through a bank like I did. I only put up $20K cash to purchase mine.

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21 Comments on "Farm Appraisal Complete"

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moneycone
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I love surprises of the good kind! 10K in less than a year? That is awesome!

Financial Underdog
Guest

I would not call the rising farming prices a “bubble”. The truth is that farm prices have been kept down artificially for decades (especially in Saskatchewan) and now they’re catching up to their actual market value – I can see it going on for quite some time. Also, with growing population it’s only going to get more expensive – unlike real estate, agricultural land is actually shrinking in Canada.

JR
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JR

Good job again liquid! You are very smart to focus on land that produces good canola. It is a very profitable rotation and I think it will help bring in more rent.

So where are you finding all this land for sale? Is it in the Western Producer?

Pauline
Guest

Congrats on expanding the empire! Time to buy a tractor and go grow something πŸ™‚ Cattle prices have soared here and so has the land. There is only so much of it, so always a good investment.

Phil
Guest

The issues with farming today verses yester years, is that to work a farm they want you to go to farm school, and learn business management, get an agricultural diploma or similar type things… back in the day anyone who was healthy, handy and willing to give up a life to live the farm and reap their rewards could… but today there are too many rules, which is changing the farming culture and eventually the farming landscape. Lets go another route, who can afford to buy outright a farm today? It will only get worse as you’ve noted. Farmers feed cities; no farms, no food, it IS that simple. – Cheers.

writing2reality
Guest

I’ve been waiting for an update on the farm! Glad the purchase went through and you’ve gained some additional appreciation while you’ve been waiting. I think in 20 years these two farm properties will have been very successful investments as land is a limited commodity and should provide a nice stream of income for your coffers.

Investing Pursuits
Guest

I think I would of went nuts waiting for something like this to happen when it didn’t close when expected LOL.

Alex Yang (@yyangalex)
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Alex Yang (@yyangalex)
unregulated pricing has its pros and cons. the goods days will be very good, and the bad days will be very bad. city rents may not go up 11% but they also wont drop 20% when things go south. wild swings up usually guarantees wild swings down. also city rents would, in the long term, track workers incomes. farm rents, in the long term, should track farmers incomes. just as how city rents would fall if there was a recession, job losses, pay cuts, etc, that also means if there are bad years where farmers income is down 70 or 80% due to drought, disease, flood, etc…well… farm rent wont escape that either but enough negative doom and gloom πŸ˜‰ just like any other productive asset class (stocks, a business, etc), as long as you keep plowing (pun intended?) profits back in, and reinvest in more productive assets, the long term compounding effect of income growth from the asset is amazing. over time you are guaranteed to experience ups and downs, some bigger than others, but the long term trend of income growth will always be there you know that saying, the only things certain in life are death and… Read more Β»
get rich with me
Guest

As the price of food rises, and the price of land rises – how will the average man in the street find the funds to purchase a farm ?
Big business will buy the land, then rent it out at exorbitant rates to tenants.

Jerry Bishop
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Jerry Bishop
Hello. I like your blog. My name is Jerry and I am in the USA. I have just recently started investing in Div paying stocks, and I had a question for you and your readers. When I buy a div paying stock, I wait till I find one that has dropped a pretty good amount, usually on bad news or bad earnings. My problem is: sometimes these stocks will rise and I will be up 5 or 6% from the price I bought them at. I have always read that you are not supposed to worry about the gains in the price and just hold it and get the div payments. but when I can make 5% on the price of the stock, it would take me many years to make that much just waiting for the dividends. So I sell the stock and take the profits. Is this bad? I feel like I’m breaking the rules of div investing. Is there something I’m missing? Am I missing out on something by holding the stock and waiting for the Divs, when I can sell it after a few weeks and make 5% profit? Thanks for your time. Jerry
Mikebrassil
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Good Information, In addition to providing in-house appraisal services, we also complete fee appraisals. Fee appraisal services are completed for land, farms, ag-related industries and forest products industries. Our appraisal staff works hard to develop and maintain effective and productive relationships with both customer-owners and fee clients.

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