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.
Rudyard Griffiths, 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.
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 😛 But you can on rural property, because there are no city bylaws to thwart free market forces 😉
But what can we do to protect ourselves against the likely trend of growing food prices? As Ms. Buckner 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! 😀 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 😕 But the farmers sure did 😉 I think farmers have become the new investment bankers, haha 😀
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 🙂 So I can official say that despite being a city slicker, I am the proud owner of another farm in Saskatchewan 😀 Woohoo! Now I have 2 farms 🙂
I assumed the price I bought it for in April, $172,500, 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…
I was happily wrong 😛 Holy macaroni! This means I have unknowingly increased my wealth by over $10K since April 🙂 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 😀 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 🙂
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 🙂 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.