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.
I love surprises of the good kind! 10K in less than a year? That is awesome!
Thanks, I don’t think anyone could have predicted this large bump in land value in Canada.
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.
That’s right. Real estate expansion, which is inevitably going to continue in the country, will put a squeeze on the demand of agricultural land making farm prices higher. Canada isn’t getting any bigger physically, so as more homes are built, there will be less space for farming.
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?
The WP is a great resource for information. I found the farms I bought the old fashioned way though. I searched realtor.ca. By default it gives search results for “Residential” properties. But you can easily open the drop down menu and choose “Agriculture.” Then choose a location, price range, size, and it will show you listed farm land for sale by sellers. Yeah, both canola and wheat are great crops to grow and sell this year. And they have short 1 year rotations periods.
Congrats on expanding the empire! Time to buy a tractor and go grow something 🙂 Cattle prices have soared here and so has the land. There is only so much of it, so always a good investment.
Glad farm investing is paying off for both of us. I think consumers will continue to pay for cattle even if prices double in the next decade. I love my steak 🙂
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.
With farms being almost as expensive as residential homes I don’t think most people can afford to buy one with cash anymore like in the old days. It’s amazing that just 10 years ago farmland in Saskatchewan was only 1/4 of the price it is today. If someone with $50K back in 2013 bought a farm with no mortgage, they’d make a 300% profit if they sold now.
Investors today with $50K can still buy that exact same parcel of land, but the bad news is they would also need to borrow $150K from a financial institution to do it lol.
Don’t know if that makes people buying land today suckers for taking on so much debt risk. Maybe 10 years later some other suckers will buy the same piece of land for $400K haha. You never know.
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.
I should hope so too 🙂 A lot can happen in 20 years.
I think I would of went nuts waiting for something like this to happen when it didn’t close when expected LOL.
I was a bit nervous at first too. But then I realized, the longer it took for the deal to close the less interest I would pay on the farm loan 🙂 Since the purchase price was locked in, so was the loan amount. But the amortization period doesn’t kick in until the purchase is complete. As the price of the land increased, my cost didn’t, and I paid less interested this year, so it all worked out for the better 😀
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 😉 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 »
I hope farmer’s incomes continue to grow at a faster pace than city workers so I can raise the rent on my tenant faster without feeling too guilty about it 😛 Everyone should start investing as early as possible to fully capitalize on the benefits of compounding 🙂
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.
Farming has become so corporate over the last decade. More and more land is being swallowed up by large ag businesses. The only way for the average person to purchase a quality farm is by using leverage which is what I had to do. Luckily there are many companies willing to provide financing. It can be unfortunate for the small family run farm businesses though.
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.
Thanks for the question Jerry 🙂 There’s nothing wrong with selling a dividend paying stock to lock in a profit 😀 5% return is certainly better than nothing. Typically there are no rules when it comes to investing, only guidelines, because what really matters in the end to be a successful investor is consistency, understanding, and temperament 🙂 When people say you’re suppose to hold dividend paying stocks for the long term, they are referring to the efficiency you get from discount stock accumulation via DRIPs, the effects of compounding, and less trading expenses. However, if you need the money right away, or are happy with a 5 or 6% return and don’t want to risk losing what you’ve gained, then selling would be the appropriate choice for you personally as an investor. The important thing to remember is that dividend stocks are still stocks, and ignoring tax implications for the moment, we should treat all stocks with the same investment philosophy that fits within our financial plan. For example, a younger person with a longer investment time horizon might want to invest in a broader range of sectors like resources, technology, other cyclicals, and hold on to them for… Read more »
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.