Canada’s Farmland is an great investment

Investing in Canada land

As published on MSN by: Grant Alexander Wilson, Department of Management & Marketing, Edwards School of Business, University of Saskatchewan

a dirt road in a field: Farm fields are seen near Watrous, Sask.© (Pixabay) Farm fields are seen near Watrous, Sask.

COVID-19 has put the world’s economies on pace for the most dramatic contraction since the Great Depression. With the world’s major economies on track for the largest quarterly decline in history, Canadian farmland is an increasingly stable and resilient investment.

Canada is one of the largest agricultural producers and exporters in the world. According to Statistics Canada, the country is the fifth-largest agricultural exporter. 

Agriculture is one of Canada’s largest industries, directly employing nearly 300,000 people, and it accounts for roughly five per cent of the country’s gross domestic product. As the world’s population grows, Canadian agriculture and related industries will grow in size and importance. 

Population growth

Today, there are more than seven billion people in the world. It is estimated that by the year 2050, there will be more than nine billion people

It’s also been predicted that 90 per cent of existing arable land will be used to produce as much as 70 per cent more food to accommodate this growth. This will invariably raise the value of global farmland. 

Simple economics suggest that if demand increases while holding supply constant, prices will rise. That means increased demand for food and constraints on arable land will lead to appreciating farmland values. 

Over a 30-year period of significant population growth, the value of farmland in both Canada and the United States grew steadily. See below:a screenshot of a cell phone: Canadian and U.S. farmland appreciation (Canadian dollars), 1988 to 2018.© (Created by Grant Alexander Wilson based on data from Statistics Canada and U.S. Department of Agric… Canadian and U.S. farmland appreciation (Canadian dollars), 1988 to 2018.

According to Statistics Canada, the average price of farmland per acre in 1988 was $464. At the same time, according to the U.S. Department of Agriculture, American farmland was the equivalent of C$885 per acre. In 2018, the average of farmland per acre in Canada exceeded $3,000, and in the U.S., it exceeded $4,000. Based on this historical data and the future outlook, investment in farmland is promising.

A looming Saskatchewan boom

My experience as a senior manager of an agriculture company for the better part of a decade gave me perspective of the unique value of Saskatchewan agriculture. Farmland appreciation in the Canadian Prairies, where agriculture is a core economic driver, has shown greater increases than other areas of the country. 

According to the Saskatchewan government, the province “is home to more than 40 per cent of Canada’s cultivated farmland, some of the most productive land in the world.” 

Saskatchewan farmland ownership has been more restricted than other provinces, resulting in a historically lower price per acre. Given the high soil quality and relaxation of purchase provisions over the past decade, the price per acre in Saskatchewan is on the rise. That means forthcoming investments are likely to provide fruitful returns and capital appreciation. a close up of a light house at sunset: A farm tractor is silhouetted against a setting sun near Mossbank, Sask.© THE CANADIAN PRESS/Adrian Wyld A farm tractor is silhouetted against a setting sun near Mossbank, Sask.

Based on Farm Credit Canada’s 2018 and 2019 reports, the three-year average increase in Saskatchewan farmland values was 6.2 per cent compared to 4.9 per cent in British Columbia, 3.3 per cent in Alberta and 4.2 per cent in Manitoba.

Some of the largest Saskatchewan farmland owners, including Andjelic Land Inc.Avenue Living Agricultural Land Trust and the Heide family have benefited from farmland appreciations via their strategic investments.

Investment comparison

Comparing farmland to the appreciation of Canada’s primary stock exchange, the Toronto Stock Exchange (TSX), over an 11-year period from 2009 to 2019 shows the consistency and stability of farmland over stocks.

Despite two economic downturns, farmland showed positive appreciation year-over-yearcompared to the more volatile TSX.

Even though the TSX showed more than 30 per cent appreciation in 2009, three of the those years produced depreciations exceeding 10 per cent. Conversely, farmland consistently appreciated, ranging from five per cent to more than 20 per cent, throughout the same 11-year period.a screenshot of a cell phone: TSX vs. Canadian farmland appreciation 2009-19.© (Created by Grant Alexander Wilson based on Farm Credit Canada and Yahoo Finance) TSX vs. Canadian farmland appreciation 2009-19.

Given the expected global population growth, food demand and current arable land constraints, farmland investments will likely continue to yield lucrative returns. 

Farmland in Canada and the U.S. has historically appreciated as population and global food demand has increased. Farmland has also served as a value-add to portfolios and has proven to be more predictable with respect to its appreciation than equity markets.a group of clouds in the sky: There are few storms on the horizon for Canadian farmland in terms of future investment yields.© (Joshua Reddekopp/Unsplash) There are few storms on the horizon for Canadian farmland in terms of future investment yields.

Further opportunity for investment in farmland remains, with substantial value to be extracted. Specifically, regions of Canada like Saskatchewan have been historically undervalued and as a result, are appreciating. 

As such, there is a compelling opportunity for profit. Due to long-term projections, now more than ever it is strategic to incorporate farmland into investment equations. To quote Mark Twain:

“Buy land, they’re not making it anymore.”

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Grant Alexander Wilson has consulted for Avenue Living Agricultural Land Trust. He has previously received funding from Avenue Living Asset Management.

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Land versus Gold

In a Forbes.com article published recently it compares land investment to gold investments.

Founder & CEO of AcreTrader, an online farmland investment platform. 

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Farmland and gold are two of the world’s oldest and most valuable asset classes, and they share many similar benefits that investors still find attractive today. Unfortunately, as those of us in the industry know, investing in farmland has been largely overlooked in recent decades.

However, both assets can provide investors with much-needed diversification, though each offers specific advantages. If you’re looking to invest in one of these alternatives, here are some important areas to consider when choosing between the two.

Returns And Volatility

While gold has appreciated in value over time, it can have considerable volatility, which has resulted in losses as high as 32% in a single year. On the other hand,farmland has generated positive combined annual returns every year for the last 20-plus years. This is because investors in farmland typically make money from a) rent checks paid by tenant farmers every year and b) appreciation in land values. 

As a result, farmland has produced greater returns with far less volatility than gold. Farmland prices have little or no correlation with the stock market, thus adding diversification to a standard investment portfolio. 

Inflation Hedging

For many people, hedging against inflation has been one of the primary reasons for investing in gold. If you are not familiar with the term, an inflation hedge is an investment used as protection against the decreasing purchasing power of currency as the prices of goods rise. 

For example, if the value of the U.S. dollar decreases, the dollar value of each ounce of gold typically rises as investors tend to flock toward more stable assets (this is often true during times of economic instability and recessions, as well). 

While gold has proven as an effective hedge against inflation, farmland has historically tracked inflation slightly better.

Importantly, rising food prices often play a large role in inflation. Higher food commodity prices typically mean crops are worth more, thus the farmer is able to pay higher rent rates for land. Additionally, the supply of farmland has been decreasing while the demand for food continues to grow. For both of these reasons, farmland has offered consistent historical returns while proving a highly effective hedge against inflation.

Recurring Income

With farmland investments, you not only stand to gain from the appreciation of the land itself, but you can also earn additional income because it produces valuable commodities. This is a unique advantage of farmland investments compared to investments in gold.

Since gold is a non-producing hard asset, it doesn’t generate income throughout the holding period. You only stand to gain what someone else is willing to pay for it at selling time.

Entry Demands

Farmland is often viewed as “gold with yield,” but it can require greater industry knowledge to invest. To maximize returns from farmland investments, you must identify the right opportunities, ensure it is managed properly, and build relationships with great farmers and operators to farm it. While companies such as ours are working to democratize farmland investing via online platforms, gold is currently an easier and more common investment via gold-related equities, exchange-traded funds or even physical ownership. 

Supply

While the supply of gold is by no means increasing at a rapid rate, it has continued to rise by just over 1% annually. According to the World Gold Council, worldwide gold mining annually adds about 2,500-3,000 tons to the above-ground stock of gold.

As the demand for gold increases, you will typically see that gold production increases, as well, due to the improved profitability of mining operations. As the supply of gold increases, the value of each ounce can be diluted.

Comparatively, farmland has been decreasing in supply at a rather alarming rate as more land continues to be developed for human use. Although there could be the potential for arable land expansion in some areas, the overall global and U.S. trend of decreasing farmland supply per capita is expected to continue. 

Diversifying Your Portfolio

What is clear is that alternative assets, such as gold and farmland, provide another opportunity for investors to diversify their portfolios. Gold can be invested in with ease and helps with diversification, while farmland can provide extra income, favorable supply and demand dynamics, and the potential for greater risk-adjusted returns over time. While each has distinct advantages and disadvantages, they’re both worthy of consideration for investors looking for assets with inflation hedging and appreciation potential.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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2019 Land value FCC report

2019 land value report by FCC reflecting land values in Canada

Below a overview of the increased values for the year per province and for Canada.

Eastern Canada showed a great year with above average increases an the Prairie province’s somewhat more restraint due to extreme weather conditions during growing and harvesting

2019 FCC Farmland Values Report

National trend Canada
Annual % change in farmland values

The average value of Canadian farmland increased 5.2% in 2019, tying 2010 for the smallest increase over the past decade. This increase followed gains of 6.6% in 2018 and 8.4% in 2017.

Despite the increase, the national average farmland value is nowhere near the record increases observed in 2012 and 2013, when national average values climbed 19.5% and 22.1%, respectively.

The highest provincial increases in 2019 were observed in two of the Atlantic provinces: Prince Edward Island with an average increase of 22.6% and New Brunswick with an average increase of 17.2%.

Ontario, Quebec and Saskatchewan reported average increases slightly above the national average at 6.7%, 6.4% and 6.2%, respectively, while British Columbia was closest to the national average at 5.4%. Manitoba, Alberta and Nova Scotia had average increases below the national average at 4%, 3.3% and 1.2%, respectively.

For the fourth consecutive year, there was an insufficient number of publicly reported transactions in Newfoundland and Labrador to fully assess farmland values.

When looking at the national results, it’s important to remember the reported number is an average. The differences between regions within each province vary widely.

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Hemp is in and Oak is out

New hemp processing opens in Kentucky https://www.woodworkingnetwork.com/news/woodworking-industry-news/oak-out-hemp-hempwood-factory-opens-kentucky

“Oak is out. Hemp is in,” says HempWood leader Greg Wilson, whose 15,600-square-feet factory is now officially open for business in Kentucky. HempWood is a reverse-engineered wood substitute with advantages over traditional oak hardwood, says Fibonacci, the company behind it. Those include a higher availability, a much quicker grow time of six months, and a 20 percent higher density. HempWood can be used in furniture, flooring, and other woodworking projects.

“We’re taking something that grows in six months and we’re able to able to replicate, if not out perform, a tropical hardwood that grows in 200 years,” 

HempWood will be available in blocks, pre-sawn boards, flooring, and finished products such as cutting boards and skateboards at prices lower than oak.

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Today in Farm Real Estate investing, Investing for profit.

Investing in farm & land is often a long term plan with set goals in mind. Objectives can include buy and flip with short term capital gains. Often it is not attractive for tax strategies unless its involves tax planning with farm tax experts. Taxes will have a great effect on after tax net income and should be part of investment planning in farm/land.

Long term investments with solid income owning, operating or renting the land is general very stable and can provide great value with increased land values providing wealth accumulation for many years. No taxes are paid on the appreciation till the land sells creating many years of appreciation on the investment without taxing the core investment and appreciation. It can enhance investment portfolio’s for many small or medium investors to add land in their overall investment strategy in consultation with tax planners.

One of the great opportunities in farming is equity investing, that means taking an equity position (shares or part ownership) in farm land, farm operations or farm business to participate without taking on the whole project. This may be great for investors, although caution should be given to making sure you have the right advisers ensuring legal, tax and investment strategies.

Often the question arises what income can i receive from land/farm investments. Most of the time the answer would be it varies. A solid annual return can yield 3-5% and land appreciation would ensure increased added value, varying 5-7% annual on farm land. There would be less annual return for land near large population centers and likely increased appreciation. The reverse would be in outlaying areas where higher annual returns can be achieved and the appreciation would be typical lower than near urban centers.

Call for free consultation regarding purchasing farm /land.

Ben Van Dyk
Real Estate Centre, Certified Agricultural Farm Advisor, CIPS Certified International Property Specialist benvandyk@me.com / 403.3934040 direct

Farm Real Estate Agent
Certified Agricultural Farm Advisor

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FCC Farm report 2018

Farmland continued steady climb,

Whether it means paying a higher price for land that has potential to be more productive or buying in blocks to improve the efficiency of their operations, producers are sharpening their pencils with an eye on variable commodity prices.

The average value of Canadian farmland increased 6.6% in 2018, following a gain of 8.4% in 2017.

Read the complete report

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Farmland Value Trend Newsletter – 2018 SERECON

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3 Big Reasons to Invest in Land

3 Big Reasons to Invest in Land

by Laura Mueller

If you’re looking for a good investment opportunity, you might not have to look much further than the ground beneath your feet.

Land, especially in a country as expansive and diverse as the United States, has always been a strong pull among real estate investors—and its popularity continues to grow. According to the 2017 REALTORS Land Institute Land Markets Survey, there was a 5% increase in land purchases from investors between 2015 and 2016. U.S. investors now make up 25% of all land purchasers in the country, second only to individuals and families.

Real estate investor Louis Glickman once famously remarked that “the best investment on earth is earth.” And it’s a sentiment that holds true today. Here are three reasons why.

1. It doesn’t depreciate

Land you purchase can certainly decrease in value, which is a risk you take when you make any investment. But in the pure accounting sense, land doesn’t suffer from inherent depreciation the way that other types of assets do. Depreciation refers to uncontrollable value loss that happens as an asset ages and gets worn out. Land, however, doesn’t get worn out as it gets older.

In a report on property depreciation, the Internal Revenue Service stated that land doesn’t depreciate because it doesn’t have a determinable usable life. This is good news for investors, who often make cheap land investments in the hope that local advancements over time will increase their property’s value. So take your time and wait to find that perfect buyer—you don’t have to worry that your land will depreciate while you do. Speaking of….

2. It’s inexpensive to hold onto long term

There isn’t much capital that goes into maintaining a land investment once it’s been purchased. Maintenance and general upkeep is usually minimal, as are property taxes. And depending on how the land is financed, there may not even be any mortgage payments to deal with. This is good news for investors, as it allows them to essentially “set it and forget it,” picking up well-priced properties and holding on to them until the right sale opportunity comes along. And because it’s a non-depreciating asset, there aren’t any hidden costs either to holding onto a land investment long term.

3. Agricultural land prices are increasing

The world needs farmers, and farmers need land. And fortunately for land investors, agricultural land in the U.S. has been on a steady incline. The USDA’s 2018 Land Values Summary report noted big gains on cost per acre of various types of farming land. From 2017 to 2018, cropland increased to $4,130 an acre (a $40/acre gain) and pastureland increased to $1,390 an acre (also a $40/acre gain). Farm real estate that includes land and structures increased to $3,140 an acre (a $60/acre gain).

While the U.S. has plenty of agricultural land for sale, there is still only so much to go around. Banking on the value of farm land has been—and continues to be—a strong opportunity for investors, especially those who focus on the Corn Belt Region where agricultural land sale prices are usually the highest.

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2019 Land ownership and profits are closely linked

In the past land prices and income have been always linked, if farmers make more money they can afford higher prices for land or rent.

Now economics of scale are shifting some investments in farmland for farmers that have low operating cost or better margins that are competing for rental land bringing in higher returns for Investors resulting in higher land prices and land becoming uneconomical for higher cost/lower margin farms and they may not be able to compete leaving them unable to compete to purchase land or rent land.

Larger farms & younger well educated farmers seem to take advantage of scale & margins in farming that gives them an edge in economics to create better operating margins and be very competitive in purchasing or renting land.

Farms with optimal marketing, higher yields, managed equipment cost, educated labor, specialized crops/ cattle markets /grain markets leading the industry with their insight, management and innovation /leadership that can compete with the best in the world.

Ben

 

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Microsoft co-founder Bill Gates paid $171 million in August to acquire 14,500 acres

Microsoft cofounder Bill Gates paid $171 million in August to acquire 14,500 acres of farmland owned by John Hancock Life Insurance Company in one of the most coveted agricultural regions of Washington.

Source The land Report / Bloomberg.com

 

 

 

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