The last few months of the year is a time to reflect on farming , food production, cost of food & world hunger.
In the fall we tend to reflect back on the year of farming and the struggles that farmers and their families are facing to produce the high-quality food they produce in abundance.
The lack of appreciation from consumers, governments, public service workers, and many other sectors rely every day on the high quality of products being brought to the tables around the world.
At this time of the year that many farmers make up the balance of profit & loss, the challenges that they faced with draughts, floods, storms, hail, increased cost, higher taxes in all their inputs (Carbon taxes), unreliable part supplies, and crop inputs it truly has been an extremely challenging year for farmers and their families continuing supplying food for the whole world. ‘ Now we see world leaders meeting to discuss how to save the world, maybe they can meet how they can support the farmers in their struggles to provide high-quality affordable food for the population with reliable supplies. For many in the farm & ranch industry, it seems that there is a disconnect from government and consumers where food comes from, “food comes from the store” the question is how did it get there and who produced it for the store.
Let’s make sure that people understand that food production begins at the farm and the cost of production is directly related to inputs, taxes, regulations, and the commitment from farm families to shoulder the challenges they face every year to produce high-quality food.
Around the world, more than enough food is produced to feed the global population, but as many as 811 million people still go hungry. After steadily declining for a decade, world hunger is on the rise, affecting 9.9 percent of people globally.
Let us remember the hard work the farm & farm families contribute to keeping food affordable despite the lack of Government commitment to stabilize operating and input costs
Despite a drought in Western Canada and bumps in the economic recovery, robust commodity prices in late 2020 combined with low interest rates continued to support strong demand for farmland and elevated land prices.
Across the country, farmland values increased by an average of 3.8% in the first half of 2021 (Table 1). During the first half of 2021, the largest increases were in Ontario (11.5%), British Columbia (8.8%), and Quebec (8.1%). The remaining provinces recorded increases of less than 5%. The overall 12-month pace of increase between July 2020 and the end of June 2021 shows a 6.1% gain in average farmland values at the national level.
1. It’s a Farm /land, that is one reason that you should buy farmland, is because it’s a farm. Whether you’re retiring, starting on a farm or escaping the rat race, a farm can be your own special oasis. The hard work will be well worth it when you’re earning income off crops and self-sustaining your family. Eliminating the unnecessary stressors of life such as daily commutes, an inbox that simply won’t hit zero, and living in cramped indoor spaces, can lead to a much higher quality of life.
2. Property /land/real estate has been the primary wealth investment for the greatest value creation for investors/owner’s for generations and can be a great investment or lifestyle choice. Land has been the best performing overall investment in modern history.
3. There is no land created anymore and every year productive land is lost due to urbanization, poor farming practices, roads, infrastructure and urban sprawl. (1000’s acres productive farmland every year)
4. Investing in land is a “simple” process of purchasing property and creating value through: revenue, appreciation, or tax benefits. Investing in land can yield better results than RRSP, TFSA and other investment strategies or could be combined to accelerate savings.
5. You know the opportunities are ripe when savvy investors begin seeking out the opportunity. There has been an increased investment from investors looking for land that can not only appreciate in value but also generate a supplementary income from production farms. Investors like Bill Gates, Jeff Bezos, Brett Wilson; the Aquilini family, who own the Vancouver Canucks; and Lulu Lemon founder Chip Wilson and investment corporations Manulife, Bonnefield together with pension plans are investing large amounts of capital in land.
6. Farmers can today sell directly to consumer’s on large scale with online direct marketing and be very successful with internet, online stores, drop shipping and consumer acceptance for change, the future of farm success is here.
7. Demand for food will increase due to population growth (75 Million annual increase), increased world average income and food trends that lead to higher demand for farm products.
8. Farms & land ownership can provide a multitude of benefits to being able to walk the land, check the crops, weed (s), enjoy wildlife, nature, recreation, natural habitat, attractions (corn maze, sunflower tours, farm tours, others) solitude, or just taking care of animals.
9. Farm owners/operators are the smartest people in the world, they purchase all goods and services retail, sell wholesale and make a profit.
10. You can love the land, you can love more than 1 parcel, acre, ha or ¼ section at any time there is no guilt.
Ben Van Dyk
Real Estate Centre
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Demand for Canadian farmland remains strong; however, tighter farm profitability contributed to a slower appreciation rate in all provinces but Alberta and Saskatchewan. Through the first six-month of 2020, Canadian farmland values increased by 3.7% on average. Plenty of factors explain the strong demand for farmland: healthy balance sheets and historically strong returns on farmland, low interest rates, and grains, oilseeds and pulse receipts that increased 6.3% in the first six months of 2020 despite several challenges including trade restrictions, weather challenges, a rail strike and COVID-19.
With the growth in grains, oilseeds, and pulse receipts outpacing the appreciation in farmland values, the affordability of land improved for Canadian farm operations. However, this trend is not consistent across all provinces. One tool to gauge farmland’s affordability is to compare the average per acre land value divided by average expected returns per acre (price to revenue ratio). The 2020 price-to-revenue ratio estimate assumes the mid-year increase is reflective of the entire year. To forecast revenue, we use actual producer prices through August as well as futures market prices and industry yield expectations.
In Saskatchewan (Figure 1), strong increases in farmland values are matched with equally strong projected yields and prices, resulting in the price to revenue ratio expected to remain stable in 2020. In Ontario (Figure 2), the price to revenue is expected to trend down because of stronger crop revenues. Overall, affordability is expected to improve or remain flat in all provinces. The exception is Alberta, where farmland values increased 4.9% through the first 6 months and revenue is projected to increase by 3.8% based on current market prices and production estimates.
Figure 1. Average expected 2020 price-to-revenue ratio in Saskatchewan
Source: FCC calculations.
Figure 2. Average expected 2020 price-to-revenue ratio in Ontario
Source: FCC calculations.
Expectations for the remainder of 2020:
1. Interest rates will remain near record lows
The Bank of Canada will not raise its key interest rate until unemployment approaches pre-COVID-19 levels, and inflation returns sustainably to its 2% target. So, rate increases and removing quantitative easing are not options for the foreseeable future. Historically low interest rates are a key reason the price-to-revenue ratio is expected to remain elevated in 2020 and will possibly remain so over the next couple of years. When interest rates begin to increase, the Bank of Canada will likely move cautiously and borrowing costs will remain supportive of the farmland market.
2. Strength in crop receipts
Strong export demand for Canadian grains, oilseeds, and pulses will continue to create marketing opportunities for producers through the remainder of 2020. Timely rains in Eastern Canada and generally good growing conditions in Western Canada are expected to support higher production volumes, while weather challenges in the U.S. and strong global demand will be supportive of prices.
3. Robust demand for farmland
Demand for farmland remains stronger than supply as producers continue to grow their operation, striving for greater economies of scale by expanding their cropland acreage. The pandemic created liquidity challenges for several operations, especially in the livestock sector. This could weaken the demand for land in areas with a strong concentration of livestock activities. It is important to note that different regional trends exist. In markets that have experienced strong growth in recent years, we expect land values to remain flat.
Farmland is expected to stay relatively expensive when compared to gross farm revenues. Higher prices of grains, oilseeds and pulses, as well as strong export demand, could alleviate some of this pressure.
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Founder & CEO of AcreTrader, an online farmland investment platform.
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.
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).
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.
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.
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.
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.
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.
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.
Based on Farm Credit Canada’s 2018and 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.
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.
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:
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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“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.
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 firstname.lastname@example.org / 403.3934040 direct
Farm Real Estate Agent Certified Agricultural Farm Advisor
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.