$50,000/acre Farm Land in Ontario? Who Am I To Say?

It has being about nine years since I bought my last farm. At this age now I don’t think I’ll be buying another one, but you never know. Sometimes opportunity knocks, but of course in 2019 land prices are a little bit different than they used to be. It’s hard to imagine that we used to argue with each other regarding $2000 acre land. We all thought it was expensive. Of course, interest rates were almost 20%.

Things never stay the same. However, land prices in the last 25 years of changed a lot. I had a farmer contact me the other day. He told me that he was in college in 2002 and a neighbour asked him to buy his land for $6000 an acre. He went on to say that you’d be lucky to buy the same land for $23,000 an acre today. He also commented that another friend had told him land has been appreciating at an average of $1000 a year. He then mused about land going down in value someday and wondering if it might be a good investment even at these inflated land.

Of course the answer to that question is I don’t know. Nobody can predict the future and it would seem that land prices in Ontario and Québec are on a never-ending ascendancy. However, between 1984 and 1991 land actually went down 25% in Ontario. Your loyal scribe bought land in 1984, but bought better land at a cheaper price in 1991. The question is whether it will happen again and when?

Buying a farm is quite a thing. It’s a special time in everybody’s life. Needless to say, wherever you are in your life farmland usually represents about the biggest thing on your balance sheet. That makes it incredible important asset and something that should constantly be considered. People have different ways of looking at land. Some people think of it as an investment, others think of it as soil, some people think of it as a hedge against inflation or low interest rates, some people just like to have something to call their own.

Land is intangible asset. In other words, in a world created by the super low interest rates there are all kinds of financial products to get you a good rate of return. You can go to your Canadian banks and buy mutual funds or some other product that is, generally speaking, good for the bank but not so good for you. At the end of the day, what really is that? Is it a pile of paper? Is a pile of cash? Or is it something that you do not understand? However, 100 acres is 100 acres of land and you can see it, touch it and feel it. It also usually goes up value.

That is substantiated by recent Farm Credit Canada data. For instance in 2017 land prices in Canada went up 8.4% and this was on top of the 8% in 2016. In 2017 Ontario farmland went up an additional 9.4% and I don’t have the statistics for 2018. However, I did have that farmer conversation the other day. $23,000 an acre is what it is. He would like to see an economic analysis on how we make that work?

Simply put, that question was asked this year, 10 years ago all the way back to when they started making land. In fact, back in the 1980s when I first bought farms, the 20% interest rates were pounding farmers into the ground. That kept the lid on land prices to a large extent. Needless to say, land is being bought and it is being bought by people with the capital to buy it. In this era where money is cheap it is much easier to access especially with a lot of equity. No, it’s not 1979 anymore. However, to some old-timers it sure seems that way. The bottom line is that farmland is being bought at these prices and it will likely continue to be. People look at their land investments in many different ways.

The farmland prices in Ontario are different than they are in Indiana versus Iowa versus Saskatchewan versus Québec versus Brazil versus Russia versus Africa. In other words, there are some other local factors that are impacting farmland prices. Ontario for instance it’s no secret that the supply managed sector has a greater ability to compete for land partly because of the way consistent profits are garnered. In other areas of the world there are other influences not necessarily the same as here.

Some farmers will say they are not making any more farmland. However, that is such a fallacy because there’s farmland made every day in Brazil. There will be farmland made some day in Africa. There are even people moving to places like that to make it work, just like our ancestors did here in Ontario 200 years ago.

Will the road ahead be $50,000 an acre farmland in Ontario? Who am I to surmise? I didn’t see a lot of this coming. Those early career high interest rates pounded me just too hard.