Land prices in Ontario farm country have exploded!  In fact to some professional observers in the appraisal business it reminds them of the late 1970s.  That was the time when land prices rose very quickly in an un-paralleled land buying frenzy.  It all came to a crashing end when interest rates went to 23% and we all found out nothing lasts forever.

I mention land prices today because tomorrow we will probably get another bearish USDA market report telling the world we have more than enough corn and wheat and soybeans to last its way into 2011.  With the Canadian dollar moving over par last week it is set up the classic depressed Canadian cash grain price scenario where revenues are falling like a stone all over Canadian farm country.  The question is what happens next?

I think we all know.  So with that in mind I asked some of my appraiser friends why land prices have been exploding in southwestern Ontario.  You may or may not know that I was asked to develop and deliver a continuing education course for Ontario realtors earlier this year, so the factors regarding selling farms and costing farms has been a bit of the top drawer for me.  My appraiser friends told me that there had been a lot of money lost in the equity markets in 2008 and 2009 and much of that was moving into farmland.  There have been lots of examples of nonfarm people buying farms because they are tangible assets.  Land is not like Lehman Brothers; it doesn’t vaporize over a weekend.

DTN’s executive editor Marcia Zarley Taylor backed this up this past week in her column “Smart” Money’s Infatuation With Farmland where she documents the movement of pension money and other investment funds moving into farmland.  I’m thinking I’m about to tell this to Ontario realtors and maybe I need a raise.  Needless to say I questioned some of my appraiser friends saying something about the bearishness of that USDA report that’s going to come out tomorrow.  In other words the productive value garnered from crop prices will not sustain these land values.  Everybody answered in the affirmative but like everything else sometimes that really doesn’t matter.  When you have a 50-acre farm sell for over $10,000 an acre in southwestern Ontario, I guess they are right.

It brings me back to my question about what happens next?   When I look at my crystal ball it is not as cloudy as it has been at times in the past.  We are moving very closely to cost of production levels for all the major crops grown in Canada.  In fact when you include the livestock industry into that equation, our industry is completely at risk.  Sure their will always being ups and downs in the price cycle of Canadian agriculture.  However, a sustained move above the US greenback lasting several years has the capacity to rationalize us like we have never known before.  Combine that with the bearishness of the futures market and we might all be looking for non-farm buyers for our properties.

Check me on that one.  I’m just kidding, I think.  At the same time last week I read of moves by some Ontario producers to combine the federal government’s Agristability program with Ontario’s risk management program.  That’s like putting an ugly donkey in the same pen as a racehorse.  I’ve set it so much that I’m getting tired of saying it.  Agristability is dead on arrival at the farm gate, a totally unworkable piece of flawed stabilization policy, which won’t work.

Of course it is the agricultural safety net combined with AgriInvest, which is supposed to save us from the low points in the price cycle.  It’s no secret about the way I feel.  I’ll leave it there; just saying again we need to do much better.  Still, there are those land prices to think about.

At the end of the day I think it will be pretty hard to cobble together a new agricultural safety program that works when at the same time you have land prices exploding.  Still at the same time it’s pretty obvious to me that the sustainability of land prices above their economic value five or six fold can’t be sustained either.  This combination of factors will definitely complicate our agricultural policy world at a time when our farm groups are pushing government to get something that works.

This is all happening at a time when our agricultural economic landscape is changing rapidly.  Sure we have that USDA report coming out tomorrow but we also have windmills and solar panels going up all through Canadian farm country.  As I told realtors, all those propellers and glass represent an annuity into the future and they were on the front lines of that.

Many of them certainly seemed energized by that.  There is nothing like the whiff of big money clearing the sinuses.  It presents an interesting scenario for the rest of us in Canadian farm country.  With the Bears running wild in our grain markets, it’s pretty obvious the negativity has a bit of tunnel vision to it.  As we march into spring season, its pretty clear to me there is going to be a short-term rationalization.  It’s either the farmers or the land prices.  And if I’m wrong, all bets are off.