Rainfall totals, unseeded acres and spraying progress were some of the leading topics of discussion as producers gathered last week at Canada’s Farm Progress Show in Regina.
However, lurking just behind those conversation starters was the issue of farmland prices.
“How can you ever afford to pay for land the way prices have gone?” was a commonly asked question.
Many producers shake their heads at the prospect of buying land that in many cases has doubled in value in just a few short years.
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Others expressed the opinion that land prices are unlikely to ever decline.
“With incredibly low interest rates expected for the foreseeable future, land is a great investment,” they claim.
Sure, land prices dropped like a rock from the early 1980s until the early 1990s in much of the Prairies, but interest rates were high back then and commodity prices were soft. That won’t happen again, right?
Logic dictates that eventually rates have to rise, but a major increase certainly doesn’t appear imminent.
Commodity prices are another story. Many analysts claim we’ve moved to a new higher plateau and won’t see $3 wheat, $2 barley and $7 canola again. However, we’ve also seen prices come down a long ways from their highs of 2012, and we’ve seen what logistical problems can do to delivery opportunities.
On top of that, many expenses continue to rise. It takes a lot of capital to farm big with large, new equipment. Still, those who haven’t expanded their land base often feel that they’ve missed an opportunity.
Crop insurance will offer significant support in the event of crop failures, as long as grain prices remain reasonable. AgriStability, although scaled back by the federal government, would also cushion losses for a year or two if the grain economy suddenly went bad. Income assurance is farmland price assurance.
It’s noteworthy and perhaps even comforting that some of the mega corporate farming models have floundered despite the generally good times in the grain economy.
There are also the usual sporadic reports of regular sized producers getting themselves into a financial bind, particularly if their seeded acreage has been cut by flooding.
Even in good times, there will be operations that aren’t financially solid. And with the input costs involved, it doesn’t take long to run through a tremendous amount of money.
However, when you consider all the factors, the most likely scenario for land prices over the next few years is what Farm Credit Canada chief agricultural economist J.P. Gervais likes to refer to as a soft landing.
According to FCC’s analysis, Sask-atchewan farmland prices led the nation last year with a massive 28.5 percent increase. Speaking at the Farm Progress Show, Gervais predicted a single digit price increase in the province for this year.
Pent up demand remains and a lot of farms have healthy balance sheets, but the drop in crop receipts is expected to make buyers somewhat less aggressive. Many farm real estate agents agree.
This soft landing would be a healthy scenario. Too many years of rapid price escalation and the worries over a farmland price bubble would gain credibility. If we get a soft landing, those waiting for a major dip in prices are likely to be waiting a long time. It would take prolonged financial losses and major economic pain to completely turn the tide.
That isn’t beyond the realm of possibility, but it’s an ugly scenario to contemplate.
