For a lot of reasons, many retiring farmers opt to hold farmland rather than sell it and current economic conditions favour that approach.
In the last 10 or 15 years, few investments have been better than farmland. If you have land worth $2,500 an acre and you can cash rent it for $60 an acre net after property taxes, that’s an annual return of 2.4 percent. If your land is worth $5,000 an acre and the cash rent is $75 an acre, that’s a return of 1.5 percent.
Land prices and cash rents in Western Canada are all over the map, but cash rent is still generating a better return than guaranteed investments at your bank or credit union. In this low interest rate environment, money sitting in a GIC is barely appreciating.
Meanwhile, in addition to rental income, the value of farmland has steadily increased since the early 1990s. Double digit annual increases may no longer be occurring, but most areas are still seeing an increase from one year to the next. Even during a worldwide pandemic, farmland is holding its value and in most cases increasing a bit.
Many people in the workforce today chose not to farm when their parents wanted to retire and the land was subsequently sold. In past decades, farming often didn’t look like a viable option for the next generation. There just wasn’t any money to be made, particularly on smaller operations that required machinery upgrades.
Past decades didn’t have the history of appreciating land values either. Money from the sale of the land was needed for retirement. Renting the land wasn’t going to be enough.
These days, more retiring farmers can afford to hold all or at least some of their land and still have sufficient cash for a comfortable living. Beyond the economics, other considerations also come into play.
Even when there is no clear family successor to farm the land, some retired farmers continue to hold out hope. Maybe a son or daughter will decide to retire early from another career and come back to the farm. Maybe a grandchild will want to farm.
This does occasionally happen, but even with the land still in the family, significant resources are needed for equipment because it’s usually been dispersed. The longer the farm has been rented out, the less likely it is that a family member will come back to farm.
As time marches on, a farm that seemed like a viable size 10 years ago may look small in today’s farming world. As well, coming back to the farm after a career elsewhere can be a big adjustment.
Sentimental value is a big factor in land retention. People are often painfully aware of the sacrifices made by the family generations before them that kept the farm together. They don’t want to be the one to sell the family farm. Too many memories. Too much history.
Sentimental factors typically become less important when retiring farmers pass away and the land is left to the next generation. As well, sons and or daughters who inherit land may be less comfortable dealing with rental arrangements and they may have a greater need or desire for the cash that will flow from selling.
So although the current economics favour the retention of land by retiring farmers, no one lives forever and that land has a high probability of being sold after it passes to the next generation.
Kevin Hursh is an agricultural journalist, consultant and farmer. He can be reached by e-mail at email@example.com.