A smart analyst I was talking with yesterday told me that he’s lived through two severe recessions while involved with agriculture, and each time farming seemed immune to the problems in the wider economy.
Obviously that doesn’t mean the ag economy is a better place to be in general than in the main economy – farming often seems to veer from one calamitous year and event to the next, with the occasional good year thrown in the keep everyone from giving up – but certainly the farm sector doesn’t necessarily need to get terrified when national measures of economic performance go bad.
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I was thinking about this yesterday after the talking to the analyst and recalling a table full of farmers I was sitting with at a recent meeting. All were in their 60s. All mentioned that they thought they should be getting out of farming. But all were hanging on for another year or two while they brought themselves towards the decision to hang up the plough. All the stats we see show that farming is dominated by farmers in their 60s and up. The average age of farmers keeps rising. Many farmers appear to be hoping that the present relatively strong commodity cycle will give them the couple of years of profits they want in order to leave farming on a high note, and which combined with their eventual farmland sales will be their retirement nest egg.
There has been lots of worrying about how hard it is for farmers to get into farming in recent years, with concerns both about the lack of land for sale and the high price of anything that is on the market. Some wonder if any young farmers will be found to take over the farming for the 60-somethings who will be leaving. A special report in our issue today, by my colleague Robert Arnason in Brandon, mentions this subject in his look at European farmers moving to the prairies. Will we need to import foreign farmers because no one here will want to work the land?
I suspect that the young Canadian farmers will appear as soon as the older ones start moving out of the way. Lots of young guys and gals would like a chance to farm, if only they could get the land. What I worry about for the sake of the older farmers is that the young farmers will have an easier time getting into the business once legions of older farmers put their land up for sale and discover that a big supply hitting the market with finite demand means falling prices. Farmland prices have stayed strong for years, rising and rising and rising in many areas, but in the long term how sustainable is that?
We’ve all lived through the effects of the U.S. subprime meltdown and most of us can remember all the arguments real estate agents, bankers, friends and prognosticators made about why real estate could keep doubling in value. Right now commercial real estate across the U.S. is facing much the same problems, but banks are covering up the problem with the “extend and pretend” approach, which is extending loans past expiry so that they don’t have to write down the values of the loans on their books, in the hopes that this whole economic situation will just fade away and the good times will return.
Farmland values don’t seem to show the same overheated characteristics as the urban real estate market did between 2005 and 2007, but you could argue they’ve been inflated for years and have had some bubbly characteristics for many years. Many farmers are extending their careers for a few more years for that last chance to bring in some profits. Let’s hope that doesn’t put them in the position of finding out in a few years time that they have to hang on for many more years so they can keep pretending their farmland is worth what they thought it would be. Perhaps the long term commodity bull market is here for a few more years and justifies that optimism about land prices. Perhaps not.
