Prices up 23 percent | Buyers see farmland as a low risk investment with attractive returns
Tumultuous world markets and the threat of an economic meltdown in Europe have done nothing to dampen interest in Saskatchewan farmland.
Bob Lane, founder of one of Saskatchewan’s most successful farm realty companies, says demand for prairie farmland has never been stronger, at least not since he entered the business nearly 40 years ago.
Prairie soil continues to generate unprecedented interest from investment companies, immigrant entrepreneurs and existing producers who are eager to expand their own land holdings, he said.
“It’s very strong,” said Lane, who runs Lane Realty Corp. in Regina.
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“We’ve seen increases right across the province. It’s probably stronger than I’ve ever seen it in my 37 years in the business.”
Lane said a variety of factors support prairie farmland values.
The outlook for agriculture is positive, commodity prices are high, the cost of borrowing has rarely been more affordable and prairie farmland represents a low-risk investment with attractive returns.
Average Saskatchewan farmland values increased by nearly 23 percent last year, the highest annual increase of any Canadian province, according to Farm Credit Canada’s most recent Farmland Values Report.
Over the same period, the S&P/TSX composite index fell 11 percent, due mainly to losses in mining, energy and tech stocks. Gold values rose roughly 13.5 percent.
Saskatchewan land prices are still low relative to land prices in Manitoba and Alberta, Lane added.
Until 2003, Saskatchewan regulations dictated that out-of-province buyers could own no more than 320 acres in the province.
Since those restrictions were lifted, Saskatchewan land values have increased at a faster pace than any other province, but an acre of cultivated farmland in Saskatchewan still costs less than in Alberta or Manitoba.
Annual double-digit growth in Saskatchewan farmland values appears to be in line with rising land values in key U.S soybean and corn growing states such as Iowa, Kansas and Nebraska, according to Farm Credit Canada.
Corporate and institutional investors have noticed the trend.
Investment in agriculture continues to rise in the United States, and according to some analysts, investment managers are expected to double the value of their agriculture-related holdings over the next three years.
At the AgInvesting 2012 Conference held in New York earlier this year, agriculture-focused investment managers who already control roughly $16.2 billion US in farm-related assets said they expected to increase the size of their agricultural portfolios to nearly $33 billion by 2015.
Investors are not interested only in buying farmland, but are also eyeing ownership stakes in grain storage facilities and in the transportation sector, according to HighQuest Partners, the American consulting company that surveyed investors.
Investors confident
Closer to home, the number of investment companies involved in farmland acquisitions continues to grow.
Assiniboia Farmland Limited Partnership, an affiliate of Assiniboia Capital Corp. in Regina, already controls more than 110,000 acres of Saskatchewan farmland and is hoping to expand its holdings to more than 400,000 acres over the next three to five years.
“Our strategy is to buy land without overpaying, rent land to farmers, collect the rent and pay the bills, and then distribute cash to investors,” company co-founder Brad Farquhar told Western Investor magazine earlier this year.
“We are primarily focused on farmland in Saskatchewan as it is still undervalued relative to neigh-bouring jurisdictions.”
AgCapita, a Calgary-based partnership that buys farmland on behalf of individual investors, already controls 35,000 acres in Saskatchewan and plans to expand its landholdings significantly, said AgCapita partner Stephen Johnston.
He estimated that the value of land in the AgCapita portfolio has appreciated at an annually compounded rate of 12 percent since 2008.
“Saskatchewan to date has been our primary focus,” Johnston said.
“What made Saskatchewan appealing initially was that the land was extremely inexpensive. Of course, land has appreciated quite substantially in the last four years in Saskatchewan, hence we’re now looking in Alberta and Manitoba as well.
“That’s not to say that Saskatchewan land doesn’t still represent excellent value…. It’s just that the discount relative to Manitoba and Alberta isn’t as apparent as it used to be.”
Other investment companies in-volved in the prairie farmland market include Bonnefield Financials, HCI Ventures, which is owned by the Hokanson family from Alberta, MaxCrop Farms Ltd., which is based in Regina, and Hancock Agricultural Investment Group, a division of Manulife Financial Canada, which already manages $1.3 billion in agricultural real estate in the United States.
Former Dragon’s Den investor Brett Wilson is acquiring prairie farmland and is focusing his investment in Saskatchewan.
Mike Hoffort, a senior vice-president with Farm Credit Canada, said that although institutional investors and fund managers are still active in the Saskatchewan land market, today they account for only a small percentage of total land purchases in the province.
The main market drivers are existing farm operators, who are motivated by strong commodity prices and low borrowing costs.
“(Institutional investors are) a factor but not nearly as significant as the local farmer-purchaser factor,” said Hoffort.
Lane agreed, saying farm operators’ demand for land has increased significantly over the past 18 months and is pushing prices beyond what corporate investors are willing to pay.
“They (corporate investors) were there for a while … but it seems that our market has gone even beyond them.”
Regardless of who is buying, farmland is moving quickly and new listings are generating much interest.
“If there was ever a good time to sell farmland, now is a great time,” Lane said. “There are some great opportunities out there and it’s not just the Plains or Rosetown or Melfort. We’re seeing good interest right across the entire province.”
