Farmers eye expansion as land values increase
Farming goes through cycles and some years are tougher than others — like the 1980s.
Commodity prices were low, interest rates skyrocketed and a drought hit the province. That was enough to sink some farmers — but Barrie MacDonald made it through.
The Kipling-area farmer diversified his grain operation, adding a small herd of cattle and starting a bulldozing business.
“We were already diversified in the Caterpillar business. But then when the high interest rates hit we’d just bought some land and a new tractor, and before we’d already made the first payment on the tractor, it had doubled,” he said.
At the start of the 1980s MacDonald bought a quarter section of land with his brother for $60,000. By the time the two had paid it off they had paid $166,000 for it.
“That ruined a lot of farms at the time … if we would have bought more than that at that price it would have wiped us out. There’s not a doubt about it and it was good land, too,” he said.
The 1980s saw a downward trend begin for farmland values in Saskatchewan.
Throughout the 1980s and into the 1990s farmland depreciated in value or grew at low rates. In 2003, a new era began. The provincial government changed the rules of farmland ownership to allow for non-Saskatchewan residents to buy land.
Throughout the rest of the early 2000s oil activity in the province picked up, commodity prices began to rise and interest rates dropped. It was the perfect recipe to drive up the price of land.
“It really wasn’t till more into the last 10 years, the later 2000s, 2007 … there was a big crisis hit in 2008 in the U.S. and interest rates went down. All of the sudden you could borrow money,” said Scott Sahulka, senior director of valuation and environmental risk for Farm Credit Canada (FCC).
Farms started to grow and nontraditional investors began eyeing up new opportunities. According to FCC in 2006 farmland rose 2.1 per cent in price, compared to an 11 per cent increase in 2007 and a 14.9 per cent increase in 2008.
While Saskatchewan farmland values were rising they were still cheap compared to prices in Manitoba and Alberta.
“There were some investment companies looking at land for sure, but even within our area of Regina you’d (hear) stories of doctors and lawyers, sorts of things that would buy farmland because they’d just see it as a great investment … It was actually a crash in the markets so this farmland thing they were looking at going, ‘Wow, it’s cheap compared to neighbouring provinces and it’s appreciating quickly.’ Why wouldn’t you want to invest in it?” Sahulka said.
Bob Lane, owner and broker with Lane Realty Corp. has been selling farmland in the province for more than four decades and has witnessed firsthand the changes in values.
“It’s been quite a turnaround and our Saskatchewan farmers are now expanding their existing operations more than ever before. Whereas before ’06 they were just trying to survive basically,” he said.
Before then Lane had worked to bring farmers from other countries and provinces to Saskatchewan, luring them here with the promise of low land prices.
“(In 2006 there) was a major change when the commodity prices did go up. It’s great to see rural Saskatchewan doing well. There’s a lot of new farm sites and a lot of new grain bins and shops,” he said.
MacDonald weathered the tough times to the prosperous times of the late 2000s. Two years ago he decided it was time to sell his land.
His son was interested in farming but MacDonald wasn’t keen on handing the family business over. MacDonald himself started out by working as a hired hand on his father’s farm but his father had always been weary, remembering the tough years of the 1930s and 1950s.
“It’s just hard when you know you’ve gone through tough times. I kind of think the bubble’s going to burst … the land prices have just gone crazy for this area anyway and inputs are just so high. A lot of young people are jumping into things that they might not know,” he said.
Land prices rose yearly following 2006, reaching double digit increases. In 2013, a record was set when farmland increased by 28.5 per cent, beating out the neighbouring provinces of Manitoba and Alberta. As land prices skyrocketed people began to look for a reason.
In 2014, the Canadian Pension Plan bought $128-million in farmland holdings in the province. In pockets across the province outside investors were scooping up land and the government decided to review the farmland ownership rules once again.
The start of 2016 marked a change again for farmland ownership rules with the provincial government tightening the laws to ban pension plans and large trusts from buying land.
This stabilized the market. In 2015, the price of farmland increased by 9.4 per cent and 7.5 per cent in 2016.
For a young farmer starting out though it’s still a challenge.
Patrick Hamilton is just starting the harvest of his first crop on his farm near Hafford. Farming wasn’t always the plan for Hamilton, but after finishing university his grandfather sat him down and asked him to take over the family farm.
The first-year farmer has been cautious this year by renting land from his family and investing in new farm equipment.
“I didn’t make as many purchases as I had planned to. Again just because the year was a little bit, it wasn’t consistent. So I wasn’t sure how things were going to turn out. But I think for the most part it’s gone very well,” he said.
To pay his bills Hamilton will be selling his crop this fall, meaning he won’t be able to play the market and wait for better commodity prices to come along.
YOUNG FARMERS
Hamilton isn’t the only young farmer starting out. The past decade has helped change the face of agriculture in Canada. The 2016 Statistics Canada Census of Agriculture showed that for the first time since 1991 the number of farmers under the age of 35 increased by three per cent between 2011 and 2016.
However for most young farmers getting into the industry isn’t easy.
“If you’re not established at this point it’s a very capital intensive business and the machinery is very expensive also,” Lane said.
For young farmers like Hamilton, you either need a family member or friend helping you out to get land or the equipment to work the land.
“If you didn’t have one or the other … I think it would be impossible for you to ever turn it back into the black again,” Hamilton said.
For the immediate future, with good commodity prices and low interest rates, the farming industry is looking bright. But older farmers, like MacDonald, know things can change.
“It’s just my experience that things weren’t always easy. It takes a lot of hard work to make a farm work,” he said.
It’s just hard when you know you’ve gone through tough times. I kind of think the bubble’s going to burst …