Coffee shops and bars have been buzzing for a couple of years now with new record highs for farmland prices and cash rents.
This is what you hear: “Farmland is a superb investment and we must get in on the action. Farmland will continue to increase in value — they aren’t making any more of it you know. And, what about those billions of mouths we must feed? Our products will only go up and up in price so we can afford to pay whatever it takes. For those who like to dig out the wretched past — this time is different, don’t you know.”
Several years ago, I dug out historic land and wheat prices for Saskatchewan. I have had requests to update those graphs. So here they are, updated to 2013 dollars.
This data is for Saskatchewan only, because that is the data I can access easily. I’ve used wheat because the data goes back so far and there is a uniform data set over time. 2012 is the last year of available data.
Saskatchewan data goes back to 1926. From then until 1940 there was a steady decline in land values.
1960 was the start of significant fertilizer use and reduction in summerfallow. The fertilizer gave big wheat yield increases. The late 60s saw a spike in land values. But there was no sale for the extra wheat. In 1970 the Government of Canada paid farmers to summerfallow land two years in a row. LIFT (Lower Inventories for Tomorrow) was the flawed government program. Land prices declined.
The record high wheat price of $29/bu. (converted to 2013 dollars) occurred in 1917, and wheat prices have been in general decline ever since.
High wheat prices during the First World War went to paying farm establishment costs and building mansions. Who needed more land when you could make a killing on what you had? I was raised in a house built in 1917 with the $29/bu. wheat price. It was 2-1/2 stories, with hot and cold running water, a flush toilet, electric lights and central heating with hot water registers in every room.
High wheat prices in the Second World War went to paying off depression debt.
In 1973 wheat prices skyrocketed in one year and declined for the next four years followed by a second “blip” in 1980. Meanwhile, land prices carried on like a rocket and peaked in a giant bubble in 1982. In the 1970s, Saskatchewan farmland could not be purchased by non-residents so outside money cannot be blamed. Resident doctors and lawyers did try to jump on the bandwagon but many bought at the peak and took a bath.
High interest rates were a significant factor in the crash of land prices in the 1980s and it took 15 years for the downdraft to wither.
Where are we going?
Where are we now and where is it headed? I was able to get net farm income data for Saskatchewan from 1971 to 2012 (Figure 3).
In 2003 Saskatchewan net farm income (NFI) was actually negative and in 2004 and 2005 was close to zero. But the recent NFI pales in comparison to the mid-70s boom. We could all pretend an astronomical 2013 NFI by taking the 38.8 million tonnes of grain and multiplying it by 2012 prices but we now know that is not going to happen. Those with crop priced well in advance will do very well.
Land prices now are nowhere near the 1982 peak. We all remember the few high numbers that come home from an auction sale or other source. But, many sales are much less than that. In 1982 the average per acre price was $413 in 1982 dollars. At that time Regina heavy clay in my home area (Milden/Rosetown) was selling for $1,000/ac. in 1980s dollars. When 2013 numbers come in we may see a provincial average of $800 or $900/ac. average in my home area. Regina heavy clay is now selling for about double that.
Some of the outside money does not see why Saskatchewan land prices should be so low. Some say Saskatchewan land is the same as land in Manitoba and Alberta, and ask why it’s such a “bargain.” But, Saskatchewan land is not the same land. We got the lion’s share of the dry Palliser Triangle — Manitoba has none of this, and Alberta irrigates much of its dry area.
A couple of years ago I heard Moe Russell give a keynote address at the Farm Forum Event in Saskatoon hosted by Agri-Trend. Moe is an Iowa farm boy who consults in ag business. He has huge experience. He showed a graph of U.S. net farm income from about 1910 to the present, but converted to constant dollars. The correlation to Saskatchewan wheat prices was phenomenal. Moe Russell said there have been only a few times when U.S. farmers have made serious coin: the First World War, the Second World War, the 1970s (the Vietnam War) and now. Last month I asked him when “now” would be over. His answer, “now.”
In closing, I’ll mention a recent newspaper article. Guess what folks — federal bureaucrats working with our good old Canada Pension Plan are acting just like the doctors and lawyers of the 1970s. They are jumping on the bandwagon after the band stopped playing. They have bought $128 million worth of Saskatchewan farmland. Anyone want to guess what it will be worth in 10 years?
There you have it. Who knows what the future will hold, but history does have a way of repeating itself. Hang on — the ride could get very bumpy.